Mobileye shares climbed on Monday after analysts at Piper Jaffray raised their price target for the ADAS (advanced driver assistance system) play. They report that their recent survey indicated that adoption of ADAS technology is rising with more than 30% of fleets in the U.S. saying that they will probably or definitely increase their purchases of the technology in the next three years.
In a report dated July 17, analysts Alexander Potter and Winnie Dong reiterated their Overweight rating on Mobileye and raised their price target from $50 to $60 per share. They cited a recent survey of 660 fleets and small businesses in the U.S. covering ADAS technology. They estimate that fleets purchase 5% to 20% of new light and medium duty vehicles in the U.S., so they decided to target this group instead of consumers for their survey.
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They add that they believe the market doesn’t understand the attitude of fleet operators toward ADAS very well because most surveys target consumers. Additionally, they believe fleet operators are uniquely positioned to signal long-term viability (or the lack of it) of new technologies. The reason for this is because operators tend to base their purchases on “rational, economic analysis” rather than “the emotional/ psychological repercussion of adopting self-driving functionality.”
Tesla’s problems unlikely to impact ADAS adoption
Of course the emotional and psychological impacts relate to those affecting Tesla right now. Bad media reports in which the automaker’s Autopilot software was linked to three accidents may be affecting consumers’ decisions about whether to buy vehicles with ADAS technology.
One of those accidents killed the driver of the Tesla that was involved in Florida. In another, the company said Autopilot was not engaged at the time of the accident and that it had warned the driver to put his hands back on the steering wheel, and when he did not, Autopilot switched off shortly before the wreck occurred.
Since the trio of accidents, Consumer Reports has called for Tesla to disable the Auto-steering part of its Autopilot system, but the company seems intent on not doing this.
Fleet buyers to keep buying vehicles with Mobileye’s technology
However, the Piper Jaffray team expects fleet buyers to keep purchasing vehicles with ADAS technology such as that made by Mobileye. They said in a related report that fleet buyers see vehicles with the technology as being safer, noting that there has only been one death in the 130 million miles of driving for Tesla’s Autopilot software, compared to the global average of one death per 60 million miles.
They see Mobileye as being the “purest” way to invest in the ADAS theme, although automakers such as Tesla might seem the obvious choice. Additionally, General Motors and Ford have made acquisitions in this area. However, they explain that suppliers and particularly Mobileye have the greatest exposure to ADAS technology. Their comments echoed those of analysts at CLSA, who also advised that investors look to Mobileye rather than Tesla.
They add that heavy duty truck operators have the highest likelihood out of all types of fleet operators when it comes to adopting ADAS vehicles in the near future:
The Piper Jaffray team believes that about 40% of all vehicles produced by the end of 2020 will have “some level of camera-based ADAS functionality” and notes that Mobileye is the dominant player in this area. Further, they doubt that any new player will emerge to challenge that dominance any time soon. Their survey revealed that penetration levels of ADAS technology are still low, leaving plenty of room for growth as well.
Shares of Mobileye rose 1.46% to $48.65 during regular trading hours on Monday.