Tesla Motors Inc (NASDAQ:TSLA) has announced that it plans to partner with gaming CPU leader Nvidia Corporation (NASDAQ:NVDA) to develop an end-to-end computer system to be used exclusively as Tesla’s Autopilot software.
The new program, dubbed Tesla Vision, will use NVDA’s parallel computing program, Drive PX 2, that will encompass taking raw data from camera sensors and running it through image processing systems.
TSLA has a pretty interesting motto for its new Autopilot system: ”don’t let the perfect be the enemy of the better,” meaning it’s not designed to be perfect from the get-go, but will use deep learning neural networks to gradually become safer over time. The company, though, reckons that the failure rate of its sensors is better compared to the human eye, and Drive PX 2 is better at image processing than the human brain.
Tesla shares have hardly budged after the announcement, which suggests that the market remains skeptical whether the new system can achieve level 5 full autonomy. Nvidia stock, however, is up nearly 8% after the announcement and has racked up gains of 116% year-to-date.
Nvidia Winning in Autopilot Systems
Perhaps the other reason why the market is not that impressed with Tesla’s new Autopilot is because it’s benchmarking its self-driving cars against human drivers, unlike industry standards such as lidar-based systems.
That might not seem as cutting edge as, say, Volvo’s fully autonomous ”Drive Me” system which aims at perfection with a goal of zero serious injuries or fatalities in a Volvo car by 2020.
But Tesla’s approach to autonomous driving actually makes sense. After all, human beings are not that great at driving cars, with over a million deaths from motor accidents occurring each year around the globe. Tesla’s autonomous driving system might be worth having even if it’s only 20% or 30% better at driving than a human being because it would likely result in a significant reduction in auto accidents with hundreds of thousands of lives saved each year.
In fact, Tesla says that Tesla Vision, aka the brain of the new autonomous driving system, is capable of becoming at least twice as safe as the average human driver.
One thing is clear though: Tesla’s new Autopilot is a big endorsement of Nvidia and its expertise in artificial intelligence and deep learning. By choosing Nvidia’s Drive PX 2 to power its new autonomous driving system, Tesla has effectively ditched Mobileye NV‘s (NYSE:MBLY) autonomous gear that previously powered Autopilot in older Tesla vehicles.
It’s plausible that Tesla lost faith in Mobileye after the unfortunate incident where a man was killed when his Model S crashed into a tractor-trailer when driving in Autopilot mode.
But this is not the first autonomous driving design win for NVDA. Volvo’s much-ballyhooed Drive Me system features Nvidia’s Drive PX 2 as well — the big difference between it and Tesla Vision being that Drive Me features seven radar antennas and a lidar sensor vs. one radar antenna and no lidar sensor for Tesla Vision.
NVDA Stock is Winning in AI
But driverless cars are just part of the larger AI, or artificial intelligence, ecosystem. Deep-learning chips are now being designed into drones, the Internet of Things, and speech and image recognition devices.
About a month ago, NVDA and Intel were embroiled in a war of words regarding who is the true king of AI. While Intel Corporation‘s (NASDAQ:INTC) lead in data centers is beyond question, Nvidia appears to be winning big-time in newer fields such as automotive and IoT. During the last quarter, Nvidia saw its top line expand 24.3% to $1.43 billion, about double its average growth rate over the past couple of years.
The company credited AI for its accelerated growth.
NVDA stock will act as a closed-loop supplier of Tesla’s Autopilot kit, and is likely to snag similar deals from other automakers. Supposing the company receives $1,000 for a complete Tesla Vision package and Tesla fits the devices in all its 500,000 vehicles expected by 2018, then Nvidia could easily be looking at an incremental revenue of $500 million per year, or about 10% of overall revenue, from the Tesla deal.
That figure could quickly balloon as autonomous driving becomes a standard feature and government regulation for fully autonomous driving catches up.
It might be too early for NVDA to claim the bragging rights as the true king of the burgeoning artificial intelligence industry. But judging by the company’s latest design wins, it won’t be long before it rightfully earns its stripes in the field. Therefore, you can expect Nvidia stock to continue its dizzying run in the coming quarters.
As of this writing, Brian Wu did not hold a position in any of the aforementioned securities.
