Autonomous car mania is growing. Tesla (NASDAQ: TSLA) had an epic 2020 with a nearly 700% share price increase, a slew of other electric vehicle automakers went public via SPAC in 2020, and fresh news surfaced that Apple (NASDAQ: AAPL) is working on a long-rumored car project.

Just in time to cash in on the auto tech fever is lidar (light detection and ranging) technologist Aeva, which will be merging with special purpose acquisition company (SPAC) InterPrivate Acquisition (NYSE:IPV) by the end of the first quarter of 2021. Thanks to an additional $200 million investment announcement from tech investor Sylebra Capital, Aeva expects to raise $560 million in cash from its IPO.

I recently spoke with Aeva co-founder and CEO Soroush Salehian to discuss why his lidar start-up is worth getting excited about.

A woman sitting in a self-driving car video conferencing on her phone

Image source: Getty Images.

A quick primer on lidar, and why Aeva is different

This is not a scientific discussion, nor am I by any means an expert on "seeing" technology like lidar, but a primer on what Aeva is developing is helpful. Lidar uses lasers, like radar uses radio waves, to measure the distance between objects and create a three-dimensional representation of what the world looks like. Most automakers use a combination of radar, lidar, and computer vision (a system that uses images and video and applies AI to identify objects) in their advanced driver-assist systems (ADAS) and autonomous vehicle (AV) development -- with the exception of Tesla, which uses only radar and computer vision technology.  

The 2020s should be the decade ADAS-enabled cars and (eventually) AVs go mainstream. And since over 60 million vehicles were sold globally in 2020 -- some 15 million units less than 2019, an exceptionally difficult year for the industry given the emergence of a certain pandemic -- the market opportunity is obviously quite large. Various estimates peg global spending on lidar to be roughly $2.5 billion by 2025, up from about $1.1 billion in 2020.

The industry is currently dominated by incumbent and lidar technology first-mover Velodyne Lidar (NASDAQ:VLDR), but breakthroughs by Aeva and peer Luminar Technologies (NASDAQ:LAZR) (which just went public via SPAC in December 2020) could rapidly expand the market overall. Luminar for its part boasts the ability to measure distances long range and create "camera-like" resolution imaging for ADAS and AV systems. Luminar is helping supply lidar sensors for Mobileye (part of Intel) and is working with several large automakers. But Salehian and his team at Aeva think they've made a big leap forward.

Salehian and his co-founder Mina Rezk have developed lidar directly on a semiconductor. Salehian believes the tech is a monumental step toward mass commercialization of lidar. It enables more cost-effective manufacturing and lower power consumption -- the latter an underrated feature of tech hardware as low-power chips make designing a system much easier for engineers. Aeva's tech is also the only lidar that can measure velocity, the speed at which an object is moving.

A young "story" stock

Indeed, all of these features open the door to new use cases for lidar and are the reason Aeva piqued my interest. Salehian and company envision lidar outside of the auto industry embedded in consumer electronics like smartphones and tablets, consumer healthcare products, and industrial robotics. Here's an example, per Salehian: Because of Aeva's ability to measure velocity at a distance, "imagine working out on a Peloton Interactive or [smart] TV and you don't have to wear anything and the device can track your fitness levels and vitals." This lidar feature, potentially cost-effective and scalable for general consumer use for the first time, is "a potential crown jewel feature that doesn't exist yet" for lidar that Aeva hopes to exploit.

This is what has me intrigued by the company. Especially when it comes to hardware, I'm enamored with companies that are able to apply their tech to new fields of study and expand their reach. It's why a certain hardware company named NVIDIA (which started with video games but is now a growing leader in cloud computing and AI) tops my list of chip investments. Similarly, Salehian and Aeva are already looking beyond the auto industry to see where else lidar might be able to change the game. I like that kind of visionary thinking. It helps a company that's primarily a supplier (like NVIDIA is, as Aeva will be too) avoid getting pigeon-holed in a single industry.

For now, though, Aeva will primarily be focused on autos, as well as some applications in industrial equipment and security. Based on existing partnerships with customers like Porsche (primary shareholder of Volkswagen Group and Audi) and including a manufacturing agreement with German auto parts leader ZF Group, annual revenue is expected to be just $11 million in 2021. But as mass production gets underway, Aeva expects revenue to ramp up to $286 million in 2024 and $880 million in 2025. Nearly 80% of that long-range projection will come from the automotive industry.

That makes this a story stock, a bet on the company's ability to execute on its production plans in the next few years. The good news is that while shareholders wait on the arrival of revenue, Aeva will be flush with some half a billion dollars in cash. And if it does reach its $880 million revenue benchmark by 2025, the company projects it will generate very healthy free cash flow (basic profitability measured as revenue minus cash operating expenses and capital expenditures) of $343 million.

A wild card that could lead to breakaway potential?

Also of note, Salehian and co-founder Rezk founded Aeva in 2017. Their previous home? Apple, where Salehian tells me they both worked in Apple's Special Projects Group, specifically as heads of engineering teams for the tech giant's "Sensing Systems" unit. If there's any company that knows how to develop a complete system spanning hardware and software, it's Apple. I think this experience will serve Aeva well as it takes aim at the auto industry and beyond, and could be a wild card as the race on the nascent AV industry heats up.

It all sounds promising, but should you make a bet on Aeva stock? I plan to, but I'll be keeping my initial position small (less than 1% of my portfolio) since I have the ability to buy more over time if Aeva does in fact gain traction. I'm a young and aggressive saver and have a higher-than-average penchant for taking risks (meaning I don't mind volatility in the value of my investments). If that fits your situation, Aeva might be worth some attention.

If you decide to buy, just remember to take it slow and start small. If Aeva's ambitious plans transpire, you won't need to bet the farm here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.