We’re certainly not living like the Jetsons, but some of the predictions of this 1950’s satirical idea of the future are coming to fruition. Driverless cars are definitely on their way with many manufactures predicting they’ll have self-piloting vehicles for sale by 2020. In fact, you don’t even have to wait until then, if you have the cash, you can have a highway autopilot installed in your car today by a company called Cruise based out of California. Well, maybe not today as there is an extensive waiting list for this conversion.
With every revolution in industry, there is a corresponding opportunity in the market, but where should investors look to place their money to capitalize on this transformative trend? There are some heavyweight players in the sector such as Google (NASDAQ: GOOG, Forum), Apple (NASDAQ: AAPL, Forum), Audi, Tesla (NASDAQ: TSLA, Forum) and Mercedes Benz, but these companies are monsters and in some senses out of reach for the average retail investor looking to add substantial growth to their portfolio. I think the real growth explosion will be with those that supply the tech supporting the new age of driving rather than the manufacturers themselves. Here is just a small sampling.
Mapping and sensor technology are what’s made this shift possible and will, with their advancement, push it past probable to real. The companies involved these pursuits deserve some notice, but just who are they? First, let’s start with mapping. Nokia (NYSE: NOK, Forum) just agreed to sell off its mapping business, known as Here, to BMW, Audi and Mercedez-Benz in a $3.1 billion deal expected to close in the first quarter of 2016. Mapping is extremely important to the self-driving process and quite frankly, it’s impossible without it, so other manufacturers late to the game will be scrambling to have their own service.
Uber was a contending bidder for Here, but pulled out opting to team up with the University of Arizona to develop mapping technology. This move built on their February announcement to partner with Carnegie-Mellon University on a driverless car research lab and their March acquisition of deCarta, a San Jose-based map provider for such clients as General Motors’ (NYSE: GM, Forum) OnStar system.
As the race heats up, manufacturers will be pounding a path to the door of mapping service providers, creating major opportunities for those companies and the investors backing them. For that reason, it may be prudent to keep your eye on companies such as GeoDigital International. Founded in Hamilton, Ontario back in 1987, this leader in spatial mapping and spatial analytics just moved headquarters to Atlanta, Georgia. It currently provides services for an unnamed major auto manufacturer and several Tier 1 suppliers. It also provides inspection services using its LiDAR technology for some of America’s largest utility companies.
When it comes to seeing where it’s going, the LiDAR, light detection and ranging, system is the key component to the auto-pilot’s eyes. Using a laser like radar where a pulsed beam is broadcast from the unit to measure depth, the system creates a high-resolution map of its surroundings. This allows for obstacle detection and avoidance, something incredibly important when driving. Velodyne LiDAR is a name to consider. In 2008, the company supplied its equipment for the ground-breaking Radiohead music video, House of Cards as seen here:
But media is just a small part of the company’s equation, with Velodyne servicing the mining industry, geology, mapping, urban planning and R&D. Velodyne, as well as other LiDAR manufacturers are facing a challenge as it is their equipment which provides one of the biggest obstacles to mass adoption of the driverless vehicle. Infrastructure aside, no one, except those that are well-shod, is going to be willing to spend an extra 10-15 thousand on a vehicle in order to experience the computer chauffeur. Prices for this expensive component have to come down considerably before the general public will come on board.
There is high probability this issue will be solved within the next 10 years with advances in technology and a sizeable investment in mass production. Consumers can expect to see units going to as little as a couple of hundred dollars. That said, Velodyne, is probably best prepared to survive the margin crunch and could probably become a major player depending on what system the industry adheres to. The company already counts Uber, Google, Bing, Tomtom and Here as customers for its LiDAR systems.
Mobileye (NYSE: MBLY, Forum) is another solution provider to the driverless car sector with its vision-based advanced driver assistance systems. The company, founded in 1999, with R&D headquarters in Jerusalem, Israel, has developed a vehicle detection system utilizing a camera and software algorithms. All of the image processing is handled by the company’s EyeQ chip. Mobileye introduced its camera-based lane departure warning system back in 2007 and has since improved the system to read traffic signs, stop lights while monitoring lanes, detecting pedestrians and detecting obstacles in front of the car.
Mobileye’s IPO created a stir last year when the company was able to raise $890 million which is a record for a corporation based out of Israel. This year has been one of progress as customers installed its chips in 816,000 vehicles in the first three months of 2015, bringing the total Mobileye vehicle installations to over 6 million. However, this company, at present, in my opinion, is still wildly overvalued and investors would be smart to regard it with caution until SP more accurately reflects actual performance. Otherwise, Mobileye shows great potential in the emerging self-driving space.
Like I said earlier, these are just some of the players on a fairly fragmented field in a game that is far from over. Who will come out on top? It’s hard to say and the moment, although there are some good prospects. Even though I look forward with interest to see just how this exciting sector consolidates and settles into maturity, the kid in me wants the Jetsons still.