NVIDIA's (NASDAQ:NVDA) much-hyped automotive business has been under pressure of late. The emergence of a potent rival in the form of Intel, the loss of a marquee client (Tesla), and other major hiccups, such as the fatal Uber accident, seem to have weighed on NVIDIA's automotive progress. The company, however, has now taken a step closer to bringing autonomous cars mainstream.
NVIDIA has revealed what it calls the world's first commercially available Level 2+ autonomous driving platform -- the DRIVE AutoPilot -- to enable the production of self-driving vehicles from as early as next year. Tier one automotive component suppliers Continental and ZF will build autonomous driving solutions based on the NVIDIA offering starting in 2020, indicating that NVIDIA will monetize its self-driving technology sooner rather than later.
Why is this significant?
Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Waymo made a big splash late last year when it launched its commercial robotaxi service -- Waymo One -- in Phoenix with Level 4 self-driving technology. Waymo has superior self-driving tech as compared to NVIDIA as its cars can operate without a human driver (if the law allows that), though they can only operate in areas that have already been mapped.
That's why the Waymo One service is currently restricted to select customers and covers an area of only 100 square miles around the Phoenix metro area. That prevents Alphabet from commercially selling or licensing its Level 4 technology on a mass scale, but it's unlikely Alphabet wants to do that.
Waymo is s focused on building a fleet of self-driving taxis over time and expanding its service to more cities. NVIDIA, on the other hand, seems to be making a smarter play that will help it go after a bigger opportunity.
By coming up with a Level 2+ solution that brings basic self-driving features -- such as automated steering and braking in limited conditions, like on a highway and under supervision -- NVIDIA is taking a small but significant step in self-driving cars.
NVIDIA's platform will allow automakers to integrate "full self-driving autopilot capabilities, including highway merge, lane change, lane splits and personal mapping" into cars. The system will also help them deploy intelligent cockpit assistance systems such as driver monitoring and artificial-intelligence-enabled co-pilot capabilities.
NVIDIA believes that these features go a step ahead of what the current Level 2 advance driving assistance systems (ADAS) deliver -- namely, adaptive cruise control and "lane keeping." According to a study by the Insurance Institute for Highway Safety, as reported by NVIDIA, current systems are unable to detect vehicles consistently on curves or hilly roads, forcing the driver to take control of the car abruptly as the autopilot system disengages.
But NVIDIA's DRIVE AutoPilot is powered by the Xavier system-on-a-chip (SoC), which is equipped with massive computation power that can process 30 trillion operations per second. The SoC comes equipped with six types of processors to process huge amounts of data in real time so that it can determine the position of other vehicles on the road, understand lane markings, detect pedestrians, and understand traffic signs, among others. That should lead to fewer disengagements.
The road to monetization
NVIDIA has already found a couple of credible partners that are already developing automated driving architecture using AutoPilot. Continental is the top-ranked supplier of ADAS across the globe, while ZF is another leading player in this space.
In fact, Continental and ZF controlled a quarter of the ADAS market a couple of years ago. These two companies will now equip vehicle electronic control units (ECUs) with NVIDIA's Xavier chip platform from next year, and that's how the latter will be able to monetize its self-driving technology.
Demand for ADAS is growing at an annual pace of 19% a year, while the digital cockpit market is growing at a faster rate of 24%. As a result, it won't be surprising to see NVIDIA's automotive growth go up a notch and boost its overall business.
The company currently gets just over 5% of its revenue from the automotive business, and the good news is that this segment has stepped on the gas of late after a lull. NVIDIA's automotive revenue shot up nearly 20% year over year during the third quarter, which was an improvement over the 13% growth in the same period last year.
More importantly, NVIDIA's baby step could help it unlock the doors toward higher autonomy levels. That's because the Xavier chip architecture is a scalable one and complements the superior NVIDIA DRIVE AGX Pegasus system, which supports up to Level 5 autonomy in self-driving cars.
Pegasus is basically made of dual Xavier SoCs and can process 320 trillion operations per second, making it ideal for deployment in robotaxis. So NVIDIA has set its grand plan to make a dent in the autonomous car industry in motion with its latest announcement, and the results should be there for everyone to see soon in the form of faster automotive revenue growth.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Nvidia, and Tesla. The Motley Fool has a disclosure policy.