In this segment from the Industry Focus podcast, Sean O'Reilly and John Rosevear talk about a few of those most important companies that investors should look into at if they're interested in buying into the exciting potential future of self-driving cars. Also, they look at a few trends that might face the auto industry if and when self-driving cars take off.
A full transcript follows the video.
This podcast was recorded on Aug. 25, 2016.
Sean O'Reilly: I did want to get your thoughts on a bottom line for investors here. We've mentioned a couple great companies. As you mentioned, Delphi is crazy profitable. It trades on the NYSE, DLPH, market cap of $18 billion, forward P/E of 16. Mobileye, of course, they're an Israeli company, but they trade here, MBLY, market cap at $10 billion. Of course, Tesla. Of course, all the other automakers. Where do you think -- from talking to all the people in the industry that you do -- the money is to be made in driverless cars? Is it software? Is it entertainment in my car? Is it just buying Ford? What do you see shaking out here?
John Rosevear: It's a tough question. From a systems, software, hardware perspective, Mobileye is the purest play. Unfortunately, everybody has figured that out, and the stock is really expensive.
O'Reilly: Yeah, what is its earnings per share? Like $0.30? For a $48 stock?
Rosevear: Something like that, yeah. It's a really crazy valuation. And we have to look at that and go, "This is a well-positioned company, it's well-run, it's solidly profitable, it really does have the expertise." But, you have to pay big.
O'Reilly: So, it's the pure play on the brains that go in these cars? Is that bottom line?
Rosevear: Yeah. It's the pure play on the thing that makes the sensors talk to the computer. And on some of the software, actually, the deep learning software, the machine learning stuff.
O'Reilly: Is there any legacy type of repeat business cash flow type thing, like how Microsoft had Windows? Do you know what I mean? Is there any of that with Mobileye?
Rosevear: If so, it's not visible yet. Again, part of the problem here is, how is this going to shake out over the next four years? We don't know. But just in the last month, we've had a ton of news. We had this deal, we had Ford (F 1.21%) coming out and doing this big thing at their Silicon Valley tech center. Did you know Ford has a Silicon Valley tech center?
O'Reilly: I did not!
Rosevear: When Mark Fields came out and gave that whole news about, "We're going to be mass-producing level-four cars in 2021, and the whole world went, "Really?!" And we have Uber saying they're starting this pilot program any minute now in Pittsburgh, and this was after Lyft and GM (GM -2.68%) said in May, "We're going to start a pilot program within a year." By a pilot program, I mean self-driving cars where there are people in the car ready to grab the controls, but they're operating as Uber or Lyft rides.
O'Reilly: On a previous show, we talked about the valuations of Ford and GM. What's Ford's multiple, like, 6 or something? It's crazy low. Is this really bad for the automakers? Because, we've also talked about how auto sales are historically at kind of a peak. It's like 17-18 million cars. Is this bad for them?
Rosevear: No. Not at all. There are people who argue, "Everybody will use robot Uber in the future and nobody will buy cars." I think that's decades away, if it ever happens. You might use robot Uber if you live in Pittsburgh, but if you live in Texas, you'll be buying F-150s. It's possible that in 20 years from now, F-150 will be electric and have self-driving capabilities, but it'll still be an F-150. That market may go away, but probably not in my lifetime.
O'Reilly: I had a bit of an insight when I was talking to someone earlier, like, "Oh man, auto sales are going to fall through the floor if nobody owns a car," but then I realized, if you have all these driverless cars circling cities and giving people rides, that's a lot of miles. And the life of a car might just be a lot shorter when they're driverless.
Rosevear: Yeah. How long do police cars last? How long do taxis last? On the one hand, there's thinking that electric cars will be simpler to maintain and more durable over time. On the other hand, there aren't that many of them out there with half a million miles yet, so we don't really know. There's still a certain amount of speculation to this. Yeah, there will be a market. Somebody's going to be selling cars to Uber and Lyft. We know where GM has put its play. And somebody is going to have to build the cars.