Nearly six months since the Wall Street IPO of Mobileye Global Inc. (Nasdaq: MBLY), the Israeli advanced-drive assistance systems (ADAS) company has achieved some impressive milestones. Mobileye's market cap has risen to $33.6 billion, easily making it Israel's most valuable company. The company has survived and prospered on the Wall Street bear market, doubling in value since its offering, and presented solid financial results for 2022 with growth in most areas, and is seen as a company with very high growth potential in its sector.
It is very clear that its current market cap is not due to its business performance but mainly investors' expectations on significant developments in its sector in the medium to long term, especially regarding commercialization of autonomous driving technology.
Admittedly, autonomous vehicles are not currently a top priority in the Western world, and the continuing crisis in the tech industry as a whole is causing investment in the field to shrink. At the same time vehicle manufacturers are preoccupied with ongoing supply chain disruptions and the investments required by the transition to electric vehicles. For its part the public is more concerned with matters such as the recession and rising interest rates. But not far beneath the surface, you can identify interesting trends in the autonomous vehicle sector, which will soon likely add major value to Mobileye.
The focus shifts to China: New test center in Shanghai
On March 10, Mobileye announced that it was opening a test center for autonomous cars in Shanghai. The company said the new "Center will be used examining autonomous driving solutions for car manufacturers in China." In the same announcement it also said the company is rapidly expanding its business activities in China and already has supply agreements with 12 local car manufacturers. Among them is Geely's premium brand ZEEKR, which is Mobileye's strategic partner, having signed a contract to buy advanced autonomous driving systems. Mobileye CEO Amnon Shashua said, "We believe China is one of the most advanced markets for the development of autonomous driving technologies. The move illustrates Mobileye's commitment to its partners and customers in China."
This announcement received very little exposure in the West, probably because of the cold war between the US and China over the US government's efforts to halt the transfer of advanced Western technologies to China, especially new generation chips. The government is trying to limit the activities of chip companies from the US in China, and from countries that have signed trade agreements with it, and Intel is still Mobileye's main shareholder with a roughly 94% stake. Advanced chips for autonomous driving are not currently included in the government's list of restrictions, but it is probably better to stay out of the limelight.
On the other hand, no manufacturer or supplier in the field of autonomous vehicles can afford to ignore the Chinese market today. A report by consulting company McKinsey published in January entitled, "Autonomous driving in China - from science fiction to reality" says "the Chinese automobile industry has entered an era of unprecedented "disruption," driven by innovation in the field of autonomous driving, connectivity, electric vehicles and shared transport. The progress in the field of regulation, technology, and commercialization of autonomous vehicles paves a fast track for the development of the field in China. Car manufacturers and suppliers in the auto industry must reexamine their strategies in the field of autonomous driving in order not to miss this critical window of opportunity." In other words - if you aren't there you don't exist.
The regulatory developments referred to in the report include, among other things, the setting of a government goal of 30% penetration of autonomous vehicles into the Chinese vehicle market by the end of the decade, granting dozens of licenses for the commercial operation of driverless transport services (robotaxis) in China, and granting government and provincial permits to carry out advanced trials of autonomous vehicles on public roads. In the area where Mobileye's new test center was established, for example, there are over 300 roads that have been approved for autonomous vehicle tests, including two highways.
Mobileye is not a new player in the Chinese car market and supplies millions of units of non-autonomous active safety systems (ADAS) to local manufacturers. But the expansion of activity may herald increasingly close ties in this area, which may pave the way for expanding the marketing activity of the company's advanced SuperVision autonomous driving system to other Chinese manufacturers besides Geely.
For Chinese car manufacturers, autonomous driving is not just a technological "leap ahead" but also has futuristic added value, which is currently priced favorably in the capital markets.
Either way, the Chinese car market is not going to roll out a red carpet for Mobileye. Some of its direct rivals have already scored major achievements in China. Only last week the BYD Group, the largest electric vehicle manufacturer in China and the world, announced that it intends to integrate the autonomous driving chip set of Nvidia, one of Mobileye's major competitors, into all of its vehicles in the future. Qualcomm, a relatively new entrant to the autonomous driving scene, is also currently enjoying success in the Chinese car industry.
Mobileye's increased focus on the Chinese market is also reflected in Amnon Shashua's private investments. Recently, the Mobileye CEO, as a private investor, led a $1 billion financing round in Geely's EV spinoff Zeekr, which is due to hold an IPO in the coming months. Shashua's investment stems, among other things, from his optimistic forecast about the potential of this market in the West in the coming years.
Accelerated activity in China is a loud wake-up call to the West on autonomous car regulation and investment in the field. The global supremacy achieved by China in the electric vehicle segment has shown decision makers in the West that one should wake up to China's progress in this sector and we are likely to see considerable efforts by other countries to catch up.
Cards up their sleeve: Contract with VW and holdings in Moovit
Mobileye currently has several more cards up its sleeve, which may add significant value in the medium term. This can be gleaned from the company's presentation in January. Mobileye wrote, "We recently signed a memorandum of understanding with a major global vehicle manufacturer of commercial vehicles for the supply of thousands of units (of the autonomous driving system)." Mobileye did not name the global manufacturer is, but the potential list is short, topped by Volkswagen Group.
Volkswagen and Ford bet on a quick transition to autonomous driving, assisted by technology from US startup ARGO AI, in which billions of dollars were invested. But Argo stopped operating in October 2022, leaving quite a gap in the German vehicle manufacturer's technological development plan, which Mobileye may fill. So far no official confirmation has been given to this, but a few days ago the German newspaper "Handelsblatt" reported sources in the car industry saying "Volkswagen recently reached an agreement with Mobileye for close cooperation in the field of autonomous driving."
Another potential for future added value is spinning off non-core activities. One such example would be selling Israeli public transport management and travel scheduling app Moovit, which was acquired by Intel for $900 million and is currently part of Mobileye.
Previously, Moovit played an important role in Mobileye's ambition to become a provider of Mobility as a Service (MAAS) services. However, Mobileye's recent change of focus makes the subsidiary redundant in terms of its vision. On the other hand, Moovit has a dominant presence in the management of public transport services in quite a few markets in the world, so it may be an attraction for global companies operating in this field. In any case, if this happens - it will not be before the markets stabilize.
The elephant in the room: Will Mobileye be acquired?
Mobileye previously held an IPO on Wall Street in 2015 at a company valuation of $6 billion and was then sold to Intel in 2017 for $15.3 billion. It is now possible that Mobileye could be sold again. Such an exit depends on several factors including Mobileye's own desire to be sold, the desire of a major company in the sector to acquire it and the ability of potential buyers to afford such a deal.
Senior executives at Mobileye insist that the option of becoming a privately-held company is not currently on the agenda and that its current status as a public company allows it to develop in ways and at a pace that were not possible when it was a privately-held subsidiary of Intel.
But not everything depends on the decision of Mobileye itself. Intel, which owns 94% of Mobileye's shares, has its own interests. Mobileye's activity is currently moving further away from the new business direction adopted by Intel's management, and the market cap of Mobileye alone is currently more than 25% of Intel's overall market cap. Intel also has activist investors, who would like to see an influx of value through the sale of Mobileye. Their voices are probably heard in the corridors of the company's management.
As far as potential buyers are concerned, the list is not especially long, although acquiring Mobileye could provide certain global IT companies with a significant technological "shortcut" and unprecedented access to strategic customers in the vehicle industry. The problem is that there are only a few such companies in the industry that could afford an acquisition on the scale that would persuade Intel and Mobileye's investors to sell their holdings. Some of these potential buyers, which have both the motivation and financial ability to make such an acquisition, are in China and include Baidu and Tencent.
A second exit for Mobileye, if and when there will be one, has a fairly narrow window of opportunity because as the company gains value, fewer global players will be able to acquire it at a premium. But if the right offer comes along, Shashua could be tempted. Back in 2015 he said, "Making an exit is not a bad thing. Sometimes this is said in criticism, but it's not. An Israeli who makes an exit goes on and builds another company." He added, "We didn't build Mobileye to sell. It's not interesting. The financial side is a byproduct. We want to do something meaningful." Less than two years later, the company made the biggest exit in Israel's history.
Published by Globes, Israel business news - en.globes.co.il - on March 28, 2023.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.