While more and more automakers are adopting lidar technology for safer driving, a clear leader in the space has yet to emerge. 

Lidar, which stands for "light detection and ranging," uses lasers to allow cars to "see" other vehicles and potential obstacles in their path. Every lidar company boasts a unique architecture. Even for devotees, figuring out which company is in pole position requires finding the ideal combination of best-in-class technology and a price point low enough to spark commercial production. Here are two possibilities.

Luminar Technologies

Luminar Technologies (LAZR 3.58%) has always been the lidar darling -- largely for being one of the first to go public, and early to win high-profile production contracts with Volvo for hands-free, eyes-off highway driving, and from Polestar. The rest of the lidar pack is still largely in development-stage relationships with very little revenue to show for themselves.

The company's integrated hardware and software Proactive Safety system is focused on keeping drivers safe. Luminar's mission: create an almost "uncrashable" vehicle. Luminar claims to surpass traditional assisted-driving capabilities by providing higher-confidence detection which is faster and farther than camera and radar, helping cars better avoid collisions at much higher speeds. 

While the stock has declined more than 75% from its February 2021 high, shares still trade around 47 times expected revenue for the next 12 months. While the valuation appears daunting at first blush, bear in mind that lidar companies are early in the sales curve in a massive addressable market (remember, automakers have yet to roll out in volume). But catalysts could lie ahead for patient investors -- particularly as the company makes progress on production and its supply chain.

Innoviz Technologies

Innoviz Technologies (INVZ 3.67%) differs from some of its competitors by bending light at a 905 nanometer wavelength (Luminar uses 1550 nm technology). The company's take: 905 nm technology costs significantly less than 1550 nm lidars, which require more expensive lasers. The lower price point is essential to winning big with carmakers.

The company is clearly gaining traction with Tier 1 automakers, having announced three major design wins, including BMW and Volkswagen. In further evidence of a growing pipeline, Innoviz expects to increase its order book (currently valued at $6.6 billion) by more than 30% by the end of 2022. Key to this growth is the company's InnovizTwo sensor, which delivers superior specs and is expected to reach production of between 500,000 to 1 million units by 2024.

Innoviz remains focused on what the company sees as the largest near-term market opportunity: lidar for use in level 2 and 3 autonomous driving, which is defined as highway driving and still requires driver attention for safety.

Innoviz stock, like Luminar, has been under pressure, down 18% year to date. At these discounted levels and very low forward consensus estimates, the stock seems worth a look.

The big picture

If you listen to the stock market, it's way too early for lidar stocks. The entire group is skidding in 2022, with Luminar down roughly 48% at recent prices and Innoviz down 11% (but doing better than the broader market).

To be fair, lidar is still a nascent market, and will take years to develop. Prices of lidar sensors need to come down before we'll see real commercial adoption. In the meantime, every lidar company is operating at a loss while working hard to scale its manufacturing. Revenues and earnings are largely nonexistent (for now) -- a combination that doesn't work well in an inflationary market with little appetite for risk.

But as with many technology trends early in the cycle, good things come to those who wait. After all, the long-term trend toward autonomy and intelligent automotive safety features is clear. The recent pullback in lidar stocks could provide an excellent opportunity for patient technology investors willing to do some diligence. Keep an eye out for endorsements from the major carmakers, and for signs of volume commercial production.