Thinking

On 26 October, 2022 Mobileye (the “Company”) returned to public trading with an initial public offering of 41m shares at $21 per share, thus raising $861m translating to a $17bn market valuation, c.11% higher than the equity value paid by Intel for its acquisition by tender offer on the NYSE in 2017 at $15.3bn – the biggest acquisition of an Israeli tech company to date. Within hours, market valuation leaped to $22bn, however considerably lower than the Company’s initial ambitions of raising $50bn through the IPO (in the first part of the year), which had been reviewed down to $30bn then $16bn a few days prior to the operation, in the context of curtailed tech valuations. Here are some insights on the Company and considerations on its business model in relation to the newsworthy vertical of Autonomous cars. Founded two decades ago, the Company develops and deploys technology which they claim will pave the way to an autonomous driving future, specializing, as the name suggests, in camera and sensing technology for anti-collision and hands-free Advanced Driver Assistance Systems (ADAS), with a portfolio of different solutions. The partnership and subsequent acquisition by Intel allowed the Company to enhance its deployment capabilities to design-in with automotive customers, through synergies with the giant’s engineering capabilities and to build on a strong intangible asset base. In 2022 to date (with only a few weeks to go), the autonomous car vertical has raised $12.5bn in capital, a c.70% drop as compared to FY21 despite a higher number of deals, with VC funding in the space divided by 3 in particular. Indeed, the Company’s IPO occurred in a troubled context for the vertical amidst the US Criminal Justice Department’s probe into Tesla’s ‘Autopilot’ functionality over accidents; Ford’s announcement of the winding down of Argo AI (one of the Company’s main competitors. Alongside GM’s Cruise, these are some of the few players having put driverless cars on actual roads to date, in the form of robotaxis. The Company hopes to power robotaxis themselves in the future, as evidenced by their acquisition of Moovit a mobility-as-a-service (MaaS) solutions company for $900m in 2020. However, for the time being, substantially all the Company’s revenues are achieved through ADAS commercialization to automakers and automaker suppliers, i.e. not fully-autonomous driving solutions, however deployed on 800+ vehicle models and 117M+ vehicles. Latest Q3 figures released this week show continued revenue growth (+ 38% year over year to $450 million in Q3 22), and growth in future business backlog, with design wins achieved in YTD2022 projected to generate future volume of 54 million systems by 2030 (vs. 24 million systems delivered in YTD22). If the S-1 estimates current TAM (over ADAS opportunities only) at $16bn, it must be noted top 3 clients (ZF, Valeo and Aptiv) represent 71% of total $1.4bn 2021 revenues, which points at high concentration risks. Aptiv has created a joint venture Company with Hyundai which raised €3.6bn to develop its own driverless mobility solution (Motional), demonstrating the intense competition for pole position and high entry barriers in the AV vertical. The value chain is further overshadowed by even higher supplier concentration as the Company sources from one main European supplier (STMicroelectronics). Although the Company shows gross margin ranging between 39% and 48% over the last three years, achieved over ADAS solution commercialization, which is strong for a company deploying both hardware and software, massive investments in R&D, (which represents 39% to 46% of revenue over the last three years and 80% of the current 3,100 employees) drive negative EBITDA margins. These financials echo the criticism leveled at autonomous vehicles: losses stack up too high as compared to actual value added in the truly autonomous driving vertical – a fascinatingly challenging application of AI to real world situations. Despite a cumulated $100bn invested into the vertical worldwide, detractors allege autonomous vehicles are yet to safely navigate the contentious ‘unprotected left turn’, which humans can achieve almost mindlessly. Should the financial market continue backing autonomous driving – a vertical likely to generate continued partnerships and concentration – the vertical offers a high level of hope for major societal and environmental issues. In particular, autonomous vehicles could lead to higher road safety, improved social inclusion for the elderly and people with disabilities as well as reductions in vehicles per capita, traffic congestion and land used for parking. The author wishes to thank Lauren Goodenough for her contribution to this article.