Stocks To Consider For The Driverless Car Revolution

The driverless car revolution seems right around the corner. Audi has announced that its A8 limo will be able to drive itself in 2017. Ford (F) CEO Mark Fields predicts that fully autonomous cars will be available for purchase by 2020. Nissan has set the same target year for its autonomous vehicles. Elon Musk of Tesla (TSLA) expects driverless cars to be around by 2023. Jaguar and Land-Rover expect to market cars capable of fully autonomous driving by 2024. Daimler chairman Dieter Zetsche has suggested that by 2025 his company will produce cars that don't need a steering wheel.
But there are skeptics. Sheila Brennan at IDC does not think autonomous cars will be road ready until 2040. Director of Nvidia's automotive division Danny Shapiro has said "it's still a ways away from full autonomy." Obstacles range from legal conundrums about who will be to blame for accidents to practical matters like completely mapping roadways and all of the important objects on them and then maintaining those maps. This involves "some of the hardest problems in artificial intelligence and robotics."

Whether the optimists or skeptics are correct, the race for fully autonomous vehicles should be a boon for the Advanced Driver Assistance Systems (ADAS) industry. ADAS includes the following:
  • Adaptive cruise control
  • Adaptive high beam and swiveling curve lights
  • Automatic emergency braking
  • Automatic parking
  • Blind spot monitor
  • Collision avoidance system
  • Driver drowsiness detection
  • Intersection assistance
  • Lane departure warning
  • Pedestrian protection system
  • Traffic sign recognition
The market for ADAS is set to grow from $11 billion in 2014 to over $200 billion by 2024.
If you believe that the growth in the ADAS market and the emergence of autonomous vehicles will translate into higher share prices for participants, here are a number of companies that may be worthy of more research.

Ambarella (AMBA)
The video processor maker has recently purchased computer vision and autonomous vehicle technology developer VisLab. It plans to enter the automotive OEM camera market.

Autoliv (ALV)
The company manufactures automotive safety systems that include pedestrian detecting cameras, night vision cameras for detecting obstacles in the dark, and seat belts that restrain vehicle occupants before a collision occurs. The company also makes forward and side looking radar. Its customers include Mercedes, Acura, Cadillac, and Jeep. To better position itself in the growing market, Autoliv is buying M/A-COM's (MTSI) ADAS unit.

Mobileye (MBLY)
The Israeli firm dominates the camera based ADAS market. If you are looking for a pure play, this is it. RBC Capital expects the company to experience hyper growth through 2020. Note that it is likely to face increasing competition in the future from new market entrants. On the other hand, given the five to seven year lag time the company estimates a competitor would need to enter the market, it would not be surprising if a larger competitor would simply buy Mobileye.

STMicroelectronics (STM)
The chip maker supplies Mobileye with chips. Bloomberg expects chip sales for ADAS to grow an average of 13% per year through 2020.

Nvidia (NVDA)
The company's chips already power car infotainment, navigation, and control systems. Nvidia hopes its Tegra processors will help it move into the ADAS market by consolidating several driver assistance processors into one chip. For example, the Tegra K1 chip can process data from cameras to detect objects and cars while recognizing traffic signs and lane markings. It also processes rotating Lidar senor data, which maps a car's surroundings. The chip operates at under 100 watts, which Nvidia says will allow car manufacturers to replace their heavier and much more energy intensive (two to five kilowatts) computer systems. The company's chips power Audi's traffic jam assist, which allows drivers to take their hands off the wheel and feet off the pedals in stop and go traffic.

NXP Semiconductors (NXPI)
The company has partnered with Cisco (CSCO) to develop technology that allows cars to see around corners. NXP is also in the process of buying Freescale Semiconductor (FSL), which supplies parts for Caterpillar's (CAT) self-driving dump trucks. In the future, Caterpillar's customers may save tens of thousands in annual costs per vehicle by not having to employ a driver. FSL also supplies parts for Hyundai's luxury brands. It is estimated that revenues from optical sensors will grow sevenfold by 2020.

Nokia (NOK)
The company's Here digital mapping service is a "proprietary collection of hardware and software that is unmatched, even by Google (GOOG, GOOGL). Plus, they have the most extensive patent portfolio covering collecting and creating spatial content for current generation of maps and dynamic data. Here also has the foundational patents covering usage of spatial data for creating video games, movie content and the upcoming ADAS vehicle applications," according to Kurt Uhlir. Audi, BMW, and Daimler have agreed in principle to buy Here for $2.7 billion. If the deal goes through, the German automakers plan to invite other car manufacturers to participate. In addition to Daimler, BMW, and Audi's parent Volkswagen, the venture might involve Fiat Chrysler (FCAU), Renault (RNSDF), PSA Peugeot Citroen, Ford, Toyota (TM), and General Motors (GM).

Delphi Automotive (DLPH)
The spinoff from General Motors is among the skeptics when it comes to autonomous cars. Its CEO has recently said that driverless cars are farther off than people realize. In the ADAS arena, the company focuses on vehicle to vehicle communications.

Intel (INTC)
The tech giant is trying to make inroads into the auto industry with software and computers built on chips. The company says this approach will cut time and costs for car manufacturers. While Intel boasts a growing list of customers, which include BMW, Hyundai, and Infiniti (Nissan's (NSANY) luxury brand), its automotive revenues are so far a smidgen compared to its overall sales.

Qualcomm (QCOM)
In addition to supplying Google's autonomous cars with chips, the mobile phone processor giant is entering the ADAS and autonomous vehicle space with a focus on wireless communications between cars and the internet to allow cars to see what is around them. For now Qualcomm's automotive modems do not generate enough revenue to register in its earnings. Nevertheless, the company estimates that by 2017 up to 60% of cars will have cellular connections. A lot of the data needed to power ADAS will come from the cloud. Qualcomm is a more general play on the growing "internet of things." Note that because of activist investor pressure, the company is expected to conduct a strategic review, which may result in the breakup of the company. If that happens, one or more of the spunoff businesses may be better positioned to capture ADAS market growth.

American Tower (AMT) and Crown Castle International (CCI)
If Qualcomm is correct that most of the data required for ADAS will be stored in the cloud, then wireless infrastructure operators like American Tower and Crown Castle stand to benefit. Vehicle to vehicle communication will also use require cell towers.

Google (GOOG, GOOGL)
While the company is a pioneer in the driverless car industry, it is unclear how it will monetize its involvement. Will it sell its own brand of cars? Will it license its Google Chauffeur software to car manufacturers? According to Lux Research, the software market in autonomous cars is expected to grow from $500 million in 2014 to $10 billion in 2020 and $25 billion in 2030. It sees Google and IBM as being positioned to take advantage of this opportunity. You can probably add Apple (AAPL) to the list.