Early this year, our list includes Tesla (NASDAQ:TSLA) and Google (GOOG). Both proved to be ‘headline grabbers’. GOOG for instance, have been developing and testing self-driving cars for almost a decade.
|Company||Ticker||Recommend Date||Price to Date||Price at Recommend||% Increase|
|Cypress Semiconductor||Nasdaq: CY||
GOOG’s self driving car subsidiary, Waymo goal is to make self-driving cars safe and easy for everyone to get around.
That leaves us with opportunities in these area of the markets
- Entire Vehicles
Google will have its share of the self driving car technology as much as possible. Tesla, on the other hand, is also rolling out new self-driving technology.
As Waymo is putting up cars, testing and preparing to produce them on a large scale.
The big elephant in the room will be the Sensors market. Sensors will be the most important component of self-driving cars . Those sensors allow cars to stream loads of 3D data for the whole system to function properly.
What is LIDAR?
LIDAR stands for L Detection and Ranging. LIDAR detects whats around the vehicle acting as a Radar system. To date, the auto sensor market is worth over $7 billion. According Strategy Analytics, the sensor market is likely triple , growing into $21 billion in five years.
Source: NY Times , Nvidia
When it comes sensors, which well-known players are already in this segment? The big players, Intel (INTC), Qualcomm (QCOM) and Nvidia (NVDA).
Cars in the near future will be like a large moving computer. Every integrated system from the cameras, A.I modules to its braking system will be completely electronic. This explains why Intel’s aggressive purchase of Mobileye as the leader in vision sensors in self-driving cars is preparing the company for the next trend.
Right now, Nvidia stock is gaining significant traction. Nvidia is positioned well to capitalize on this trend after more than 20 years of making graphics card. Nvidia is able to supply processors that can handle the most data-intensive processes, even A.I.
Nvidia’s DRIVE PX 2 artificial intelligence unit is the C.P.U or ‘brain’ of self-driving cars. Nvidia have also partnered with Tesla, Audi, Volkswagen, BMW, Honda and Mercedes-Benz
the Race to make Self-Driving Cars a Reality
|Levels of Self-Driving Cars|
|Level 1— Function-specific Automation: Automation of specified control functions, such as cruise control, lane guidance and automated parallel parking. Drivers are fully engaged and responsible for overall vehicle control (hands on the steering wheel and foot on the pedal at all times).|
|Level 2 – Combined Function Automation: Automation of multiple and integrated control functions, such as adaptive cruise control with lane centering. Drivers are responsible for monitoring the roadway and are expected to be available for control at all times, but under certain conditions can disengaged from vehicle operation (hands o the steering wheel and foot o pedal simultaneously).|
|Level 3 – Limited Self-Driving Automation: Drivers can cede all safety-critical functions under certain conditions and rely on the vehicle to monitor when conditions require transition back to driver control.|
|Level 4— Self-Driving Under specified Conditions: Vehicles can perform all driving functions under specified conditions.|
|Level 5 – Full Self-Driving Automation: Vehicles can System performs all driving functions on all normal road types, speed ranges and environmental conditions.|
The Autonomous Megatrend Pure-Play?
Delphi (DLPH). We are looking for under-valued automotive suppliers like Deplhi (DLPH) and Magna (MGA). A few years ago, DLPH filed for bankruptcy and learnt the
hard way that profit margins
are virtually zero if you try to manufacture commoditized auto parts. However, DLPH turned around and is selling more than $16 billion in auto parts annually. DLPH have
two separate entities now: One focusing on traditional combustion-related technologies and another focusing on growth-oriented technologies like connectivity and autonomous driving.
While the traditional business will remain stable and profitable, the growth division should position the company to compete in the self-driving cars niche.
At current prices, DLPH is trading at discount prices , 11 x forward earnings. The S&P is currently 17 times forward earnings.
Upside potential: aiming for a 100% returns as the company transitions from traditional auto parts play into fast-grower autonomous tech-play.
Conclusion: within a few years, there is no difference between an auto parts supplier and tech hardware supplier.