A Hacker Made a Mobileye Knockoff, But That's No Reason to Sell

  • Deutsche Bank, Barclays defend stock against short sellers
  • Mobileye nearly erases 2015 gains as bearish bets climb

This Hacker Built a Self-Driving Car in His Garage

George Hotz’s claim that he built a driverless car in his garage is a Christmas gift for short sellers bent on crushing Mobileye NV’s stock.

The 26-year-old hacker boasted in a Bloomberg Businessweek article that he developed a cheaper alternative to Mobileye technology used by Tesla Motors Inc. and that Elon Musk offered him a “multimillion-dollar bonus with a longer time horizon that pays out as soon as we discontinue Mobileye.” Citron Research dubbed Mobileye its “Short of the Year,” sending the stock down 7.2 percent that day and wiping out this year’s gains.

For those tempted to dump the stock, a note of caution.

While Hotz’s exploits certainly highlight that the computing know-how for autonomous driving is becoming cheaper and more accessible, that doesn’t mean Mobileye’s business model is in trouble, according to research firm Gartner Inc. Mobileye has also locked in contracts with nearly all the top automakers from General Motors Co. to Ford Motor Co.

Hotz’s achievement “demystifies the blackbox surrounding these technologies, and it will continue to increase the commoditization of the components,” Thilo Koslowski, vice president and automotive practice leader at Gartner, said by phone. “The magic still exists in putting it all together and doing it reliably.”

Mobileye’s Edge

That involves having the financial firepower to deal with insurance liabilities, regulatory hurdles, the threat of cyber attacks on connected cars and the absolute perfection of the automated driver-assistance system, he added.

Musk said as much in a tweeted rebuttal to Hotz’s claim: “Getting a machine learning system to be 99% correct is relatively easy, but getting it to be 99.9999% correct, which is where it ultimately needs to be, is vastly more difficult.”

Mobileye co-founder and Chief Technology Officer Amnon Shashua, a computer science professor at the Hebrew University of Jerusalem, called Hotz’s claims “nonsense,” arguing that any student of his could achieve the same in six months.

‘Mighty Google’

“Autonomous driving is not the story of one person, or one sensor or one algorithm. It is one of the biggest scientific and engineering achievements of our age,” Shashua wrote in an e-mailed response to questions. “The mighty Google with its incredible pool of talents and skills and diversity of skills are working on the problem for more than 5 years -- so what should we make of it, that they are lame?”

The race to develop a self-driving vehicle fleet has intensified since February when Bloomberg reported that Google Inc. was developing a rival to Uber Technologies Inc. Tesla in October rolled out its Autopilot suite that can drive on well-tended highways and change lanes safely without the driver taking the wheel.

Short sellers haven’t stopped beating up on Mobileye, saying that its valuation reflects a quasi-monopoly status and ignores viable competitive threats.

Mobileye Short Interest Over Past 12 Months

Short interest in shares of the Jerusalem-based company was back near a record 21 percent of shares outstanding on Dec. 17, according to Markit, a London-based research firm. Mobileye’s stock is up 1.8 percent for the year after tumbling 36 percent from a peak of $64.14 on Aug. 17. It rose 1.6 percent to $41.25 at 10:56 a.m. in New York.

Analysts Recommend

Even after the rout, Mobileye trades at 54 times 12-month future earnings, a valuation that’s more than double that of industry peers, Bloomberg compiled data show. About 80 percent of those covering the company recommend buying its shares, which will rally 73 percent in the next 12 months, according to the average estimate of 15 analysts surveyed by Bloomberg.

Many are looking to the Consumer Electronics Show in Las Vegas next month for Mobileye to address critics with its latest innovations, including 360 degree vision-based sensing and cloud-based computing functionality, a Dec. 17 research note from Barclays Plc said.

Mobileye’s profit will more than double this year to $111 million, on sales of $240 million, a 67 percent increase, according to the average estimate of 13 analysts surveyed by Bloomberg.

At least 25 auto manufacturers have endorsed Mobileye’s technology and it continues to “perpetuate the highest market share in the industry,” Deutsche Bank AG analyst Rod Lache noted in a Dec. 16 report defending his buy rating on the stock.

That’s part of what makes it such an appetizing target for short sellers, said Bruce Schoenfeld, research director at New York-based BlueStar Global Investors.

“It’s inevitable that Mobileye’s market share will go down,” he said in an e-mail. “But it still has a huge first mover advantage in that its technology is already used by almost every single major auto maker in the world.”

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