Tesla (NASDAQ:TSLA) is back in the news again — but for all the wrong reasons.
Earlier this week, the National Highway Traffic Safety Administration (NHSTA) opened a formal safety probe into the company’s driver assistance system Autopilot after a series of crashes at emergency scenes. The probe is the latest evidence that U.S. authorities are beginning to scrutinize driver-assistance technologies more closely after a period where automakers enjoyed free rein.
This isn’t the first time that the safety of Tesla’s Autopilot feature has been questioned. But this time, investors will want to pay close attention, for two big reasons.
First, the outcome of the current investigation could impact how soon autonomous driving becomes mainstream. While Elon Musk has frequently suggested the widespread use of autonomous vehicles is near, most automakers estimate that moment could be years or even decades away.
But there’s another reason why Tesla’s autonomous driving (AD) travails are so important. They finally shed light on the enormous (and still largely unappreciated) potential of lidar (Light Detection and Ranging) technology.
My take: self-driving cars are happening (very slowly). But lidar is quickly evolving from geeky technology into the DNA that powers autonomous driving.
If you’ve been on the fence about lidar stocks, now’s the perfect time for some due diligence. Shares of my three favorite plays have declined around 15% on average over the past 5 trading days, providing an excellent entry point.
As with any disruptive, early-stage technology, don’t expect fast-money-type returns. Patient long-term investors who can see the big, long-term picture stand to win big. But before we get into my top three sector picks, let’s take a closer look at Tesla’s recent troubles to explain why lidar stocks are raring to go.
More Than Meets the Eye
When it comes to autonomous driving, as with many other technologies, Tesla does things differently.
The company’s Autopilot is a computerized system that relies on radar and cameras to do the “seeing” required to detect lane markings, other vehicles and objects in the road. The car can then steer, brake and accelerate automatically with little input from the driver. Musk tweeted earlier this month that Tesla’s advanced camera-only driver assistance system, known as “Tesla Vision,” will soon “capture turn signals, hazards, ambulance/police lights & even hand gestures.”
Tesla has said its Autopilot should be used only on divided highways, but several videos on social media show drivers using it on all kinds of roads. The NHSTA has identified 11 crashes since January 2018 in which Teslas “have encountered first responder scenes and subsequently struck one or more vehicles involved with those scenes.”
The lidar community believes their tech could have prevented these accidents and fatalities. Whereas Tesla’s Autopilot largely uses a camera to “see,” lidar uses lasers to form a three-dimensional image of the surveyed surroundings. It then uses data processing software to create images and identify objects.
Musk has famously expressed his disdain for lidar as a “fool’s errand.” Yet these recent incidents make two important vulnerabilities of camera-based AD systems glaringly obvious.
First, while cameras may be more reliable as a vision system, they lack range-detecting features. Simply put, a camera can’t tell you how far away an object is. But Lidar can.
Second, bright light and adverse weather conditions greatly impair a camera’s ability to “see.” In fact, most industry observers attribute Tesla’s safety issues to camera saturation, which occurs when too much intense direct light blinds a camera from seeing a large object in front of it (such as an overturned truck). Looking at the crash incidents more closely, NHTSA said most of the 11 crashes took place after dark and crash scenes included measures like emergency vehicle lights, flares or road cones, which could easily confuse a camera-based AD system.
Several pure-play lidar companies have run some interesting computer simulations which suggest such crashes could be avoided if automakers would incorporate lidar technology in conjunction with existing vehicle cameras. Cameras plus lidar would offer redundancy and greater safety for autonomous vehicles.
Here are 3 lidar stocks that are ready to race:
These are three stocks I think show early promise in the lidar space. These names could be the next big winners in your growth portfolio.
Lidar Stocks to Buy: Microvision (MVIS)
Microvision is potentially the next big thing in both lidar and Augmented Reality (AR). The company’s long-range lidar sensor A-sample hardware was released in April of this year. Expect to see more of a “coming out party” for the company’s technology at the upcoming IAA Mobility 2021 Show in Munich next month.
The interesting thing about Microvision is that the company’s AR story is also heating up. The latest: in its most recent conference call, CEO Sumit Sharma confirmed that Microvision’s technology is being used by Microsoft (NASDAQ:MSFT) for its HoloLens 2 (HL2) head-mounted mixed reality device.
Frequent InvestorPlace readers will recall that I commented on this relationship days before it was publicly announced on the earnings call. The bottom line: Microsoft plans future versions of the Hololens with the ultimate goal of smart glasses replacing smartphones.
My take: sitting squarely in two growth markets, I expect to see MVIS re-test the $25 levels we saw in April as we get more news flow on lidar traction and potential royalty revenues from Microsoft.
Innoviz (INVZ)
One of my favorite lidar names Innoviz offers a compelling combination of interesting technology and valuation. In fact, I just recently interviewed INVZ CEO Omer David Keilaf about lidar technology and the company itself.
Innoviz, which went public via SPAC IPO in April, has promising technology and a design win with BMW (OTCMKTS:BMWYY), yet is currently trading about 30% below its $10 IPO threshold.
The company’s recently announced InnovizTwo sensor is planned to enter samples in 2022 with a goal of reaching production levels of between 500,000 and 1 million units by 2024. Innoviz also has a contract funnel of 36 deals under evaluation. The company claims 25 deals in the RFI/RFQ process in addition to the BMW deal.
As with all names in this space, expect revenues to remain modest (and choppy) for now. The company re-affirmed its previously announced forward-looking order book guidance of $2.4 billion. That’s evidence to suggest there could be more imminent design wins on the horizon.
Luminar (LAZR)
Luminar has always been a lidar darling as one of the first pure-play companies to go public in the space.
While I’ve always liked the story, the stock has traded at a hefty valuation. That said, LAZR stock has declined over 50% year-to-date and currently trades at around $15 per share, offering a compelling entry point.
Q2 earnings were strong, with the company delivering a revenue beat and raising its sales forecast for the year. Importantly, Luminar claims the industry’s first standardization win with Volvo (OTCMKTS:VLVLY) in automotive lidar.
The company also made progress on its five key milestones for 2021. These include locking down over 85% of the series production supply chain and tooling for its Iris sensor.
Reader Question of the Week: Is Palantir Stock A Buy Yet?
“It looks like the quarterly results addressed your concerns on the commercial business and [revenue] growth …..and even free cash-flow, the mother of all metrics. Do you agree?”
From the article Dear Alex Karp, our Readers Have Some Fundamental Questions About Palantir
Great question, and yes! I was pleasantly surprised by evidence of improving traction in Palantir’s (NYSE:PLTR) enterprise segment on the Q2 earnings call. Trouble is, PLTR stock looks fairly valued at over 100x forward EBITDA and 30x sales, in line with revenue and earnings growth.
My issue with the stock has always been the valuation, never the story itself. I still think the stock is range-bound for now and would not initiate a position at these levels.
Your comments and feedback are always welcome. Let’s continue the discussion. Email me at jmakris@investorplace.com.
Disclosure: On the date of publication, Joanna Makris did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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