As the grand prix of autonomous vehicles races ahead, investors are not only trying to determine who will take the checkered flag, but where to place their money along the way. There are multiple players in the game, some bigger names than I at first realized. And if their hard work can take the steering wheel out of the hands of drivers more concerned with talking, texting, or tweeting while in the car, then I'm a big fan -- no matter who wins. Fortunately, this isn't a zero-sum game. Rather than focus on a single stock, I believe an individual can put together a small group of stocks focused on the self-driving car concept.
Mobileye and Waymo
Mobileye (MBLY) holds the first-to-market advantage and current dominant market share. The company is more software than hardware, and already controls 65% of the market. A stake in MBLY gives an investor not only driverless car technology, but also exposure to safety features, like lane departure warnings and collision avoidance systems. The company is focused more on the sensor-heavy/mapping-light approach to autonomous vehicles as opposed to Waymo's (soon-to-be spun off from Action Alerts PLUS holding Alphabet (GOOGL) ) map-heavy approach.
MBLY's system will involve eight cameras, radar, and mapping for redundancy. While it's current crowd-sourced mapping system trails Waymo's Google Maps, it is gaining ground. Plus, MBLY has partnered with Intel (INTC) and BMW to build self-driving cars -- with the expectation for 40 vehicles by the second half of 2017. Furthermore, MBLY has teamed with Delphi (DLPH) to create a self-driving platform to sell to auto makers in 2019.
Waymo may not be as sensor heavy, and while the mapping process is labor intensive, Alphabet is so far ahead of the game against peers, this company has a fantastic shot at being first to market with their own car. Incident levels are extremely low, and for anyone wanting a piece of the self-driving car sector, Waymo should be near the top of the list, if not the top. Granted, this one will need a longer-term view, since profitability isn't likely any time soon, but Waymo, along with MBLY top the list.
These two should occupy at least 60%, probably 65%, of the group.
NXP Semiconductors, NVIDIA and Intel
These are the hardware names of the group. While MBLY emphasizes software, systems need chips. Action Alerts PLUS holding NXP Semiconductors (NXPI) tops the list here, and should be a 10% position, if not 15%. NVIDIA (NVDA) is working with Tesla (TSLA) , and while not the main driver of the company, partnering with Tesla is a big win. If the company can avoid exclusivity going forward, expect it to eventually challenge NXPI and INTC for more space. I would still want to include it in my basket, even ahead of INTC -- so 5%, with INTC around 2% to 3%.
We know Tesla is ahead in terms of vehicle technology, but it appears behind in being first to market with an actual car, if we are to believe the testing currently going on in California. Waymo holds the lead. Tesla is more similar to the hardware names above. An autonomous vehicle is only going to be a small focus of what they do, which means it should remain a smaller piece of the group. Again, I would keep it in the 5% range.
This one is intriguing to me, since it is a breakaway from the rest of the group. The partnership with MBLY is intriguing due to the large number of auto makers that will eventually move toward the idea/concept of self-driving cars leading to production. The shares would provide a small yield and some minor diversification. I would plug it in with the remaining allocation -- 7% to 12% overall.
This is a concentrated portfolio and while not completely dependent upon the idea of the self-driving car, it will flourish best as the product and concept expand and gain acceptance in the driving community.