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Mobileye Steers Closer to Autonomous Driving

The road to creating fully autonomous vehicles has been plagued by technological obstacles and accidents. Apple scrapped its decade-long electric vehicle project this year after reportedly struggling to create a self-driving car. Last October, a pedestrian in San Francisco was trapped under a driverless car operated by Cruise, which is majority owned by General Motors. And Tesla has been the target of lawsuits and regulatory investigations due to fatal accidents involving cars equipped with its Autopilot feature.

When most people think of automation in driving, they think of cars that could operate anywhere without a human driver, or what the Society of Automotive Engineers calls “Level 5 automation.” But many cars on the road today offer some level of automation, whether it’s lane centering features or adaptive cruise control, or both. The key distinction in these so-called Level 1 and Level 2 systems is that these features support the driver, rather than replacing the driver as the higher levels would.

The market for the driver-assistance technology is currently dominated by the Israeli company Mobileye. The company’s EyeQ system analyzes the input from a camera and sensors to alert drivers to dangerous traffic conditions and can initiate maneuvers such as evasive steering when a collision is imminent. As of last year, the company has captured about 70% of the private vehicle market with its basic driver assistance tools, with more than 50 automaker clients including Volkswagen, Ford, Toyota, and Chinese electric vehicle maker Geely.

Mobileye now hopes to leverage its success in basic driver assistance solutions to allow it to have similar success in more advanced levels of automated driving. Mobileye rolled out SuperVision, its Level 2+ driving assistance solution, in 2021. The system requires drivers to keep their eyes on the road, but they can let go of the steering wheel and let the automated system take over in specific circumstances such as on “all regular road types at up to 80 miles per hour,” according to the company.

In 2026, the company plans to release a true Level 3 autonomy system it calls Mobileye Chauffeur. That system would enable motorists to take their eyes off the road and their hands off the steering wheel in a wider array of traffic conditions, another step toward fully autonomous cars.

These more advanced systems come with extra risks for the company. If a car is involved in an accident while the automated systems are engaged, the manufacturer of the driver assistance tools can be held legally responsible for the incident. The added liability risk and the regulatory certification process, especially for Level 3 cars and above, are two of the reasons why few companies have ventured to bring advanced self-driving cars to market.

There is also strong competition in the market. The biggest threat is from large automakers that can afford to produce technologies for self-driving cars that could replace, or surpass, Mobileye’s offerings. An example is Mercedes-Benz, which in 2023 introduced the first Level 3 automation system approved for use in the United States. Chipmakers such as NVIDIA and Qualcomm also make competitive products.

One of Mobileye’s competitive advantages so far has been the low cost of its systems. Since they are mass produced and compatible with over 800 car models, the company has economies of scale that reduces the per unit cost of its products. The company’s basic driver’s assistance package sells to manufacturers for about US$50 per EyeQ unit, while the SuperVision product is sold for between US$1,000 and US$2,000 per system. Last year, most SuperVision units were sold to the electric vehicle maker Geely.

The cost of Mobileye’s automation systems for consumers depends on the manufacturer’s suggested retail price. For example, Ford recommends car dealerships charge consumers a US$600 to US$700 markup for the Ford Escape Active SUV, with Level 2 automation features.

This is compared with Tesla’s Level 2 offerings. While most Tesla car models are manufactured with the basic autopilot features pre-installed, consumers can upgrade to the enhanced Autopilot function for US$6,000 or the Full Self Driving package for US$12,000.

So far, orders for Mobileye’s advanced offerings have been below market expectations for 2024 as the company initially expected to ship 175,000 to 195,000 SuperVision units to a handful of large automakers including Porsche, China’s FAW group, Geely, and India’s Mahindra. But Mobileye’s stock edged up in late March after Volkswagen Group announced it would use SuperVision and Chauffeur in the future production of car brands such as Audi, Bentley, and Lamborghini, and also unveiled a partnership with Mobileye to rollout a robot taxi fleet in 2026.

Despite the positive update, investors would like to see more large Western automakers join the ranks of customers for the company’s new system. Mobileye says it’s in talks with 11 manufacturers who make 37% of global light vehicles. If the company wins more deals with automotive companies that essentially give up on their in-house autonomous vehicle systems, Mobileye could create a competitive moat to defend its long-term profits and market share.

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NVIDIA and the Cautionary Tale of Cisco Systems

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Generative AI Through a Fundamental-Research Lens

The following is an excerpt from our second-quarter report for the Global Equity strategy. Click here to read the full report.

Anyone who has interacted with popular AI models—asked them about the mysteries of life and the cosmos or created convincing Van Gogh replicas using AI-enabled image generators—can sense that we may be in the midst of a technological revolution. That prospect has consumed equity markets lately, with seven US tech-related stocks responsible for most of the market appreciation in the second quarter.

As an investor in high-quality, growing businesses, we have always tried to position this portfolio to benefit from secular trends, the kind that transcend economic cycles and are driven by fundamental changes in key areas such as tech. Still, it is incredibly difficult for anyone to predict how such trends will unfold; the vicissitudes of cryptocurrency are a sobering reminder of this. Furthermore, as seen with the rise of the internet and, later, mobile connectivity, technology is merely a platform; it’s the applications of the technology that eventually determine many of the winners and losers. In the case of generative AI, some of the future applications may not yet be conceivable, although many companies, even outside the tech field, are now pondering the possibilities.

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NVIDIA’s Competitive Structure May Be More Fragile Than Its Valuation Implies

Advances in artificial intelligence have created an AI gold rush, and one company—NVIDIA—supplies the necessary picks and shovels. With a dominant position in a fast-growing market, shares of NVIDIA have soared. However, NVIDIA’s competitive advantage may be more fragile than its stock price indicates.