EyeQ And Brain6 AI Propel Forward, Securing A Bright Future In Autonomous Driving And Global Markets

Key Takeaways

• Mobileye's enhancements in autonomous driving technologies like EyeQ6 and Brain6 AI are set to boost performance, efficiency, revenue, and margins.
  
• Strategic moves into emerging markets with low-cost chips and expansion in China through OEM partnerships highlight growth in market share and future earnings.
  
• Dependency on the Chinese market and uncertainties in ADAS adoption could strain future earnings and net margins amid increased tariffs and operational costs.

Catalysts

Develops and deploys advanced driver assistance systems (ADAS) and autonomous driving technologies and solutions worldwide.

• Mobileye's advancements in the EyeQ6 platform and the Brain6 AI technology indicate a significant leap in autonomous driving capabilities, which is expected to improve performance robustness and cost efficiency, impacting revenue and margins positively.
  
• The introduction of low-cost EyeQ chips for emerging markets shows Mobileye's strategic move to cater to basic ADAS requirements with high performance yet cost-effective solutions, likely expanding market share and boosting revenue in high-growth potential areas.
  
• The close alignment with major Chinese OEMs and expansion into diverse product portfolios illustrate Mobileye's strengthening position in China, which is pivotal for future growth in revenue and market share in a key auto market.
  
• Mobileye's focus on developing a spectrum of ADAS products, including the mid-trim surround ADAS, represents a new growth driver that fits between regular ADAS and SuperVision, potentially driving significant medium-term ASP growth and positively affecting company revenue.
  
• The reinforced competitive position in China, despite short-term volume headwinds, indicates a strategic long-term vision that could result in increased market penetration and collaboration opportunities such as the Robotaxi initiative, expected to augment future earnings and revenue streams.

Assumptions

• Analysts are assuming Mobileye Global's revenue will grow by 20.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -12.1% today to 12.1% in 3 years time.
• Analysts expect earnings to reach $387.8 million (and earnings per share of $0.49) by about September 2027, up from $-224.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $448.5 million in earnings, and the most bearish expecting $-182 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 66.5x on those 2027 earnings, up from -41.8x today. This future PE is greater than the current PE for the US Auto Components industry at 17.9x.
• Analysts expect the number of shares outstanding to grow by 0.67% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 8.12%, as per the Simply Wall St company report.

Risks

• Near-term volume challenges, particularly in China, could negatively impact future revenue due to reduced customer outlook in both ADAS and SuperVision.
  
• Increased U.S. and European tariffs on Chinese-produced vehicles leading to lower than forecasted SuperVision volumes, which impacts revenue.
  
• High dependency on the Chinese market could lead to volatility and unpredictability in revenue and net margins due to market dynamics and share losses among core customers in China.
  
• Significant operating expenses not flexing with revenue levels could strain net margins, especially amidst reduced volume expectations and ongoing investments in technology development.
  
• Uncertainties around the adoption rate and market demand for next-generation ADAS and autonomous vehicle technologies may risk future earnings, particularly if competition intensifies or consumer preferences shift.

Valuation

• The analysts have a consensus price target of $24.65 for Mobileye Global based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $13.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.2 billion, earnings will come to $387.8 million, and it would be trading on a PE ratio of 66.5x, assuming you use a discount rate of 8.1%.
• Given the current share price of $11.55, the analyst's price target of $24.65 is 53.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.