If Mobileye is worth $15 billion, what is Tesla Vision worth?
During times of rapid technological and social change, the future is devilishly hard to predict. The big movers and shakers may have a clearer picture of what’s to come than we mere mortals do (well, not always), but they generally prefer to keep their insights to themselves. However, an acquisition is a matter of public record, and it often provides valuable clues, if not to what’s going to happen, at least to what the men (and a few women) in the corner offices think is going to happen.
Above: Tesla Autopilot activated inside a Model S (Image: Autoblog)
Intel’s $15 billion acquisition of Mobileye, an Israeli provider of autonomous driving technology, tells us (at least) three interesting things. The first is common knowledge: self-driving tech is expected to be huge, and companies are busily investing money and R&D efforts to position themselves as players.
The second point, also obvious to observers in the tech world if not to the popular press, is that automotive OEMs will not be the only players, and perhaps not even the dominant players, at the table. At the heart of autonomous systems are software and specialized hardware, which are not the forte of automakers, but rather of companies like Intel. CEO Brian Krzanich wrote to his employees that the Mobileye acquisition will give Intel the “entire package” of autonomy hardware: “This acquisition essentially merges the intelligent eyes [Mobileye’s sensors] of the autonomous car with the intelligent brain [Intel’s chips] that actually drives the car.” We know that other tech giants, including Apple and Google, are also gearing up for the game - we may see evidence of their progress in the near future.
Above: A look at some other recent deals in the self-driving space (Image: Wall Street Journal)
The third interesting thing about this acquisition is what it implies about Tesla’s market value. The fact that a company that consistently posts losses has a larger market capitalization than much older, much larger companies that produce many more cars has long perplexed stock market analysts, especially those who still see Tesla as an automaker instead of a technology company.
The $15-billion price Intel just paid for Mobileye is approximately 30 times the firm’s projected annual revenue. On the other hand, the stock market values “overhyped” Tesla at somewhere around $40 billion, only four times projected annual revenue (as reported by Electrek). This seems rather odd when you consider that (to use a crass metaphor) Intel is marrying a girl that Tesla broke up with.
Above: Behind the Intel + Mobileye deal (Youtube: Wall Street Journal)
Mobileye sells its system, which includes cameras, sensors and the EyeQ3 chip, to several major automakers, and until recently, that included Tesla. However, last August, the companies announced that they would part ways once their current contract ended. The split got a bit ugly - Mobileye claimed that it had concerns about safety following the tragic fatal crash of an Autopilot-equipped Model S; Tesla said that Mobileye turned salty after learning that Tesla was working on its own autonomy hardware.
Whatever the issues that led to the breakup may be, they’re in the past, and Tesla’s new system is now on the job. When it introduced Autopilot 2.0, Tesla replaced Mobileye’s hardware with its own sensor system called Tesla Vision, which is powered by Nvidia’s Drive PX2 computer. Elon Musk has said that Tesla Vision will be hardware-agnostic, and capable of being upgraded with a more powerful computer. It could also theoretically be packaged and licensed to other automakers.
Above: How Tesla Vision sees the world (Image: Digital Trends)
It’s rumored that Tesla is even working on its own custom chipset. Last year it hired renowned chip architect Jim Keller for the new position of Vice President of Autopilot Hardware Engineering, as well as other expert chipsters from companies such as AMD, Apple and Nvidia. It’s also been reported that Tesla signed a contract with Samsung to build a System on Chip (SoC).
While all new Tesla vehicles contain the necessary hardware for Autopilot 2.0, according to Electrek, Tesla’s image processing is currently “not on par with Mobileye’s, based on a simple comparison of the features it enables in Tesla’s second generation Autopilot versus the first generation.” Of course, regular software updates are steadily improving the system’s capabilities. Tesla’s own predicted timeline puts it far ahead of Intel, or any other player in the game. Intel CEO Brian Krzanich says that he expects full level 5 self-driving capability to be available by 2024. Musk has promised to demonstrate a driverless drive from Los Angeles to New York by the end of this year.
Whether Tesla will succeed in meeting its ambitious goals is a topic that’s hotly debated everywhere from Detroit to Wall Street to a vast network of online forums. But here’s the point: if Tesla has, or soon will have, a system that’s at least as good as the one Intel just bought for 15 big ones, then one could make a very good case that TSLA stock is not overhyped, but in fact substantially undervalued.