Auto technology suppliers like Mobileye increasingly see China as the most important market for self-driving-car technology. Identifying a target market affects standards set by automakers and their suppliers, and helps determine winners in the arms race for self-driving car technology.
Mobileye cites China's embrace of self-driving technology as key to growth in the company's sales of autonomous-driving systems over the last year. "This type of technology really took off in China in 2023," Dan Galves, Mobileye's chief communications officer, told Investor's Business Daily in an interview during CES 2024. He considers self-driving-car demand in China a potential bellwether for demand in the rest of the world.
Mobileye specializes in sensors, cameras and microchips used in driver-assist technologies. The company's stock recently cratered after Mobileye warned that a buildup of inventory held by its customers was hurting demand. Share prices slumped to levels not seen since 2022. Mobileye stock has an IBD Composite Rating of 60 out of 99, and is ranked No. 15 in the Electric-Semiconductor Fabless industry group, according to IBD Research.
The company remains focused on China. In Israel-based Mobileye's August 2023 10-Q, it reported 24% of its revenue came from China, vs. 20% from the U.S. and 19% from Germany.
"For our products specifically, in China this is a market where people have really long commutes," said Galves. "It's not a work-from-home market, there's a lot of traffic congestion, and what we're hearing from our OEMs over there, people want to stop battling the traffic themselves."
"They want a car that battles the traffic for them," he said.
Regulation And Safety Could Crown Self-Driving-Car Winner
While Mobileye places its bets on China, the wider industry remains undecided on whether China or the U.S. will lead in self-driving-car technology.
A 2023 McKinsey & Co. survey published in January of this year found that opinion was "evenly split" on whether the U.S. or China would be the first to deploy Level 4 self-driving-car technology. The survey polled executives of companies in self-driving industries like automakers, software developers and navigation companies, according to McKinsey.
But the results do show a shift in the industry's opinion. A 2021 McKinsey survey slightly favored North America in being first with Level 4 technology.
The survey also found that 60% of respondents believe regulation is the biggest roadblock to self-driving cars. While consumer demand is not seen as the main impediment to adoption, improved safety could quickly shift the balance.
U.S. Self-Driving Tech Hits Speed Bumps
The auto industry sees the widespread adoption of self-driving cars as a tipping point. Autonomous vehicles will force a rethink in everything from road design to how cars are built.
Self-driving technology in the U.S., however, is seemingly in a chicken-or-egg quagmire: Regulators say the technology must be perfected and proved safe before it can be widely deployed, while automakers like Tesla say such technologies are iterative and need to be tested in the real world to be further developed and embraced.
U.S. regulators follow SAE categories for self-driving technology, with Level 3 and above widely considered true self-driving. Level 3 is defined as conditional automation, distinguished most importantly by not requiring full attention from a human driver when certain conditions are met. For comparison, Level 2 self-driving cars require a fully alert human ready to take control at any time.
A Level 4 car would be able to drive itself from start to destination in most conditions without any human intervention, while a Level 5 car can drive itself in all conditions, according to the SAE.
Currently, only Mercedes-Benz has SAE Level 3-approved self-driving cars on U.S. roads. Tesla's system is still Level 2, according to the Wall Street Journal.
The development of self-driving-car technology is also hitting roadblocks in the U.S. The Cruise unit from General Motors remains largely on pause after an autonomous car struck and pinned down a pedestrian last fall.
Auto Suppliers Turn To China In Autonomous-Car Race
With the material rollout of self-driving cars in question in the U.S., auto suppliers are increasingly looking to China to gauge consumer demand. "Companies are really innovating very quickly there," said Galves. "There is pressure on global automakers to make sure they have a product in the market for the right period of time."
Galves says Mobileye is set to benefit from that demand by providing a ready-made solution that's cheaper than what automakers can develop in-house. "The time to market is very clear," said Galves. "The cost is very clear. We're selling it for a specific price. And then the performance is really good."
Mobileye also says developing more advanced self-driving-car technology will help its bottom-line products. Safety features like collision avoidance will eventually become cheaper to manufacture and develop as economies of scale kick in.
"Our biggest growth opportunity ahead is more adoption of those technologies, which will raise the revenue per unit we get per car," said Galves. "The business we won in 2023 essentially forecasts that our revenue per-unit is going to be going up a lot, as well as our revenue."
"That's our biggest opportunity," he said. "And I think that's what investors are really looking at most closely."
MBLY Stock Analysis
Looking at a chart of MBLY stock, however, investors aren't yet convinced. Shares are down nearly 40% year to date.
But if the self-driving-car technology company's earnings projections improve, that could change. Forecasts call for annual earnings to decline in 2024 from the prior year before picking back up again in 2025, according to IBD research.
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