- 10 leading U.S. automakers have committed to making automatic emergency braking systems standard on new models.
- The automakers represent 57% of U.S. light vehicle sales.
- This helps allay investor fear that Mobileye's ADAS systems will only takeoff when fully autonomous cars are launched.
- More automakers are very likely to soon commit as well giving Mobileye strong growth runways.
Shares of leading autonomous driving technology company, Mobileye (NYSE:MBLY), have been paring back their losses after news emerged that 10 leading U.S. automakers have voluntarily agreed to make Automatic Emergency Braking (AEB) systems standard on all their upcoming U.S. models. The ten automakers include Tesla (NASDAQ:TSLA), Audi, General Motors (NYSE: GM), Ford (NYSE:F), Toyota (NYSE: TM), Mazda, Mercedes-Benz, Volvo, Volkswagen, and BMW, who combined represent 57% of U.S. light-duty auto sales. The ten automakers will work with the NHTS and IIHS on the details and timelines regarding how to implement their historic commitment.
Mobileye shares have gained 7% on the news, and managed to cut down on some of the losses they suffered after a bearish analyst report about the company was released. Mobileye shares lost about 16% after Citron Research released a damning report about the company that put its future growth in doubt.
New growth runways
One of the points raised by the Citron report was that the self-driving car concept was going through a hype cycle similar to one 3D printing companies went through about two years ago. Most 3D printing stocks have tumbled from their recent highs as the investing world became increasingly skeptical about the future of the technology.
I wrote an article on Mobileye where I explained that comparing Mobileye to 3D printing companies was completely missing the point. One big mistake that Citron Research made about Mobileye, and one that many investors make, is to assume that the self-driving cars are the only growth avenue for the company. The apprehension regarding the future for driverless car technology companies such as Mobileye stems from the fact that most automakers have announced that they will only launch their first truly autonomous vehicles maybe 7-8 years down the line. Only Audi has committed to launch a fully autonomous vehicle--Audi 8--in 2017.
But autonomous vehicles is just part of the market for Advanced Driver Assisted Systems, or ADAS. ADAS are already used in conventional vehicles where they are employed in collision-avoidance systems. The only reason why collision-avoidance systems have not become ubiquitous in U.S. vehicles can be chalked up to the fact that previously there has been no commitment by automakers to implement the systems, and no clear regulatory framework has been laid to enforce their use. NTSB has pointed out that just 4 out of 684 vehicle models in the U.S. featured full collision-avoidance systems in 2014.
But with the 10 leading U.S. automakers now having committed to implementing the systems in all their upcoming models, the game is about to change for companies like Mobileye. NTSB says that AEB systems can potentially mitigate the 1.7 million rear-end collisions that occur every year in the U.S. resulting in 1,700 deaths and about 500k injuries. IIHS and U.S. Dot revealed that AEB systems had already demonstrated their usefulness in the real world and can potentially cut down on insurance injury claims by as much as 35%. There is, therefore, a very strong incentive for the remaining 43% of manufacturers that have not joined this bandwagon to jump in due to strong demand for AEB-enabled vehicles by their customers and also due to pressure from auto insurers.
Collision-Avoidance Systems To Drive Mobileye Revenue Growth
This is perhaps the most compelling piece of evidence that collision avoidance systems are not just hype as is sometimes erroneously insinuated by driverless vehicle technology naysayers. The NTSB was reportedly mulling about making collision-avoidance systems mandatory on all U.S. vehicles soon. But with such strong voluntary commitment by U.S. automakers, regulatory enforcement might not be necessary for Mobileye to reap the benefits. Citi had earlier estimated that Mobileye receives about $50+ per vehicle for the company’s AEB/pedestrian-detection solutions. 16.5 million vehicles were sold in the U.S. in 2014. Assuming 57% of those implement AEB systems, and Mobileye grabs just 20% of the market, then you are looking at revenue of $94 million for Mobileye, or 44% more revenue than current annual revenue.