Shares of autonomous driving software and semiconductor company Mobileye Global (MBLY -5.03%) rallied 26.2% in March, according to data from S&P Global Market Intelligence.
Mobileye was perhaps poised for a rally at the beginning of the month. In early January, the company warned that its first-quarter revenue would decline about 50% sequentially, and eventually recover but still finish the year about 9% down from 2023, according to the midpoint of guidance.
Mobileye's stock promptly crashed on that news, and by the time March rolled around, the stock was down roughly 40% on the year. That set up Mobileye for a rally on good news, which it got.
Mobileye lands a big fish and confirms revenue will grow in the second quarter
At an industry conference in early March, Mobileye management reiterated its first-quarter guidance for EyeQ system sales, and disclosed it had a number of new customer commitments starting in the second quarter. Management also reiterated that unit sales should "at least double" in the second quarter, which was more or less in line with the recovery outlined in January.
Later in the month, Mobileye also announced an expanded partnership with Volkswagen (VWAGY 0.40%). This partnership appears to be quite far-reaching and incremental good news, but there is a catch.
On the positive side, the collaboration appears to be expansive. Mobileye will provide both its SuperVision and Chauffeur premium platform solutions to all of Volkswagen's luxury brands including Audi, Porsche, Bentley, and Lamborghini, for both Level 2 and Level 3 autonomy. Level 2 is when the vehicle engages in autonomous driving functions but a driver must still be alert at the wheel. Level 3 is a higher level of autonomy in which the driver does not have to be as attentive.
In addition, Mobileye will collaborate in the future with Volkswagen on its commercial vehicle solutions for Level 4 fully autonomous driving.
So what's the catch? Well, Volkswagen also has an in-house autonomous driving software unit called Cariad, and still intends on bringing all of its autonomous functions in-house in the future. So while Mobileye is providing certain functionalities today, it's still integrating with Volkswagen's Cariad software, and may end up losing Volkswagen's business over the long term.
Lots of uncertainty for Mobileye
Mobileye is certainly a compelling way to play the growth of autonomy, as sort of a "picks and shovels" solutions provider to auto original equipment manufacturers (OEMs). That makes it more of a pure technology play worthy of a high multiple, rather than a low-multiple auto manufacturer attempting to develop this technology on its own.
However, as we see with the Volkswagen deal, many of the top car brands are looking to vertically integrate and bring their autonomous solutions in-house.
It's unclear if Mobileye is betting its solutions will outperform so much that eventually companies like Volkswagen just give up on their own solutions and adopt Mobileye, or if it just sees a short-term opportunity. Furthermore, it's unclear whether the best autonomous technology will come from a car company or a third-party tech company. In any case, driving autonomy is an interesting and evolving growth market for investors to follow for the rest of this decade.
