Within a few months, Intel unit Mobileye is due to make the largest ever offering by an Israeli company on Wall Street. For the time being, there are more unknowns than knowns about that process, but anyone looking for hints as to the company's strategy for the offering could find them at the Consumer Electronics Show (CES), in Las Vegas.
Before CES, Mobileye made clear that it had no intention of dealing with the flotation, but, at present, only with technology. Nevertheless, the company's appearance at the show was a "roadshow" in every respect. In the next few months, Mobileye will have to persuade investors that it is worth at least $50 billion, more than ten times the valuation at which it was traded in its last spell as a public company on Wall Street in the middle of the last decade. It's true that the capital market of 2022 is much more hungry for speculative investment in automotive technology than it was in 2015, but to achieve the valuation it seeks, Mobileye will have to win the support and confidence of giant funds and conservative and solid investment houses.
The impression from Mobileye's presentation at CES is that its tactic is to draw value from several aspects of the smart car world and from many young startups, and to try to persuade investors that the value of the whole is greater than that of the sum of the parts, and that there's nothing like economies of scale.
Mobileye currently controls about 80% of the global market for ADAS (advanced driver assistance system) products for low level autonomous driving, and this is also its only revenue source.
Mobileye's technology is the standard in the automotive industry, and although in recent years several competitors have appeared claiming that their products offer better price/performance ratios, it seems that this has not impeded Mobileye. The company continues to win dozens of strategic contracts in the vehicle industry every year, and its annual rate of growth in this field is 39%.
The ADAS market is, however, fairly mature, and so it will be difficult to cite its revenue potential as justification for the valuation to which Mobileye aspires in its flotation. Mobileye will therefore have to persuade investors that it can leverage its familiarity with and access to all the important potential customers in the ADAS market to sell more profitable products and services in the future.
Mobileye hinted as much when it spoke at CES of its intention of "bringing autonomous driving to the masses" by means of a new and relatively cheap super-chip designed to be strong and fast enough to replace decision making by a human driver. For their part, investors around the world have already heard many promises from that quarter in the past five years, including by Tesla. Few of them have been kept.
Lidar: The investors' favorite
At CES, Mobileye devoted a long survey to progress in independent development of advanced Lidar sensors, on the basis of technology developed at Intel and transferred to the company. Laser-based Lidar sensors are mainly intended to serve as advanced back-up for video cameras in the sensing systems of high-level autonomy vehicles. Since there is no prospect of mass production of such vehicles in the near future, this is a limited market with an annual value estimated at four to five billions dollars by 2025. In other words, even if Mobileye's product, due to be launched within two years, is better and cheaper than those of its competitors, the revenue generation potential is not high.
Lidar, however, is an investor favorite, and carries considerable speculative value. Veteran companies in the field, such as US-based Velodyne and Luminar Technologies, that generate revenue, are traded on Wall Street at multiples of 25-28 on their forecast EBITDA for 2025. Considering Mobileye's potential customer base and its ability to offer its Lidar as part of complete systems for autonomous driving in the future, this is certainly a "spice" that can add value to it in its flotation, at the expense of the small Lidar companies.
Radar sensors: Tough competition
"Radar on a chip" sensors represent another back-up layer for autonomous driving, particular in low visibility. Their market potential is much greater than that of Lidar, because their low price means that they can be used to upgrade existing ADAS products in serial production vehicles with low level autonomy. Potential demand for them in the next few years is millions of units annually, and not just thousands or tens of thousands. Mobileye intends to incorporate the radar chip that it is developing in the advanced ADAS packages that it will supply to the automotive industry within two years. The problem is that this is a competitive market in which giant companies comparable to Intel, such as NXP, alongside major automotive industry suppliers, such as Continental, which have considerable influence over vehicle manufacturers, are players.
Mapping: Spin-off potential?
Since the middle of the last decade, Mobileye has invested in developing high-resolution mapping technology based on data derived from its camera sensors.
The product, up-to-date digital maps, has value not just in improving the orientation capabilities of future autonomous vehicles, but also in a variety of external uses, such as urban planning. The market is estimated at $1.4 billion in 2021, and expected to grow to $17 billion annually by 2030, giving an annual growth rate of 31%. Mobileye has several important strategic partners in this field, headed by the Volkswagen group, which at CES announced expansion of the collaboration. The big question is whether revenue from this field can contribute materially to Mobileye's value? The real potential here lies in spinning off this activity and selling it for billions to a third party - Volkswagen, for example.
Transport services: Will the company manufacture vehicles?
Mobileye's most important value-generating activity was not mentioned at CES, and the company is apparently keeping it for a stage closer to the flotation. This is the plan to become a provider of complete off-the-shelf solutions in the form of autonomous electric commercial vehicles and taxis.
Mobileye has all the required components: Moovit's journey planning app; hardware/software kits for converting existing vehicles to autonomous driving ("full stack"); collaborations with partners in smart transport and haulage; and lately a cooperation agreement with a German company that is developing a modular electric platform on which vehicle bodies can be mounted.
As far as potential investor value is concerned, the company is aiming high, rubbing shoulders with travel service providers like Uber, Lyft, and even Waymo, companies that the market prices in the tens of billions of dollars. It is appealing to investors in smart electric platforms, the field of companies like Arrival, and yes, it is hinting at potential for producing a branded electric vehicle, and this is where the big investor money is.
To be sure, some of these components amount to promises. But Mobileye is entering the capital market from a serious opening position. And in today's market, which prices promises in the trillions - see under Tesla - belief in the promises is no less important than the product.
Published by Globes, Israel business news - en.globes.co.il - on January 17, 2022.
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