Industry Spotlight

How to navigate self-driving car stocks

There are currently zero self-driving cars for sale on the wider market. In fact, many of the leading names investing in this technology will not even be making self-driving vehicles at all, but instead will incorporate advanced driver-assistance systems (ADAS) which will give them varying degrees of autonomous capability.

 

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In anticipation of explosive growth – chip-making giant Intel [INTC] has predicted that self-driving cars could drive a “passenger economy” worth $7tn in value by 2050 – companies’ stocks in the space have ended up with lofty P/E multiples, making them an expensive growth gamble.

$7trillion

Estimated value of self-driving cars by 2050

  

Here, we explore three different facets of the automated driving industry ­– and look at how the companies operating within them are faring on the stock market.

 

The tech companies turned car makers

Uber stock

Since its much-anticipated IPO in May, Uber’s [UBER] stock has plummeted. At close on 12 November, it reached an all-new low of $26.70, following reports of widening losses for Q3 2019. The company is now down 39.9% on its debut price of $45.

When it unveiled its latest self-driving capable car on 12 June, produced in collaboration with Volvo [VOLV], Uber stock rose by 5.1% in the week following the news. The car will have human-operated controls like steering wheels and brake pedals, but also factory-installed steering and braking systems designed for computer use (although the company has said it is not yet ready to deploy vehicles without human controls). In November, Uber will start testing self-driving cars in Dallas, Texas.

Uber has been investing in self-driving R&D since 2016, but it had not made much headway on its own – and in March 2018, the company suffered a major setback when one of its autonomous vehicles hit and killed a woman in Arizona. It has since developed a string of partnerships with car manufacturers which has brought them closer to getting a fleet of self-driving cars together. The company, which lost $3bn in 2018, sees its move into autonomous vehicles as a path to profitability.

 

 

Tesla stock

Tesla’s [TSLA] share price is up by 11.6% year-to-date. The company’s stock shot back to highs last seen in December 2018 after unexpectedly returning to profit for Q3, 2019. Tesla’s forward price-to-earnings ratio is 76.34.

Co-founder Elon Musk is now looking to grant certain customers early access to a “feature complete” version of the company’s “full self-driving” capabilities (meaning an equipped Tesla Autopilot car will be able to drive without human intervention) as it plans to beta test the service by the end of 2019. Human drivers will still need to be ready to take control if the cars run into problems.

The wider plan for Tesla is to create its own network of drivers which own the FSD feature, whereby they can sign up and turn their vehicles into robotaxis while not using them.

 

 

The automotive industry heavyweights

Ford stock

The automaker’s share price has climbed by 11.5% this year, to trade at around the $8.81. The stock’s price-to-earnings ratio is currently 21.85, a modest value when compared to its fellow companies investing in self-driving technology.

Ford [F] fell slightly short of analyst expectations for automotive-segment revenue, which came in at $33.93bn, but beat earnings per share estimates, delivering $0.34 against expectations of $0.26. Despite this, the company had to lower its outlook for the remainder of the year, citing weakness in the Chinese and North American markets.

The company has said it is looking to deploy self-driving cars by 2021, according to The Verge. This means it is working on a slower timeframe than some of its competitors.                                                                                         

The fleet of cars will look to offer ride-hailing and delivery services across multiple US cities. Unlike its competitors, Ford does not plan for its vehicles to have human-operated steering wheels, accelerators, or brake pedals.

 

 

General Motors stock

General Motors’ [GM] share price has gained by 10.6% this year and the stock holds a P/E ratio on the lower end of its sector, at 6.30.

On releasing its Q3 results on 29 October, the company beat expectations for the third quarter drawing in revenues of $35.47bn and earnings per share of $1.72 versus the $33.82bn and $1.31 expected, respectively. This is despite the United Auto Workers’ 40-day strike against the automaker, which is expected to cost the company around $4bn this year. As a result, GM has lowered its full-year guidance.

GM’s Cruise Automation subsidiary has received investment from investment funds Softbank and T. Rowe Price, as well as automaker Honda, which suggests it has plenty of funds for research and development. But, this July, Cruise delayed its robotaxi service as it feels it needs more test miles for driverless development vehicles. It has given no timeframe on when these vehicles will launch.

 

 

The software suppliers

NXP Semiconductors stock

NXP Semiconductor’s [NXPI] share price has risen by over 58.3% in 2019 to 13 November, when the stock closed at $118.77.

As more manufacturers look for components for self-driving vehicles, NXP has been able to capitalize on the opportunity by developing software applications such as adaptive cruise control, lane change assistance, cross-traffic alerts, and blind-spot detection.

So, while car production is trending lower, particularly in Europe and China, NXP’s business in the radar and ADAS markets continues to grow. Last year, radar sensors accounted for 10% of the company’s automotive revenues. NXP is the number one supplier for complete radar subsystems, according to InvestorPlace, and has the potential to own over 20% of the overall radar market.

 

 

Aptiv stock

Aptiv’s [APTV] share price has made similarly enormous gains this year, the stock rising by 49.9% up to 13 November to close at $91.69, with its current P/E ratio sitting at 25.03.

In its Q3 results, the components maker, which specialises in ADAS, earned a net income of $246m, up 10% year-on-year. It earned $1.27 per diluted share on revenue of $3.6bn.

It saw strong sales growth of ADAS systems (29%) for Q3, driven by new products sales to several automakers, including BMW AG and Fiat Chrysler Automobiles.

Aptiv is considered to be making some of the most advanced autonomous vehicle systems on the market. In 2015, its Smart Vehicle Architecture allowed one of its cars to complete the first-ever coast-to-coast drive that started in San Francisco and ended in New York City, according to InvestorPlace.

 

 

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