Dr. Shmuel Harlap chairman and controlling shareholder of Colmobil, Israeli's leading auto importer, which imports Mercedes Benz, Mitsubishi, Hyundai, and Smart cars, owns almost as many shares in Mobileye(NYSE: MBLY) as the company's two founders, chairman and CTO Prof. Amnon Shashua and president and CEO Ziv Aviram. Harlap, 69, who knows a thing or two about the auto industry, is actually Mobileye's biggest private investor after the founders - - and his motives for investing are therefore no less interesting than theirs. Indeed, they may be more interesting, given the anticipated secondary offering by Mobileye, which has developed a system that warns drivers of road hazards.
Yesterday, Mobileye announced that it would conduct a secondary offering consisting exclusively of a $500 million offer for sale by some of its shareholders. As usual on Wall Street, this secondary offering will take place six months after the company's IPO, after the lock-up period for the sale of shares by parties at interest expires. In the case of Mobileye, the date is January 28 - next Wednesday.
Wall Street sensed the approaching offer for sale, and pushed the share downward. It has fallen 35% from its peak price of $60.28 in October, and is now traded at $39.22, reflecting an $8.4 billion market cap, and still a fine 57% return on the IPO price.
Mobileye's warning system is based on a mono-camera installed under the car's rearview mirror. The system gives an audio warning of potentially dangerous situations, such as deviating from a lane, tailgating, and getting too close to pedestrians and bicycle riders. The system is being sold to equipment manufacturers, who are marketing it to auto manufacturers for integration in their cars.
The company's IPO was the largest ever by an Israeli company. It raised $208.1 million, while its shareholders sold shares for $815.1 million, making the total proceeds from the offering $1.02 billion. Harlap was one of the few shareholders not to sell shares in the IPO, and he does not intend to take advantage of the secondary offering to sell some of his stake (9%, worth $757.3 million - NIS 3 billion), either.
Harlap is one of the wealthiest people in Israel, and the paper value of his holdings in Mobileye - both personal and through Colmobil - actually makes him one of the few Israeli billionaires (in dollars) in the world. At the same time, Harlap, who rarely grants interviews, has not commented up until now on his investment in Mobileye.
Now, with the second offer about to take place, he explains in an exclusive "Globes" interview what lies behind his absolute confidence in the company's future, and why he is refraining from selling even a small proportion of his holdings in it.
"I have no intention of selling Mobileye shares in the planned offer for sale, because the company is leading a revolution in the auto industry, right now by creating active driving safety and preventing accidents. As for the future, the jewel in Mobileye's crown is its ability to create an automated vehicle platform - a driverless car," Harlap says. "My investment in the company is therefore entirely strategic, not financial, and I'm not looking for an exit point. I'm happy to be a partner in the fascinating journey of Mobileye, which in my opinion is on the technological cutting edge of the hottest segment of the auto industry. It doesn't seem logical to me to sell the share now."
Harlap asserts that he understands what lies behind the share's slide since last October. "There's big-time short trading in the share on Wall Street, because the lock-up period will expire next week, and the market expects parties at interest in the company to sell shares, which will make the share price go down. That's pretty clear to me. That's how a capitalist market works, and that's fine. For a value investor like me, though, it's a mistake to sell the shares now."
"Globes": So for you, the company's current $8.4 billion market cap is not inflated.
Harlap: "This value is meaningless. Where Mobileye's future potential is concerned, it has no connection to reality."
Mobileye, and this is a fairly significant point, has penetrated the market with its product, and has become a success story - according to its value, at least - before it has gotten any actual feedback from its end consumer - the driver. The company is selling its warning system to manufacturers of electronic equipment for vehicles, who are marketing it to the auto manufacturers. The average driver, who buys a car in which Mobileye's system is installed, does not necessarily know about the company's solution, and finds out about it only after he buys the car.
Harlap agrees with us, but emphasizes that the driver is not the only consumer of Mobileye's solution. "In addition to the driver, the company's solution is designed for the regulators and insurance companies, because, at this stage, its technology is eliminating the risks of driving, not the act itself. When this technology eventually matures in a year or two, it will create 360 degrees of immunity to accidents, and then, theoretically, there won't be any need for a driving license. Here is where the company's vision of an automated driver comes in, because when the car has a camera and sensors that perceive every obstacle around it, making possible an automated response, then who needs a driving license? Mobileye is therefore leading a revolution in both insurance and the medical costs of traffic accident casualties. Moreover, a car that is able to put on the brakes by itself and leave its lane at the right time is a car that saves a lot of gas, so Mobileye's solution can generate an enormous saving in fuel costs that is not yet reflected in its share price. This technology, which is essentially based on an innocent-looking camera, has enormous significance beyond just the auto industry."
Still, what is now affecting the potential that you are talking about is the experience of the end user, in other words, the driver. Quite a bit of feedback so far indicates that this experience is not really pleasant. There are drivers, and not only in Israel, who claim that the system makes the driving experience a nightmare. They say it beeps constantly, drives them crazy, and some of them turn it off in despair.
"I can't say anything about your personal experience with the system, or that of anyone else. My personal experience is different from what you described. I see how Colmobil's customers, for example, drive much more carefully with the system. Yes, it may drive you crazy, but it makes the driver drive responsibly, and as long as he uses it regularly, it slowly stops beeping, because the driver behaves more responsibly. That is Mobileye's huge contribution: education in more careful driving and preventing traffic accidents."
So, in your opinion, Mobileye's overall goal is to change the driver's behavior pattern.
"I don’t know if it's right to define it like that, but that's what eventually happens as a result of using the company's system. The overall goal is to eliminate traffic accidents and make the car completely safe. It could be that the price right now is that the system is a little annoying, but it's also possible that the product's later generations will be more user friendly. Either way, this system is going to make a major change in the auto industry and the industries around it."
You spoke about Mobileye's long-term vision: a driverless car. That is not an original vision, nor is it exclusive to Mobileye. Google has already launched such a car that it makes itself.
"Very true. Google was the first to launch such a car, and is very vigorously pushing ahead with it."
Google has much deeper pockets than Mobileye. Theoretically, when the two companies try to bring a commercial driverless solution to market, it is very possible that Google will find it much easier to do.
"When money is involved - yes, it will be much easier for Google, but it's not a question of money. The question is whether Mobileye or Google's technology conquers the auto industry, the auto manufacturers, and their customers. As far as I know, Google's current solution is very complex and expensive, and can't be commercially applied. Google approaches this field from a very different angle from Mobileye's. Its technology is based on mapping everything around the vehicle, and this mapping takes a lot of time and energy. Mobileye doesn't have this problem. It doesn't have to map anything. It only has to spot the objects around the vehicle and interpret them, in other words to determine how the car relates to them. This technology is based on a very smart chip and on a camera, now one camera, and in the future maybe two or three. That's all. In the end, this technology will triumph, not financial capacity, however great."
Let's get back to the user experience. Some people, like me for example, simply like driving, and the automated driver solution is not for them.
"Right, I also like driving, but Mobileye's solution doesn't deprive you of the chance to drive. It gives you the option of not driving, and that's the beauty of it. On the one hand, it eliminates traffic accidents, while on the other hand, it gives the driver the opportunity to avoid driving - the decision is his. I still don't know in what configuration it will happen, but I believe that Mobileye will allow anyone who wants to drive to do so, and anyone who doesn’t want to drive - even on part of their journey, not all of it - can refrain from driving, and put the car into automated driving mode."
What about the end price of the solution for the consumer?
"I don't know what it will be. An automated car won't be on the market before 2020, but the price of a solution like this for the auto manufacturer, who is Mobileye's customer, will be far cheaper than any existing alternative. From my point of view, Mobileye is the world leader in this trend, and selling its shares now would therefore not be a smart move."
Published by Globes [online], Israel business news - www.globes-online.com - on January 22, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015