A new era for the automotive industry.
The automobile industry is going through one of the biggest evolutions in its history. There are two simultaneous trends that are changing everything. First off, after many false starts, it appears that the era of electric vehicles, or EVs, is finally here. Particularly in wealthy countries, governments are starting to mandate EV adoption in coming years to reduce carbon emissions. That fits nicely with the other sea change: self-driving vehicles. With cars moving away from the internal combustion engine, that gives a big impetus toward further on-board digital systems in addition to the battery. The biggest prize would be a safe, cheap autonomous vehicle. This would change everything from commuting to ride-sharing, long-distance trucking, and much more. The technology is new and fast-moving, and some early favorites probably won’t make it to the finish line. That said, these seven companies seem poised to profit from the coming autonomous vehicle trend.
Volkswagen AG (ticker: VWAGY)
Volkswagen is a one-stop shop to get access to the major EV and autonomous vehicle trends. Volkswagen is one of the fastest adopters of electric vehicles globally. In addition, it has all sorts of partnerships with autonomous driving firms, software makers, battery producers and the like. Volkswagen has a ton of optionality as it is invested in or partnered up with a laundry list of movers and shakers building the car of the future. Perhaps most interesting is Argo AI. Volkswagen has invested more than $2 billion into a partnership with the autonomous driving firm to develop the ID Buzz AD, an electric, Level 4 autonomous van, which means it could operate in self-driving mode. Argo AI showed it off to observers this fall. Volkswagen hopes to launch a self-driving ride-share program using Argo vehicles in 2025.
Alphabet is another great choice for investors looking for exposure to autonomous vehicle stocks. The company’s Waymo unit has some of the most advanced self-driving technology out there. Waymo vehicles have been out on the streets for years now, collecting data and improving their capabilities. Waymo also ties in nicely with Google’s other features such as its Maps unit for future integrated self-driving offerings. Like with many Google moonshots, it’s not entirely certain what the end monetization plan is for Waymo. However, there’s no doubt that the firm has the technical chops and the financial capability to be one of the dominant players in autonomous vehicles. In the meantime, the core Google search business remains a cash machine, offering investors a solid fundamental backdrop while waiting to see how Waymo develops.
General Motors Co. (GM)
Among legacy American automakers, General Motors arguably has the most interesting autonomous vehicle program. Namely, GM has the Cruise division, which has already made great strides. GM has secured investments from notable backers such as SoftBank Group Corp. (SFTBY) and Honda Motor Co. (HMC). More recently, Microsoft Corp. (MSFT) pumped $2 billion into the company, which valued Cruise at $30 billion overall. GM’s overall market capitalization is just $90 billion, meaning that the rest of GM’s business is quite cheap, especially considering that the whole firm is trading for just 8 times earnings at the moment. Cruise has already started driving its vehicles on the streets of California. In due time, GM should be able to incorporate Cruise’s technology into its overall lineup of new vehicle offerings.
Intel Corp. (INTC)
It’s impossible to have autonomous vehicles without world-class semiconductors and computer systems. If humanity is going to trust machines for transportation, they have to work flawlessly. Any sort of risk whatsoever would make autonomous vehicles nearly impossible to insure. To get autonomous vehicles to that level will require a combination of powerful hardware and finely tuned software. Enter Intel. The company bought Mobileye for $15 billion in 2017. Mobileye is one of the leaders in data collection and processing in autonomous vehicles. Ultimately, it aims to be the biggest provider of advanced driver assistance systems, or ADAS, for self-driving. Intel was a logical owner for Mobileye, since it can now produce both the hardware and technology for vehicles. This sets the stage for the PC chipmaker to have a strong second act in the 2020s.
Texas Instruments Inc. (TXN)
Like Intel, Texas Instruments is another semiconductor company that quickly saw the opportunity in vehicles. While most semiconductor shops focused on fast-moving consumer electronics such as cell phones, Texas Instruments sought to win the auto market. It now has a commanding position there, selling chips and sensors for a whole variety of uses. It competes in the ADAS space and is also involved in automotive body electronics and lighting, electric and powertrain systems, and the entertainment systems and display screens in vehicles. Texas Instruments is a lower-risk way to play the autonomous vehicle movement. Regardless of which producer ends up winning the most market share, Texas Instruments is bound to sell a ton of chips that go into those cars.
Luminar Technologies Inc. (LAZR)
For a more pure-play version of this idea, there are the light detection and ranging, or lidar, companies. Several of these have recently become public, making it hard to decide which will be the ultimate winner. However, Luminar Technologies has had the most trader interest and the best stock performance of the bunch so far. It’s not hard to see why. Luminar has developed partnerships with key industry players such as Volvo and Daimler AG. Mobileye also selected Luminar to supply lidar sensors for its own autonomous vehicle program. As if that weren’t enough, Luminar also recently announced a deal with Nvidia Corp. (NVDA) toward furthering that company’s Drive Hyperion autonomous vehicle platform. Luminar isn’t big yet; analysts see it generating $32 million in revenues this year. However, it is already generating commercial sales. Meanwhile, Deutsche Bank AG (DB) is bullish on the stock and sees its revenues skyrocketing to $400 million in 2024.
ChargePoint Holdings Inc. (CHPT)
Another way to ride the autonomous vehicle megatrend is to own the charging equipment. Self-driving electric vehicles will be far more useful to consumers if they can recharge themselves automatically as well. That unlocks a wider range of utility, particularly for ride-sharing or commuting applications. To that end, ChargePoint is an intriguing option. The company is building out a network of tens of thousands of charging stations. It’s currently the third-largest charging network in the U.S. and is among the most important outside of Tesla Inc. (TSLA). ChargePoint is rapidly growing revenues and building out a software ecosystem that should allow it to develop a higher profit margin business. Adoption of ChargePoint’s technology slowed during COVID-19, but if the company can get back on track in 2022, shares could be a steal given the 2021 pullback. In addition, the recent infrastructure bill should provide a boost to companies like ChargePoint, which provide green infrastructure.
Top seven autonomous vehicle stocks:
— Volkswagen AG (VWAGY)
— General Motors Co. (GM)
— Intel Corp. (INTC)
— Texas Instruments Inc. (TXN)
— Luminar Technologies Inc. (LAZR)
— ChargePoint Holdings Inc. (CHPT)
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