Motley Fool contributor John Rosevear joins the show to break down the latest EV headlines.
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This video was recorded on Dec. 9, 2021.
Nick Sciple: Welcome to Industry Focus. I'm Nick Sciple. This week, John Rosevear returns to the show to get us up to speed on the latest in auto and EV news. John, thanks for joining me.
John Rosevear: Thanks for having me, Nick.
Nick Sciple: Excited to be here with you. Every time I've had you on the show in the past year, John, there has a lot to talk about. This is a big crazy time in the world of EVs and autos. Let's get to it. First story today: Maybe auto-adjacent Intel (INTC 1.81%) announced plans earlier this week to spin out its Mobileye unit. That's the unit that develops chip systems for self-driving cars. Mobileye was publicly traded until Intel acquired the business for about $15 billion in 2015. Today, reports are saying they're seeking a $50 billion valuation for Mobileye. John, what do you make of this news?
John Rosevear: Well, I don't follow Intel itself closely, but I know that Intel has not had a great few years. But on the other hand, Mobileye has gone gangbusters. That $15 billion that Intel paid for them was a hefty premium in 2015. But Mobileye has roughly tripled its revenues since then.
We should back up a bit. Mobileye is an Israeli company led by its co-founder, Amnon Shashua, who is one of the smartest people in the world working on what we call machine vision, processing images that cameras pick up, hence Mobileye, the name of the company. They do business with just about every automaker in the world with the exception of Tesla (TSLA 0.72%) and the possible exception of Toyota. But many things, they have made advances in self-driving software. They are working with Nio, the Chinese electric vehicle maker, on self-driving taxis that are coming very soon. A very impressive company. Has moved very quickly. At the time Intel bought it, it was pretty much the only pure-play self-driving stock. Now, of course, the field is a little more complicated, but I think a $50 billion valuation in the current market given current valuations will be easily reached. Let's put it that way.
Nick Sciple: Where do you put Mobileye in this constellation of, now there's Luminar out there, there's Velodyne? Nvidia, to a certain extent, plays in the self-driving universe. Where does Mobileye fit in there? Would you say they're a leader or a disruptor?
John Rosevear: Well, first of all, they're different from companies like Luminar and Velodyne because they're not making lidar. They're making, essentially, computer chips -- processing chips that process the images harvested by cameras, lidar, and so forth, to help the self-driving car or driver-assist brain, computer brain, make sense of it all. At this point, they've been around 15 years. I want to say something like that, a while. They weren't a new company when Intel bought them in 2015. At that time, they were already selling vision-processing chips to most of the world's automakers. If your car can sense when it's wandering out of lane or anything like that, chances are good that there is a Mobileye chip in that system software. They're vision processing systems on chips. They've gotten a lot more sophisticated since 2015. I think Mobileye remains out front of this. I don't know if you'd call them an incumbent now. They're certainly important to a lot of automakers' plans, whether that automaker is Ford or Nio, let's put it that way.
Nick Sciple: Just to put it in context again to your point, John, of how long they've been around. Gen 1 Autopilot, it was a Mobileye partnership. They've been around since the very earliest days of this business. You mentioned chips. The importance of chips in the auto industry has been a big part of the news this past year. Chip shortage affecting auto supply. Ford made a very significant deal earlier, about a month ago, with GlobalFoundries trying to shore up its chip supply. How does this still fit into the goings-on of the auto industry today?
John Rosevear: Well, it's interesting. In the early days of the auto business, Ford was a pioneer of vertical integration. They had this giant factory in Dearborn, Michigan, where the iron ore arrived on barges, and out the other end came finished cars. They bought rubber, they bought steel, they bought wood at the time when they were making Model Ts and so forth, all stuff. Since then, the auto industry as a whole has gotten away from that. They depend on suppliers. They work with third parties to create parts, and so forth. What we're seeing now, and this is something that Ford CEO Jim Farley has been talking about is going back so that they are taking control of the critical parts of their supply chain. As we've seen over the last couple of years, chips are a critical part of the supply chain. A lot of them come from or have come from China. With geopolitical uncertainties there, also Taiwan. Taiwan is a significant supplier of chips. Likewise, geopolitical uncertainties, and so forth. I think this goes toward automakers wanting factories close to where they build cars generally so that they can drive over or fly over and keep an eye on it [laughs] without needing a passport. GlobalFoundries is a significant company, an established chipmaker, and this is for taking control of another part of its supply chain as we've seen with batteries and other things.
Nick Sciple: Maybe this ties into Ford's ambitions. They said earlier this week they have plans to become the No. 2 EV maker. There has been some reports globally, some reports that they meant in the U.S. But anyway, within the next two years, they want to become the No. 2 EV maker, obviously behind No. 1 Tesla. What do you make of how this fits into Ford's EV ambitions, and I guess, the prospects of them achieving that goal?
John Rosevear: Well, they're not going to become the No. 2 EV maker in the world. I don't think anybody thinks that. For one thing, Volkswagen is ramping pretty aggressively in Europe and China. But it is possible that they could become the No. 2 EV maker in the U.S. or in North America. That would be more aggressive than Ford has led on until recently they say they want to make 600,000 EVs a year in a couple of years. That is significant. I think what Jim Farley with saying when he first said this is we're getting out in front of GM, which has, of course, gotten a lot of plaudits for it's very ambitious EV plans. I think Farley's saying, "Well, we might not sell them in a couple of years or at least for a little while," while they continue to ramp because Ford looked for a long time like they were lagging GM on ramping up to aggressive levels of EV production. But under Farley over the last year and a couple of months, they've really changed that tune a bit. It's just from what they're seeing in their own demand. They've got almost 200,000 reservations for the electric F-150 now. They're saying now they're not going to take any more reservations, or they may close them soon and now start, "You want one, go to your dealer, place an order." [laughs]
Nick Sciple: Scarcity mind set.
John Rosevear: Let's do this properly. Somebody at Ford, I think, it might have been Jim Farley himself, said the other day, "We are frantically trying to figure out how to make twice as many F-150 Lightnings as we had planned." [laughs] Because the demand is just so high. This is all part of that. Again, I don't think they're going to outdo VW or I do whoever globally. But if they can sell more EVs in the United States than Tesla does, and we know Tesla will be making more EVs, but a lot of those are sold elsewhere. Then that will be a small feather in Ford's cap, and that's what I think that realistically.
Nick Sciple: We'll see how that goes, their one last chip story, Stellantis. This is the company that has been formed from the combination of Fiat, Chrysler, and then the French automaker, Peugeot, announced a deal with Foxconn to develop advanced auto chips. There have been conversations about how much more involved with Foxconn and some of these other traditionally tech suppliers get in the auto industry, and this appears to be much more involved is the answer. What do you make of the Stellantis-Foxconn tie-up?
John Rosevear: Well, two related stories to the chip shortage. First of all, there aren't enough chips for the automakers. Second of other reason there aren't enough. It's because they have until recently relied on these older-style designs that hold up well over time and that serve their function and are inexpensive. The chip manufacturing companies want to move away from those and make more-sophisticated chips that they can get better margins on for personal computers and phones and devices and things like that.
There's two parts to this story with Foxconn. First of all, Stellantis is like everybody else trying to lock in their own chips supply. Second of all, they are working with Foxconn, or the plan is to work with Foxconn to develop more-sophisticated chips for their cars, which would start rolling out in a year and a half, two years, something like that. That is also a trend we're seeing. I mean, there was some talk from around that with the GlobalFoundries deal. GM has been talking about that as well, and others around the world. Let's go to more sophisticated chips. "Let's take control of our supply chain and get chips tailored for our cars that may offer some sort of advantage." Because when you step back and look at EVs, there are a lot more similar to one another than internal combustion vehicles are. Automakers are thinking about how do we differentiate our products? How do we get people to buy a Ford versus a Chevy? How do we get people to buy even a Tesla versus what may be coming in a few years, Polestar or something? The answer is software and functionality and features, and if you have your own custom chips, they can play to your strengths and deliver on the features that you want, and so there's that as well here.
Nick Sciple: Yes. I mean, as we see this big wave of EVs come to market. You mentioned this, the strong demand that some of these companies are seeing. You've got to develop the supply chain to deliver those products, and we're seeing that on the chip side with the GlobalFoundries deal. The slot to stay with Foxconn that we talked about. One other place we're seeing it which maybe transitions us to our next story is, yes, you got to have components to make these batteries. You have to have some of these commodities, and so earlier this morning, GM announced a long-term deal with MP Materials to develop, "A fully integrated U.S. supply chain for rare earth magnets to be used in an upcoming EVs." What is the significance of this deal, John? You're on mute.
John Rosevear: Damn, I'm sorry, what's? We talked about rare earths. These are elements that are used to make magnets, so not actually rare, it's just that there aren't a lot of them coming out of the ground, or weren't until recently. What GM is doing is locking up supply that isn't dependent on some of the conflict minerals regions like the Congo and so forth, where a lot of cobalt comes from. MP Materials, I don't know a lot about them. I do know that an analyst I trust on this stuff since that their CEO is probably the smartest person about rare earth minerals in North America. GM went to the right company and is doing the right thing. The deal here is their production begins in 2023, and they're going to supply magnets and alloys for "More than a dozen of GM's upcoming EVs based on its second-generation", what they call the Ultium platform, which is a modular platform for electric vehicles that it's going to underpin most GM products once they go fully electric.
Nick Sciple: MP Materials. One of these companies that came public in the last year or so, I believe it was a SPAC deal, and so they're going to be developing some US-based rare earth supply. The question was, how much demand is there going to be for this? Clearly, when GM and some of these other companies are signing deals as more and more credibility to that business thesis. Again, we've talked about all this EV supply that needs to, folks want to come to market, whether it's from a public policy point of view or from the consumer demand. Point of view to make that happen, you need some of these raw materials and that's going to trickle through to some companies like MP. Potentially could be an interesting investment will see.
John Rosevear: Yes, this analyst's take was at Ford and Tesla should go cut the same deal with MP as well [laughs] because this hasn't changed. I mean, the analysts' fund is long MP I think, but still, this is another thing like with the chips and so forth, we are going to be seeing more deals coming.
Nick Sciple: Yes, if we're going to make these cars, you got to have the inputs to cars. Either one of those inputs are batteries. Another announcement this week is that Toyota is going to be developing a battery factory in North Carolina. What do you make at this deal?
John Rosevear: A little different take on this one. Toyota among the major global automakers has been kind of dragging their feet a lot on EVs. They want to sell more hybrids. They think hybrids are a better intermediate solution and so forth. I will note that this was a splashy announcement. But if you look at the fine details, this 1.29 billion that they're spending as part of an announcement that they announced earlier this year. It's batteries for 200,000 vehicles, but that's not all EVS, it's hybrids and EVs in a mix to be determined. Production isn't going to start until 2025. This is something that's being done at all possible speed right now. It is an interesting deal. Again, I do feel this is Toyota's management saying, "Hey wade us too", [laughs] in light of all these announcements as well. But I think we need to wait and see if Toyota steps up with a more aggressive EV commitment than I have so far.
Nick Sciple: Moving on with, we've talked a bunch about some of these traditional automakers trying nipping at Tesla's heels. Let's talk about Tesla now. I had a strong earnings report, but as always with Tesla, lots of other headlines out there, Elon has sold a significant amount of stock, and there are some reports this week about some SEC related investigations related to solar panels. What do you make of all the news around Tesla?
John Rosevear: [laughs] I mean, Tesla is an entire beat for a couple of reporters all on its own. There are major publications who have people on the Tesla beat full-time. Elon selling given where the stock is, I'm not really surprised [laughs] fairly be selling too. Years and years ago, Elon said his capital would be the last out around the time of Tesla's IPO. But I mean, he did at least make a show of going to Tesla fans and Tesla's shareholders on Twitter and saying, "Hey, look, I'm thinking about selling. Are you OK with that?" and the response way sure Elon, sell a bit. He has been doing that. But more to the SEC investigation, there was a battle between Tesla Solar division, the company formerly known as SolarCity, had to deal with Walmart to install solar panels on the roofs of its stores and the installations didn't go well and there were some fire issues and some complaints, and there was the battle back and forth. Now, this is the SEC stepping in and saying, we're going to take a closer look at this. We're going to look at whether you warned your investors properly that there was some risk here. What I'm wondering is if they're going to go way back and reopen the SolarCity merger, which was built as this is a whole brand new component for Tesla. Detractors said it was in-line bailing out is cousins who had started this SolarCity, the solar panel firm. I don't know where this goes. Previous SEC investigations have not had much impact on Tesla, either on its share price or on its behavior. [laughs] So I don't know what this is going to do either. I wouldn't expect too many fireworks. [inaudible 02:45:58]
Nick Sciple: Yeah. What I would say is, the strength of Tesla's business is much stronger than maybe it would've been previously, and there have been similar headlines that the company has persevered through. I think, I wouldn't blame our shareholders for looking through some of the stuff as well. Not to be outdone on the SEC investigations front, Lucid Motors also announced earlier this week, an SEC investigation, shares down about 18 percent in the past week. What's going on with Lucid?
John Rosevear: We don't know, and Lucid doesn't know. What they said in an 8K and SEC filing was, "We got subpoenaed for some documents. The SEC asked us to produce a bunch of documents. The documents are related to the run-up to the SPAC merger that took us public earlier in the year. We don't know exactly what they're doing, but it appears that's what they're looking at." That's all Lucid said. The stock has gone down hard. I think, because people in this space are mindful of the past examples of companies like Nikola and Lordstown Motors, where a short seller came out and made allegations, and then the company went away for a couple of months and huddled with some investigators and came back and said, "Yeah, well, OK, there is something to those allegations." This might just be the SEC doing a checkup. What I said on the day that this news broke on fool.com is that, unlike Nikola and Lordstown Motors, Lucid is shipping a vehicle that delivers on their claims. They said, our vehicle will have huge range, and it will do this, and it will do that as part of the case for supporting a merger deal, for buying the SPAC, for buying the stock. The Lucid are already shipping, and independent testers have verified that, sure enough, it does have this great range and this advanced technology, build quality is good, and so forth. Reviews have been very positive. I think, the risk that we saw with something like Nikola and Lordstown, where the investment case is based on these grand technological claims, promises of huge numbers of pre-orders, this thing, and then that all went away, and the stock plummeted, and new management came in and had to reset and all that. I don't think that's a likely path for this on Lucid. Sure, there may have been problems with some of the numbers, but I come back to the fact that they're shipping a car that delivered on their promises. I think, the company will weather this, and if you still believe in the story, this might be a buying opportunity.
Nick Sciple: There's much more of a there relative to those other names you mentioned, the Nikola and etc. There's not a car being pushed down a hill, in this case. There's a real car driving public.
John Rosevear: Yeah, exactly. There's a factory building real cars, and real third party reviewers have had their hands on them and said, "Yeah, Lucid delivered on what it said it was going to deliver." It's possible that the SPAC leadership was playing financial games or something like that, I don't know. But my sense is that Lucid will weather this just fine, whatever it is. Of course, we may have to update that view at some point. We'll see.
Nick Sciple: There are certainly things to be concerned about, I guess, at a $65 billion market cap. I just looked here, but less of a rug pool situation, I think, as far as the substance, than maybe we've seen with those others. John, we've talked about, a bunch of these stories in the headlines. We do have a few minutes here. You didn't prepare for this, but I'm going to ask you off the top of your head. What is the story we haven't talked about today, that folks should be following, or that's most interesting for you as someone who is intimately familiar with the automotive space?
John Rosevear: Oh, good lord. The Meta story. We talked a little bit about this at the beginning of the program, where we had all the new EV entrance coming to the public markets via SPAC and so forth earlier in the year. We had Tesla's big run-up starting in late 2019 and so on. Now, we're at the empire strikes back, part of the story, and that the big stories in the EV space are about Ford, and General Motors, and Volkswagen, and Stellantis. Even while some of these smaller companies are making headway and stuff, but it's just, the scale of when a company like Volkswagen pivots to EV is just so massive, that it affects the whole supply chain. Billions of dollars have to be spent before any significant volume is attained, and they've already spent quite a few billion dollars. This stuff that's coming, the Ford Mustang Mach-E came out early this year. I think, some people who were very attached to the idea that Tesla is 10 years ahead of the rest of the industry were perhaps pleasantly surprised, I hope pleasantly surprised, by the fact that the Mach-E is a good EV. It delivers on its range claims, it delivers on its performance claims. It's well-built, and it's nice to drive. No, it doesn't have the Tesla's Supercharger network, but on the other hand, nobody's really upset about the build quality either as we've seen on some Tesla models, particularly in early production. I think, that's the big story. This is the part where we see what people like me have been talking about for several years, which is, here comes the big automakers with a whole lot of electric vehicles. This transition is for real.
Nick Sciple: I think, yeah, folks probably underestimating the scale of what this looks like, and also I think, to the things we talked about earlier, how that trickles through the supply chain. Whether that's rare earth materials, or chips, or any of that, we're getting to real scale here now, and this is going to make real impacts in the world. John, always excited to keep up with those impacts and the latest developments here with you, and I look forward to doing it with you again sometime soon.
John Rosevear: Thanks, Nick.
Nick Sciple: As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks for mixing the show, for John Rosevear, I'm Nick Sciple. Thanks for listening, and Fool on!