Mobileye Global Inc.

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 4/5

Mobileye is a leading developer of advanced driver assistance systems (ADAS) and autonomous driving (AV) technologies and solutions, and their technology is used in many different brands and car models.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: Mobileye operates in the automotive technology sector, developing and deploying advanced driver assistance systems (ADAS) and autonomous driving (AV) technologies, including software and hardware for the automotive industry. They focus on generating value through innovation, by creating a more compelling driving experience, and developing safety features for vehicles. Their products aim to enhance vehicle safety and provide an evolutionary path to full autonomy.

Revenues: MBLY generates revenues by selling its ADAS and AV systems to automobile manufacturers (OEMs). They also provide after-market solutions for vehicles already in the market, but sales to OEMs are far more important for the business. They have 3 main reporting segments namely Mobileye, which is the largest for MBLY and includes all their self-developed technologies and other that includes revenues from acquisitions, the second is Mobileye Vision, and the last is Mobileye SuperVision™ where they offer a full stack solution for highly autonomous driving.

Currently, they have 3 major customers, whose aggregate sales comprise 66% of total revenue. They are not named due to confidentiality and the company has not revealed them. These customers are a handful of the approximately 50 OEM partners.

Trends in the Industry: The automotive industry is undergoing a rapid transformation due to increasing autonomy, enhanced safety features, advanced connectivity, and new forms of vehicle ownership. The market is shifting from driver-centric to driver-assisted and even driverless systems. Also, technological innovation and increasing regulatory pressure are pushing car manufacturers to install safer systems in cars, and Mobileye is a frontrunner in this field.

Competitive Landscape: MBLY competes with other technology firms (such as NVIDIA, Qualcomm) and established automotive suppliers that also have their own systems in place (Bosch, Continental, Aptiv, etc.). What makes the company different:

  • Proprietary Technology: Mobileye has developed its own proprietary technology and has invested significantly in research and development to create this technology.
  • Data Advantage: Mobileye leverages data from millions of miles driven by its ADAS-equipped cars to make further improvements and enhance AI algorithms.
  • High performance and safety: The company has a strong focus on enhancing driving safety and providing a path for higher levels of autonomous capabilities.
  • Scale: The company has a lot of OEM partners already and a vast infrastructure in place.

The company has stated their goal is to create a global standard in safety for vehicles and they plan to work with different governments to develop legislation, where MBLY products are used as basis.

Financials

  • Revenue Growth: Mobileye’s revenue has steadily increased due to increased deployment of their ADAS systems. In the latest quarter, they had a revenue increase of 17% year-over-year.
  • Profit Margins: The gross profit margin is around 45%-50%. Mobileye has shown an operating loss for most quarters, because of its high R&D and S&M costs, but the most recent quarterly call noted a positive operating income. Management said they believe they are very close to being consistently profitable and have a plan to reach a double-digit profitability in the coming years, through better scale and operational efficiencies.
  • Cash Position: The company’s cash and marketable securities position is $1.37 billion, a solid position that has seen a decline YoY.
  • Debt: Mobileye has only around 300 Million in debt, which consists of long-term and short-term debt related to an acquisition.
    • R&D expenses: R&D spending is roughly 40% of revenues. This is very high and is justified to maintain an edge in technology and their lead in the market.

Capital expenditure: The company is highly capital intensive, and a large amount of their money is being spent on property and other assets. They are starting to build new facilities to have better scale. The company is increasing its production.

    • Sales and Marketing Expenses: Sales and marketing expenses are around 20% of revenue and they are expected to increase further in the coming years, as the company tries to penetrate new markets and add more clients.

They have a relatively short 52 week range of $22.5 to $52.5.

MBLY has been steadily increasing the amount of sales volume YoY, and has been increasing the number of their OEM partners. They are expected to launch a new generation of eyeQ chips in late 2023, which should improve cost-effectiveness and improve the performance of their products significantly.

Recent concerns / controversies:

In the latest earnings call, there was a lot of emphasis on their expansion plans, that are going to increase CapEx and R&D significantly in the coming years, management is confident that those investments will pay off in the long run. Management is projecting large free cash flow numbers by 2025-2026. They have also been facing some problems with the supply chain of semiconductor chips in the past year, and are working with their suppliers to avoid such future issues. Some reports said that their customers have started switching from using MBLY for their ADAS solutions and they are moving towards their own solutions, which has put pressure on MBLY’s revenue. Also, China is becoming a difficult market, due to national interests and political tensions. The company is experiencing a lot of competition in the autonomy space, where other big tech players are becoming a big threat. It should be noted that, the company has also experienced legal battles with a couple of companies due to patent infringements, which have been mostly won in their favor.

The company has also taken a goodwill write-off of $304 million as they reduced their projected returns from certain acquisitions.

Moat: The company has a moderate moat based on their proprietary technology, and a vast supply of data. But technology is prone to changes. Hence, it’s a narrow moat. MBLY has built a good advantage over others, but has not fully created an ecosystem of technology and the customer integration, which can make switching difficult for the customers and increase MBLY’s pricing power. They are trying to lock in customers through their long-term contracts, where the company also collects and uses the data that is generated by the driving systems. Rating: 3 / 5

  • Legitimate risks that could harm the moat and the business resilience:
  • Technological Disruptions: The fast-paced nature of technology and the possibility of disruptive technologies can affect the durability of Mobileye’s moat. Competition might create better and cheaper tech, which would be hard to counter by MBLY.
  • Competition from established OEMs: Several automakers are trying to develop their own ADAS and AV systems, which could make MBLY a supplier of the past, thus damaging its market share. This will primarily depend on how much in-house development capabilities these companies have or are able to build.
  • Dependence on OEMs: They rely heavily on OEMs for the integration and purchase of their products, thus they might have to reduce prices due to the bargaining power of larger OEMs.
  • Financial problems from large OEMs: A lot of their revenue depends on a small number of OEM clients, if any of them face bankruptcy or financial distress it might have a negative impact on the business.

Understandability: MBLY is a very technically complex business to understand, with multiple products and solutions and different revenue models. Some concepts are hard to grasp, for a non-technical person, like the concepts of their advanced driver assistant solutions. Thus, the rating is slightly on the higher side, but as we break down the complexity of the business into different segments, it’s easier to understand what the business is and how it operates. Rating: 3 / 5

Balance Sheet Health: The company has a great cash position and has very little debt, giving them a lot of financial flexibility. They do spend a lot on research and development, but this is not a weakness rather its a strength that increases their technological abilities and enables them to compete better. Rating: 4 / 5