As I noted in my column yesterday, the world needs to prepare itself for a world in which Mobility-as-a-Service renders traditional means of transportation obsolete. Just as car companies had better be ready for MaaS, investors had better be ready for new types of combinations between automotive and tech companies. Reuters reported Tuesday that GM (GM) and Amazon (AMZN) were considering investment in Rivian, a company that displayed an almost market-ready (deliveries are scheduled to begin in late 2020) battery-electric pickup at the recent LA Auto Show.
Turn back the clock five years and could you imagine using GM and Amazon (also reportedly an investor in Aurora (JG) , which is on the California DMV list as a participant in self-driving testing on public roads) in the same sentence? The ramifications are so vast, it makes my head spin, and are certainly relevant to investors. GM is currently trading at 6x 2019 consensus EPS, while Amazon commands a 2019 P/E ratio of 62x. There is a lot of room in the middle.
Should mobility businesses be valued as car companies or as tech companies? How much value should Alphabet's (GOOGL) Waymo be given when its mission is so far from the core Google search engine business? And what of Apple (AAPL) , a company prominently featured in the CA AV testing list, yet whose Project Titan AV effort -- co-headed by former Tesla VP Doug Field -- has been shrouded in so much secrecy that it is impossible to value at this time?
But just as MaaS holds incalculable promise, I believe ADAS is virtually worthless from a corporate value perspective. Yes, that is aimed at fanatical Tesla (TSLA) bulls who attribute billion of dollars of value to the data Tesla has gleaned from its owners driving million of miles on Autopilot, including in "shadow mode," which allows the company to record vehicle activity data.
I am all for safer cars, but there have been countless safety innovations in my 26 years of analyzing the auto sector that have become commonplace and are not even advertised anymore, let alone added to an MSRP. Do you pay extra for airbags? No, they are mandated by law. Do you pay extra for rear view camera? You may have, but as of May, 2018 they are also mandated by law in the U.S. Do you know if your car has emergency brake assist, which is available even in inexpensive cars such as the $18,000 Nissan (NSANY) Sentra?
So, that's what happens with all advanced driver assistance systems, not just those geared to autonomous driving. They become standard and expected by consumers, and thus commoditized. That's the route ADAS is heading; cool factor only lasts for so long.
To conflate what Tesla, BMW (BMWYY) and VW (VWAPY) are doing with ADAS with the MaaS efforts of GM, UBER, Apple and Alphabet (among others) is just plain wrong. The two strategies are not mutually exclusive, of course. The larger OEMs have clearly dedicated resources to both efforts, but that requires masses of capital. Tesla doesn't have that. While some on Wall Street, including Adam Jonas of Morgan Stanley, have attributed value to Tesla's "Tesla Mobility" business, there is no evidence that is a separate business unit within Tesla, and, obviously, that division didn't test any AVs on California roads last year.
I cannot overstate the importance of understanding buzzwords before investing in companies that use them. I was a sell-side analyst in the late 90s, and I can't even count how many corporate management teams included a "dotcom angle" in their investor relations messaging in 1999. Yes, that included the car companies, my area of specialty. If you bought Ford (F) at $30 per share in October 1999 on the promise of ford.com, you are now stuck with an $8 stock (plus the receipt of dividends, of course) and if you also bought GM then to gain exposure to gm.com, obviously your shares ended up worthless with the company's 2009 restructuring.
As always, knowledge is power, so don't invest in the future of MaaS by buying shares in company that is focused on ADAS. Your average driveway-dweller Chandler, Arizona may or may not know that, but in investing ignorance is never bliss.