Elon Musk has been all over the news these days for reasons that have nothing to do with investing. But before Musk decided to go all in on DOGE (the Department of Governmental Efficiency), he made a few comments on the last Tesla (TSLA) call about self-driving cars that made me take notice.

Musk said that Tesla’s future, and, in his opinion, everyone’s future, lies in two innovations: autonomous vehicles, and autonomous humanoid robots.

The robot angle is one I’m not going to touch on here. It could be huge (imagine robots that do your dishes, clean your house, or even help prep dinner), but these robots are still years away. What I’m interested in are autonomous vehicles – in other words, self-driving cars.

If we believe Musk, Tesla’s full self-driving (FSD) robo-taxi is coming to Austin, Texas in the summer of this year.

Of course, Musk's promises don’t always pan out. On the call, he even called himself “the boy who cried wolf" several times. But he followed that up with a caveat, saying this time, “there is a damn wolf and... It can drive you. It’s a self-driving wolf.”

Making 'Cents' of Self-Driving

Taking a step back, FSD cars just make sense. A commute where I can read a book, the family napping on vacation to arrive rested at the destination, even just getting out at the front door while the car finds its own parking spot.

Now I know, I know, it also sounds scary. It is, because it’s a brand-new thing. But with AI improving at such a rapid (and alarming) rate, I think it won’t be long before cars are more safely driving themselves than we ever are. That makes it a big opportunity for someone – and maybe not just Tesla.

Tesla is no doubt the leader here. Yet given how Tesla has morphed into a political proxy on the Donald Trump administration, I’m just not sure I want to go there. Fortunately, there are other beneficiaries to consider.

Self-Educating on Self-Driving

My introduction to self-driving cars came from a deep-dive into what became a portfolio holding, Arteris (AIP).

Arteris develops semiconductor IP. What they do is akin to an auto-OEM that only designs transmissions. The OEM doesn’t design the whole car, and Arteris doesn’t design the whole chip, but they are a key piece of the final product (in this case, the semiconductor).

Arteris specializes in the interconnection interface between chips. One big end-market for this is to power the advanced driver assist systems (ADAS) that we have today. ADAS is the stepping stone to fully autonomous driving, and you probably use it every day if you have a car that beeps when another car passes behind you in a parking lot, or if a car is close by on the freeway when you begin to change lanes.

Arteris’s biggest customer is Mobileye (MBLY). Mobileye uses Arteris IP in their ADAS EyeQ6 and EyeQ7 chips. They will (soon) use the IP to power their next-gen, autonomous driving semiconductors.

Source: Mobileye Investor Day Presentation

I started looking at Mobileye lately, and what I was surprised by was just how dominant they are. Mobileye has somewhere around 70% of the ADAS market, including 60% in China.

You might think that Mobileye would carry with it an eye-popping capitalization. After all, Tesla is a trillion-dollar company. Yet Mobileye has a modest market cap of about $14 billion. It is roughly the same price Intel paid to take Mobileye over in 2017. That market cap took a hit in 2024. Based on the following chart, you’d never guess this company could be on the verge of something big.

Source: Stockcharts.com

What happened? The short story: Mobileye had some revenue declines. In 2024, full year revenue was $1.65 billion, which was down from $2.1 billion in 2023. Ouch. The longer story is why. I see a couple of reasons, and none of them are about the long game.

Supply Chains are Not Your Friend

Mobileye identified they had an inventory problem in late 2023. They warned that their 2024 numbers were going to be impacted in early January. That coincided with the first big drop in the stock price.

The inventory issue was partly COVID-19, partly EVs. After COVID wreaked havoc on supply, auto-makers decided this wasn’t going to happen again. They began to over-order on key components. One factor that really held up car production was chip availability. As a result, many, many chips were ordered. Too many.

When auto demand slowed in 2024, the OEM’s had a problem and cut back on orders. Exacerbating this was Mobileye’s dependence on EVs and China. Mobileye’s advanced, hands-off solution is called SuperVision. Going into last year, SuperVision was only in EVs and largely in China.

It may surprise you to know that China has kept up with North America on developing assisted driving technology. Remove Tesla from the picture, and China is actually leading in next-gen, “hands-off” ADAS.

Source: Mobileye Investor Day Presentation

Mobileye’s early wins were with Chinese OEMs like SAIC Motor Corporation, FAW Group, Geely Auto Group (GELYF), and NIO (NIO). Those wins meant early revenue, but being reliant on China can be both a blessing and a curse.

Mobileye was vulnerable to replacement, as China learned the technology and followed the playbook of taking development in-house. This is exactly what began to play out in 2023, and it only accelerated in 2024. In fact, Mobileye’s recent 2025 guidance took a very conservative view of China, including some more moves to in-house production.

Don't Look Back, It's All Right

That was 2024. It explains the stock price going from the $40’s to the teens.

What it misses is two-fold:

1. Mobileye has a 70% share in ADAS with their EyeQ technology stack
2. Mobileye is beginning to win next-gen deals for SuperVision, for Chauffeur (eyes-off), and for Drive (no driver)

Source: Mobileye Investor Day Presentation

So, why is Mobileye winning? There isn’t a lot of competition. Mobileye provides an end-to-end solution. They give you the software, the cameras, the radar, as well as the LiDAR and the hardware to run it.

Both Qualcomm (QCOM) and Nvidia (NVDA) have chip solutions for ADAS and higher-level, autonomous driving. These are “open” systems. You buy the chips from Qualcomm or Nvidia, but it is up to you to program them, tie them into cameras, radar, and/or LiDAR.

There has been a debate going on about whether automakers would go “open” or “closed,” which is what Mobileye’s full stack is. Would the big Western automakers follow China and take their designs in-house?

Mobileye allayed those fears on their Q4 call. When asked directly about it, CEO Amnon Shashua said, “the third bucket in terms of in-house development, we don’t see a trend there. We don’t see anything that is serious about in-house such advanced product.”

This isn’t surprising. Some automakers have tried and failed. One well-known example is Nissan, which tried to solve the L4, L5 (the highest levels of autonomous driving) problem and realized that they could not make the software work.

Mobileye’s competition for a closed system solution seem to be only doing it for their own fleets: Tesla and Google-owned (GOOGL) Waymo.

Keeping Up with Tesla

And here is the second big complaint about Mobileye. Tesla's solution is better. Tesla, Waymo, and Mobileye all use very different approaches to accomplish FSD with varying reliance on cameras, radar, and LiDAR.

Source: Mobileye Investor Day Presentation

Tesla is camera-only. Musk believes that cameras alone can solve autonomy. In his usual, first principle, kind of statement, Elon said that humans have eyes and a brain, so why should cars need LiDAR?

Waymo, on the other hand, is LiDAR-based. While Waymo has cameras and radar, their primary sensor for perception is LiDAR. LiDAR stands for light detection and ranging – it is a sensing technology that uses lasers to detect distances. It is excellent at depth perception, but it comes with a cost.

Mobileye is camera-centric. The primary detection is via camera, but their approach includes two layers of redundancy – they layer imaging radar, which can create high-resolution, detailed 3D images of the surroundings, and use LiDAR as a third-tier fail safe.

There are plenty of arguments to be made in favor of each solution. Tesla’s solution is perhaps the most elegant. It does it all with only 8 cameras, less than Mobileye’s camera, radar, and LiDAR design.

To make it work, Tesla relies heavily on AI learning, which they call their neural network. That would be hard for an automaker to replicate in-house. And it’s unlikely that Tesla is going to be selling this to Volkswagen or Ford, their competition.

But does Tesla matter? If Mobileye has a solution that works and is expandable to multiple OEM vendors, I suspect they’ll win their share of business.

Crunch Time

Mobileye’s reliance on EVs may be true for cars in production, but it isn’t true for cars in development. Nearly half of their advanced system deals are for internal combustion engines.

What Tesla’s shot across the bow has done is strike a fire under some of the larger OEMs. The broader issue with Mobileye is that the traditional OEMs – Ford, Volkswagon, Toyota, and so on – have been slow to adopt the next generation of autonomous driving.

If Elon Musk is good at one thing, it is charging ahead. The rest of the auto industry, not so much. While Mobileye has had the product ready to go, the automakers simply haven’t been there. But that is changing.

On their Q4 call, Shashua said, “the work of Tesla is really creating a sense of urgency with our OEMs. We still believe that 2027 is really the right timing for introduction of these systems.”

At their Investor Day in December, Mobileye compared their OEM engagements at YE2023 to YE2024, and showed substantial progress.

Source: Mobileye Investor Day Presentation

Bank of America, which is anything but a Mobileye bull (they believe Tesla will be the big FSD winner over the next 15-20 years), admitted in a recent note that Mobileye, “appears close to securing a SuperVision/Chauffeur contract with a Japanese OEM and a Surround ADAS contract with a European OEM. It also appears close to a Surround ADAS contract with a US-based OEM.”

Mobileye has already announced deals with Volkswagen (which will start production in 2026), and it said others will start producing self-driving capabilities until 2027-28.

Stop Looking Out the Rear-View Mirror

Let’s get back to what we own. Arteris has always been a waiting game, with the payoff a few years out. We acknowledged this when we bought the stock, but we also knew that the market often looks ahead.

Sure enough, Arteris moved due to more design wins and greater certainty about future revenue. The stock has appreciated by some 50%+ since our initial buy.

Source: Stockcharts.com

I’m thinking that the same dynamic could play out with Mobileye. The 2025 numbers are not going to be great, though they low-balled guidance so blatantly that they could use a nice beat. Yet, new deals could set the stage for 2027-28 growth, and that might be enough for the market.

On the Q4 call, Mobileye guided weaker than the Street would have hoped. Yet, the stock went up 10%+ on the day. That had nothing to do with 2025. It was because they said they are getting close on deals and are not worried about Western automakers going in-house.

Their new products, like Supervision, carry price tags 10x higher than the legacy ADAS stacks that they have been selling in the past.

Source: Mobileye Investor Day Presentation

If they start winning deals for these stacks, revenue projections for 2027+ will quickly rise.

Back in March of last year, CCO Dan Galves said that their bookings were translating into future annual revenue of $7 billion, versus the run rate of a little under $2 billion right now. Bank of America, who, again, I want to stress is anything but a bull, is projecting even larger numbers if you look five or more years out.

Source: Bank of America

I’m not going to tell you Mobileye is “cheap.” The midpoint of their 2025 operating income guidance is $217 million, while the market cap is about $14 billion. That’s a hefty P/E.

Still, when I look around at what the market is pricing as “growth” stocks, especially those with unique, semiconductor tech-powering, next-gen solutions, I can’t help but think that the long-term potential is not in the price.

Everyone is focused on Mobileye’s recent failures and short-term headwinds, yet we are in a market that has been extremely forgiving to growth stocks as long as “the story” is intact (see: Tesla).

Well, times change. If Mobileye keeps its lead and wins the next-gen autonomous business, I think the stock has higher to go. And you don’t have to bring any politics into it.

---

More By This Author:

Inflation – It’s Lower Than You Think
Light Blue Skies Ahead For Canadian Heavy Oil Producers
Four Canadian Mineral Drilling Companies, And All Of Them Are Cheap