Driverless cars continue to be one of the hottest growth areas for investors, and Ford Motor Company (NYSE:F) bolstered the excitement in this area when it unveiled an ambitious plan to bring driverless cars to the market by 2020.
Ford and Baidu Inc (ADR) (NASDAQ:BIDU) partnered to invest in Velodyne, a company helping lead the way in driverless cars. Ford CEO Mark Fields struck a bullish cord for the entire driverless cars market when he said, “Our view is autonomous vehicles could have just as much impact on society as Ford’s moving assembly line did 100 years ago.”
A deeper dive into Ford’s driverless cars plans shows that it’s working close to ride sharing companies, its target market for these new cars that will come without steering wheels or pedals. Velodyne makes the Lidar laser-radar system for driverless cars and it has now become a major player in the market with this investment from Ford and Baidu. Velodyne also supplies its technology to other driverless car players.
While Ford’s investment and plans could scare away other driverless car players or driverless car part suppliers, it should be noted that Lidar is an expensive path to creating a fully autonomous vehicle. Cheaper options include using cameras and sensors on the cars. That’s why Ford’s plan shouldn’t keep investors away from other options in the driverless cars field. Really, what Ford did was validate the market to bring these cars to the road in the next five years and show what the market size could really be.
Many companies are involved in the technology needed to make this a reality. Here are three companies that benefit from Ford unveiling its driverless car platform and initiatives.
Driverless Car Stocks to Buy: Mobileye NV (MBLY)
Mobileye NV (NYSE:MBLY) is perhaps the best known pure play stock on the self-driving car market. Mobileye makes the software and technology to power the movements made by autonomous cars. Shares trade with a high valuation, but MBLY stock is a must have for anyone looking for overall exposure to the impressive growth area of diverless cars. Ford did not specifically name Mobileye as a partner, but anytime someone announces self-driving car plans, MBLY is a winner, as it justifies its bets on the growth of the market.
Mobileye shares fell after the company announced it was moving beyond its partnership with Tesla Motors Inc (NASDAQ:TSLA). That was a huge overreaction by investors, as Tesla made up only a fraction of the company’s revenue. Mobileye’s justification for ending its TSLA partnership should have investors ready to buy MBLY stock, as Tesla wanted to use its products, but not collaborate and work together. MBLY continues to win new partnerships with major automobile companies.
Mobileye has formed a major partnership with BMW and Intel Corporation (NASDAQ:INTC) to bring production of cars to the masses by 2021. In a recent article, I highlighted Intel as an undervalued play on self-driving cars. Mobileye continues to work on boosting all the way to level 5, the final stage of self-driving called driver off. The company has already been testing in both level 3 (eyes off) and level 4 (mind off).
MBLY financials continue to show strength for the market. Revenue was up a staggering 58% in the second quarter. Gross margin also expanded to 75.6%, growing from 74.3% in the year prior and from 75.3% in the first quarter.
Also announced on the second-quarter earnings call were new deals with Volvo AB (ADR) (OTCMKTS:VOLVY), Fiat Chrysler Automobiles NV (NYSE:FCAU) and an additional Chinese original equipment manufacturer. The company highlighted existing deals with Delphi Automotive PLC (NYSE:DLPH), SAIC (China) and Nissan Motor Co Ltd (ADR) (OTCMKTS:NSANY). Perhaps the biggest upcoming catalyst for shares could be additional partnership announcements. Mobileye said BMW was the first of three partnerships it sees forming, with two more likely to be announced by the end of the year. Keep in mind that Mobileye has products in 25 global automakers’ products already.
Mobileye raised its full year revenue guidance to a range of $344 to $350 million. This was up from the prior guidance range of $336 to $340 million. The company sees revenue coming in highest during the fourth quarter.
Driverless Car Stocks to Buy: Nvidia Corporation (NVDA)
Known mostly for its computer gaming business, Nvidia Corporation (NASDAQ:NVDA) is quickly becoming a play on driverless cars. While it makes up the smallest portion of company revenue, the automotive sector is the fastest growing for NVDA.
At the Consumers Electronics Show earlier this year, Nvidia CEO Jen-Hsun Huang said, “Self-driving cars will revolutionize society. And NVIDIA’s vision is to enable them.” When a big company like Ford goes all in on driverless cars, it’s highly likely that NVDA will win direct business with Ford or get a call here from a competitor who wants to take on Ford.
Nvidia posted record revenue of $5.0 billion in fiscal 2016. NVDA also posted record operating income and record gross margin. The company’s automotive segment posted revenue of $320 million, an increase of 75% from the prior year. Over the last three years, the segment has seen average growth of 80%.
Nvidia works with 21 automakers and sees billions of dollars in future revenue opportunities thanks to driverless cars. The company recently unveiled the Nvidia Drive PX2, which is the first artificial intelligence supercomputer for driverless cars. Volvo was announced as the first customer of this new lunchbox-sized computer.
Through the first six months of the current fiscal year, NVDA’s automotive sector has revenue of $232 million, an increase of 57% from the prior year. With the heavy interest being put on driverless cars thanks to Ford and its new 2020 plan, Nvidia should see a pickup in orders in the second half of the fiscal year. Ford is listed as company that already uses NVDA’s deep learning technology, so the company is worth watching as a future partner in Ford’s new plans as well.
Nvidia stock is trading near its 52-week highs here, leaving less room for a huge breakout. Investor perception has been good from analysts, who have raised price targets thanks to growth initiatives in virtual reality and automotive.
The company should see a strong second half of the year and remains one of the best ways for investors to get exposure to growth in the driverless cars market.
Driverless Car Stocks to Buy: Autoliv Inc. (ALV)
It’s possible that in the future, passengers in driverless cars will be more safe and be in less accidents. That could mean less airbags and seatbelts needed in cars, but that scenario seems very far away and possibly not realistic.
Autoliv Inc. (NYSE:ALV), the leader in automotive safety systems remains a good pick on driverless cars, even if some of its top selling products disappear in the future.
Autoliv, a consistent Ford supplier, is one company that could really benefit from a driverless car society, as driverless cars will still need to pass regulations to keep their passengers safe. In the most recent quarter, airbags and seatbelts made up the majority of Autoliv’s revenue.
However, ALV’s other segments bear watching here for Ford and others investing time and resources into driverless cars. Autoliv saw double-digit growth in its passive safety electronics and active safety products segments. While these segments make significantly less revenue than airbags for ALV, they represent big growth for the company.
Keep in mind that Autoliv has been making auto safety products for more than 60 years. Airbags make up 55% of the company’s annual revenue and seatbelts another 28%. Ford is the company’s largest customer at 12% of sales (tied with General Motors Company (NYSE:GM)).
As a major Ford supplier, ALV could be a major beneficiary of the company’s push into driverless cars. On its own, Autoliv continues to push its new products in the electronics and active safety markets on automotive manufacturers. As such, ALV is in a good position to be a major player in the driverless cars market.
As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.