Mobileeye (MBLY)

Question 1

Mgt. Meeting with Founder and SVP Bus Dev

Answer 1

Overall came away pretty impressed with their execution. I think they are far ahead of the competition and will benefit from a lot of tailwinds. They have a lot of the major OEM’s signed up for future production. Biggest question I have is how much of their current OEM wins and future production is already baked into the valuation.
• Signed one OEM this year, one next year, two in 2018 – four signed agreements
o Out of the 25 OEMs, 13 have already started heavily being involved in autonomous driving
• Regulation for semi-autonomous driving is a tailwind – started in Europe, Japan and Korea joined
o US will join next year and they are already talking about it
o Chinese in 2018
• Majority of production agreements will be standard fit – 100mm vehicles annually
o For next 7-10 years, majority of sales will come from regulation
o Next wave is autonomous driving – MBLY has first mover advantage
o Autonomous driving has a much higher ASP
o Standard fit – every car is equipped with autonomous braking, majority of programs are standard fit even in areas like the US
 OEMs even have two programs for the IQ4 chip and it’s not even out yet
 IQ4 launches in 2018
• What will enable autonomous vehicles – why would the industry move that direction if there are risks?
o Think of airbags, they kill some people every year but save hundreds of thousands
o There’s no guarantee – potential to save lives is HUGE with autonomous driving
o Look at what’s happening with Tesla, pushing regulators very hard
o Driver is still in control, in case the car needs the individuals attention he can step in
• MBLY is a fully integrated suite – MBLY provides their own SoC, algorithms, sensor, controls
• Competition
o MBLY took Audi from Bosch, took Mazda from Conti etc. – the gap is growing. MBLY has 100% win rate on RFQ’s it bids on
o Two competitors – Bosch and Conti – it’s unlikely an automaker would not take the best system in the world. MBLY is tested and proven to be vastly superior to those two competitors
 MBLY differentiation comes from its live-environment training / experience
 Lots of trials to provide countless scenarios
 It took MBLY 7 years to get from 99.98% validation to 99.99% - its linear up until around 97% but then everything after that takes much longer
 Bosch and Conti took the approach of the stereo – can only detect 60 meters in front of the car, MBLY’s Mono can detect 120 meters
 Competition only has a few OEMs so they don’t have the widespread applicability and experience of MBLY’s systems
o Why wouldn’t an OEM switch to another competitor?
 Switching costs are high, when you partner with someone you invest a lot of money / time into their product offering
 No automaker would put two systems in the car – they will take the full suite offering from one provider, don’t want to mix software and hardware from different companies
 OEMs would have to do twice the amount of testing, prepping – costs more $
o Why won’t GOOGL come in and compete?
 GOOGL avoided the real time interpretation of the scene – jumped directly using a map and location
 Smart but extremely expensive (cost $175k for one car)
 Huge drawback is that it requires GOOGL to continually update their environment, GOOGL must map out an environment if things change or new roads / buildings develop
 Why is GOOGL even trying? – potentially compete with UBER and build their own autonomous taxi fleet
o NVDA – basically a joke, don’t even consider them competition
 Developed sophisticated general purpose chip
 MBLY chip runs 2.5 teraflop (how quickly the processing is done for any basic unit of calculation) compared to NVDA who’s general chip runs 1 teraflop. NVDA chip is also 6x larger than MBLY’s chip
 NVDA announcement just used for entertainment, they were using all of MBLY’s stuff
 Power consumption of MBLY chip is 4 watts, general purpose NVDA chip is 10 watts
• Competing systems develop structure from motion, MBLY just needs a picture and it can calculate its surroundings
o Complexity of competitors is harder because you have to move around vs. MBLY where you just have an image
• Margin accretion – ASP’s will continue to increase - ASP used to be $35, now its $42 (low 40s), and will go up as they offer more premium products / services
o Gross margins today are low to mid 70s, will migrate higher to 78%
o Additional benefit is that once the IQ4 chip can manage 10 cameras, multiple radars, etc. instead of having to add 3 or 5 chips they need less so they also gain there
• What’s the obstacle that needs to be overcome in order to get on all of VWs platforms and other OEM platforms?
o Three players still don’t work with MBLY – Mercedes, VW, Toyota
o Two important customers MBLY is chasing are VW and Toyota
 Toyota not before 2018
o VW easy to understand in light of the fact that they work with Audi, VW and Audi compete with themselves like two separate companies
o Toyota – do not understand. Toyota said “MBLY has the best technology in the world” but they are using a competing product
• What will you do with all your cash?
o Will use cash to acquire other companies to add ancillary services, extend development, and potentially a buyback (didn’t sound too excited about this)
o No dividends!
• MBLY can deal with massive data and use it to better their chip
 Companies providing information from the road to MBLY to analyze and provide a solution
• Making the jump from semi-autonomous to autonomous (entirely different ball game) – competitors even farther behind
o Challenge is to understand the free space in front of you - hardest part
o Then you have to understand what path to choose, understand curves, guardrails etc.

Question 2

Citi Research 9.9.2015

Answer 2

Mgt. confirmed an imminent launch of automated driving features on a vehicle running 8 cameras utilizing 5 EyeQ3 chips

Right now, its really a difference of stereo versus mono.