Mobileye Bears Lose Bite as Carmakers Recruit for Driverless War

  • Stock has risen to four-month high despite record short bets
  • Citron insists commoditization looms and margins are too high

In six months, short seller Andrew Left helped wipe $5 billion off the market capitalization of Mobileye NV, the maker of driverless car software. These days, his call to sell seems to be having less impact.

While short interest in Mobileye shares climbed to a record 21 percent on April 19, the stock has rallied 64 percent from a low in February, and touched a four-month high of $40.43 this week. Left says it’s just a matter of time before rivals catch up to Mobileye. He published another report last week deriding the stock on his website Citron Research. So what’s changed?

Mobileye is trying to dispel concern about competition by painting a clearer picture of what its technology does, and touting contracts it has won to help develop autonomous vehicles.

Chief Technology Officer Amnon Shashua critiqued rival approaches to driverless technology at a conference held at Goldman Sachs Group Inc.’s New York headquarters this month, arguing his company is a critical ally in automakers’ fight to avoid being cut out by Google Inc. in the coming revolution toward shared mobility -- a day when individuals don’t buy their own cars, but use apps to hail rides in driverless ones.

‘Disruptive Innovator’

“Everybody gets worried in tech that there’s going to be some disruptive innovator that comes and destroys a business model,” said Joseph Fath, who helps oversee about $65 billion at T.Rowe Price in Baltimore, including 7.9 percent of Mobileye’s shares. “While this concern has been out there and others have been making a lot of noise about having competing products, Mobileye’s continued to run the table.”

The Jerusalem-based company, which sells software and a chip that alerts drivers to pedestrians and unintended lane departures, works with 25 carmakers, it said on a Feb. 24 earnings call. It gave a revenue projection out to 2019 of $1.1 billion, compared with $241 million in 2015.

Mobileye has also announced partnerships with General Motors Co., Volkswagen AG and Nissan Motor Co. to develop a new mapping technology that gathers crowd-sourced real-time data from the automakers’ fleet of vehicles, something Shashua calls the “missing piece” in the race to achieve fully autonomous driving.

Overvalued Chipmaker

“This is why we are in the best position, not only with the ability to have this technology but in the practical ability that we are there in the car already,” he told the audience at Goldman on April 15.

It’s a direct refutation of Citron Research’s short-sale thesis that Mobileye is nothing more than a first-to-market chipmaker for advanced driver assistance systems. Left calls Mobileye “the highest-multiple semiconductor stock of all time,” and cites Nvidia Corp, which unveiled new chips with artificial-intelligence features in January, as proof that looming competition will soon commoditize its technology.

“Mobileye is priced now as if they own autonomous driving forever and it’s going to become a feature that will generate 40 percent gross margins -- something unheard of in the semiconductor or software industry,” said Left, who argues the stock should trade at $11 a share.

George Hotz, the hacker who claimed Tesla Motors Inc. founder Elon Musk offered him a multimillion-bonus to develop a cheaper alternative to Mobileye after he built a driverless car in his garage, further inflamed competitive concerns last December.

Hector Marinez, a spokesman for Nvidia, declined to comment on whether the company sees Mobileye as a competitor.

Largest IPO

Mobileye’s $1 billion initial public offering in July 2014 was the largest in Israeli history. The stock doubled to a peak of $64.14 a year later, triggering concern that it was overvalued. It now trades at 51 times 12-month future earnings, compared with a ratio of 180 in September 2014. The stock rose 1.5 percent to $40.90 at 11:06 a.m. in New York.

The stock will appreciate 34 percent to $54 in the next 12 months, according to the average estimate of 15 analysts surveyed by Bloomberg. Twelve out of 15 recommend buying the shares. Short interest has climbed from a low of 7.3 percent in August, according to data compiled by Markit Ltd. and Bloomberg.

Mobileye and Nvidia aren’t competing head-to-head because while 80 percent of Mobileye’s revenue comes from its software algorithms, Nvidia’s product is fundamentally a hardware platform, said David Leiker, an analyst with Robert Baird & Co. in Milwaukee.

“If people view Mobileye as a chip company, they’re going to be short the stock. If they view it as a software company, they’re going to be long the stock,” Leiker said by phone.

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