Once one of the hottest stocks on the market, self-driving technology startup Luminar (NASDAQ:LAZR) has plunged recently on a combination of negative headlines and worries about the company’s valuation. LAZR stock — which was trading around $10 about a month ago — briefly soared above $45 in early December, but has since dropped back toward $20.
Of particular note, one of Luminar’s largest partners — Mobileye, the self-driving unit of Intel (NASDAQ:INTC) — said recently that it may replace Luminar LiDAR with in-house LiDAR in certain applications by 2025.
That news hit LAZR stock hard. Shares dropped more than 20% after the news broke.
But this drop is a gross overreaction to something that isn’t going to happen. That is, Mobileye likely won’t ever replace Luminar LiDAR with in-house LiDAR, and if they ever do, it won’t happen anytime soon (likely not at any point in the 2020s).
To that extent, my two cents is simple.
Buy the dip in Luminar stock. This is a long-term winner, dropping on ephemeral and overblown near-term concerns. Take advantage of the weakness.
Why Mobileye Is Building Its Own LiDAR
LiDAR is the key technological component to unlocking a new era of partially and fully autonomous vehicles, since they give cars the ability to “see” and respond to their surroundings by shooting out laser beams and carefully measuring their return paths. But, the biggest obstacle to adoption is cost.
That is, LiDAR sensors are not cheap. Good ones run north of $1,000 per sensor. You normally need multiple sensors per car, somewhere around 2 to 4, for a grand total cost of $4,000-plus per car. The average car sales price in the U.S. is about $40,000, so LiDAR sensors materially increase the cost of making a car.
This cost barrier is why Mobileye is trying to side-step Luminar and make their own LiDAR in-house. Makes total sense.
It even makes more sense when you consider that Mobileye is making these LiDAR on the back of something called Frequency Modulated Continuous Wave (or FMCW) technology, versus Luminar’s Time-of-Flight (or ToF) LiDAR.
The former measures distance using changes in wave frequency. The latter uses time. Theoretically, FMCW is supposed to have some benefits over ToF, because it uses one continuous laser beam to measure distance as opposed to multiple laser pulses. The continuous beam lends itself to higher signal, less noise, instantaneous velocity information, and potentially longer ranges.
So, when you look at things from this perspective, Mobileye is 100% doing the right thing in trying to create a differentiated in-house LiDAR.
But that doesn’t mean they are going to be successful in doing so. Indeed, the weight of evidence today strongly suggests that Mobileye will, for the foreseeable future, remain lightyears behind Luminar LiDAR in terms of cost, performance, and reliability.
So, when I see LAZR stock dropping big on news Mobileye may replace Luminar LiDAR, I see an irrational sell-off and a golden buying opportunity.
Why It Doesn’t Matter for Luminar Stock
There are a few reasons why Mobileye building out its own LiDAR is pretty much non-news for LAZR stock. Those reasons are as follows:
- Luminar is the unrivaled cost and performance leader in ToF LiDAR. The status quo in the LiDAR market today is to build the sensors on ToF techniques. When it comes to ToF LiDAR, Luminar has no rival. They make the longest range LiDAR and the highest resolution LiDAR, by a mile. Their LiDAR have the best performance in adverse weather, and suffer from the least sunlight interference. Perhaps most importantly, Luminar’s LiDAR is also the most cost competitive, coming in at sub-$1,000 price points. Luminar is the first and only company to make sub-$1,000 high-performance LiDAR a reality. When put together, all this data suggests that Luminar’s sensors are very unlikely to replaced by any in-house LiDAR anytime soon.
- Mobileye is years behind Luminar. High-performance LiDAR is not easy to make. Ask any engineer working in this space. It takes lots of time, and tons of resources. Mobileye is just starting on its journey in LiDAR. Luminar has been pioneering this space for nearly a decade. Luminar basically has a 10-year head-start on Mobileye in a highly technical space, and Luminar’s technological advancements are only accelerating. From this perspective, it seems like the long-shot-of-long-shots for Mobileye to catch Luminar in terms of cost or performance on LiDAR anytime soon.
- FMCW technology is nascent and largely unproven. The way Mobileye is attacking the LiDAR market — through FMCW techniques — is interesting. But ToF is the status quo in LiDAR for a reason. It’s proven, mature and increasingly cost-competitive. FMCW is none of those things yet. Sure, the long-term potential of FMCW is huge. But given that Mobileye is a new company playing with a new technology, the odds of them disrupting Luminar are very slim.
- Think about airplanes. Sometimes, markets work best when different companies specialize on different things. In the aviation market, for example, airlines don’t make airplanes. Boeing (NYSE:BA) does. Because, when push comes to shove, airlines do not have the technical expertise to match Boeing in terms of aircraft manufacturing. The same will be true with Luminar in LiDAR. Many companies in the self-driving supply chain will try to make LiDAR as good as Luminar. None will succeed. And Luminar will forever remain the LiDAR industry powerhouse — the “Boeing of self-driving”, if you will.
Given all these reasons, it’s unlikely that Mobileye in-house LiDAR presents a viable threat to Luminar anytime soon… if ever… meaning that the recent dip in LAZR stock looks like an opportunity.
Bottom Line on LAZR Stock
Zooming out, Luminar is the unrivaled cost and performance leader in LiDAR, which is morphing into the mission-critical technological backbone of the self-driving revolution, which in turn is on the cusp of becoming a disruptive reality.
News of Mobileye building out in-house LiDAR changes almost nothing about that big picture.
So buy the dip in LAZR stock. This is a long-term winner with enormous potential over the next 5 to 10 years. The December 2020 sell-off will look like nothing more than little blips in the stock chart by 2025.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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