Analysis |

Without Intel, Mobileye’s Route to an Autonomous Vehicle Could Be Very Challenging

On Monday, the Jerusalem-based vehicle technology firm’s parent – Intel – announced that it was taking Mobileye public. The move benefits Intel, is it good for Mobileye?

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Intel CEO Pat Gelsinger, right, and Amnon Shashua, Intel senior vice president and president and CEO of Mobileye, talk during Gelsinger's visit to Mobileye headquarters in Israel, this year.
Intel CEO Pat Gelsinger, right, and Amnon Shashua, Intel senior vice president and president and CEO of Mobileye, talk during Gelsinger's visit to Mobileye headquarters in Israel, this year.Credit: Mobileye, an Intel Company,AP

Nearly five years ago, Intel, the multinational computer chip firm, announced that it was purchasing Jerusalem-based Mobileye for $15.3 billion – the largest price ever paid for an Israeli company.

The move was considered a resounding success for Mobileye and Israeli tech, but it also raised quite a few eyebrows. Many wondered why Intel would be interested in a company developing driver assistance systems and autonomous vehicle technology.

At the time, Intel seemed to be everywhere. It got involved in drones and virtual reality, smart watches, and wearable technology. The company seemed to be testing every avenue, anything not to miss out on the next revolution like it missed out on mobile communications.

In recent years, many have speculated that Intel may spin off Mobileye. Such expectations greatly intensified after Pat Gelsinger took over as Intel’s CEO at the beginning of this year.

In the months following his appointment, when speaking about Intel’s strategic focus in the coming years, Gelsinger failed to mention the automotive sector or self-driving vehicles. On Monday, Intel announced that it plans to take Mobileye public in mid-2022. Intel will retain a majority stake in the company and the two companies said they would continue strategic cooperation. According to The Wall Street Journal, Mobileye’s could be valued as high as $50 billion on the stock exchange.

This development continues Gelsinger’s merciless paring down of Intel’s peripheral adventures, which grew particularly unruly during the tenure of CEO Brian Krzanich. Earlier this year, Intel closed its RealSense group and its Intel Sports division, both of which were located in Israel.

The Mobileye logo is seen during the Munich Auto Show, IAA Mobility 2021, in Munich, Germany.Credit: WOLFGANG RATTAY/ REUTERS

But Mobileye is a different story since it is both a significant financial and strategic asset for Intel. Mobileye’s revenues this year surpassed the billion-dollar mark for the first time, reaching $1.35 billion, up 53 percent from 2019 (In 2020, the automotive market was dragged down by the coronavirus pandemic).

“We didn’t see we were getting the full value of the asset, and taking it public will help unlock it,” Gelsinger told The Wall Street Journal.

Unlike his predecessors, it’s clear that Gelsinger doesn’t think Intel needs to maintain an autonomous automotive division with 2,000 employees. Nor does it need to operate fully autonomous robotaxi services. They’re simply not related to the core of Intel’s business.

In the past, Intel had hoped that acquiring Mobileye would make it a major player in the automotive and autonomous vehicle market, opening up new, innovative markets. Now, Intel has given up on most of that vision. It’s not interested in assuming the huge risks involved in continued investment in the field. It hopes to sit on the sidelines and reap the benefits, if and when Mobileye fulfills the vision.

Mobileye Co-Founder and CEO Amnon Shusha spoke on his company’s utility to Intel in September: “I spoke with Intel’s CEO, Gelsinger, and I asked him if Mobileye was from his standpoint a financial or strategic asset. If it’s financial, then it’s logical to take the division public, and I even had an assessment as to the value that we would attain, and it’s a lot higher than the value at which we were sold to Intel. But if it’s a strategic asset, we wouldn’t want to do that. That’s where Intel is going. Intel has decided that Mobileye is a strategic asset, and officially, Intel has been speaking of Mobileye everywhere as a strategic business unit and a major growth engine. I’m not on the board of directors, but that’s my sense.”

Mobileye’s CEO Amnon Shashua poses with a Mobileye driverless vehicle at the Nasdaq Market site in New York in July.Credit: JEENAH MOON/ REUTERS

It appears that Intel is actually relating to Mobileye more as a financial asset. One cannot ignore the situation within Intel – its standing vis-à-vis competitors and the perception of the company in the capital markets. Intel’s share prices have sputtered, increasing by just 43 percent in the past five years. Over the past year, the price has plateaued. The company is valued at $207 billion, reflecting a low multiple in relation to its forecasted $73.6 billion in revenues for 2021.

For comparisons’ sake, Nvidia, a major competitor in the field of chips for artificial technology and server farms, is worth $750 billion. At Intel, they seem to believe that this is a way to demonstrate value – showing investors that it has hidden value.

Does such a public offering mean that Intel’s acquisition of Mobileye was a failure? It wasn’t a failure from a financial perspective, since Mobileye’s value has increased 235 percent, based on an estimated value of $50 billion. During the same period, by the way, the Nasdaq chalked up high returns, 155 percent from the day on which Intel announced the acquisition. That’s a handsome return, certainly considering Intel’s history of unsuccessful acquisitions.

But from a strategic standpoint, one cannot say that it was the right decision for Intel. Otherwise, of course, it wouldn’t be taking the company public. One also cannot ignore the alternative acquisitions that Intel could have made if it hadn’t bought Mobileye at a price that, even for a company like Intel, is very substantial.

Can Mobileye go it alone?

Mobileye takes second fiddle in this decision, which above all was designed to benefit Intel. But does the move benefit Mobileye as well? It’s too early to know. A valuation of $50 billion would allow the company to raise substantial sums on Wall Street. As a publicly traded company, however, Mobileye would have to be run in a totally different manner.

With Intel’s backing, Mobileye could operate relatively freely and without concerns over financing. That enabled it to buy the public transportation app firm Moovit for a billion dollars and to enter the robotaxi field as an end-to-end operator of transportation services. Intel’s backing also had other advantages. For example, Intel has been developing lidar and radar sensors for it to use in the future, sparing Mobileye a reliance on outside suppliers. And then there’s the investment in Chinese car maker Zeekr, which also became a Mobileye customer.

Now Mobileye will need to manage on its own. Granted that it currently controls the market for ADAS, advanced driver assistance systems, supplying about 25 manufacturers. Shashua has claimed that, thanks to its years under Intel and the growth it experienced there, Mobileye has sufficient resources to move forward with its vision for autonomous vehicles based solely on its current revenues.

“Mobileye has realized accelerated growth and opportunity since joining the Intel family, nearly tripling annual chip shipments, revenue and the number of employees since the acquisition,” Shashua said in a news release. “Our alignment with Intel continues to provide Mobileye with valuable technical resources and support that has yielded strong revenue along with free cash flow that allows us to fund our AV development work from current revenue,” he said referring to autonomous vehicles.

But the reality could be a lot more complex. Shashua himself has acknowledged as much in the past. “We need to be cautious in our daring because that attracts a lot of investors,” he told the Globes Israeli business daily last year. “Being Mobileye on our own would have been too much for us. Even this way, the autonomous vehicle [market] is a big one. The distance between what was in our offering and what exists today is big. It’s a big, courageous jump. And the steps that we are taking now are an even bigger courageous jump.”

The vision for the autonomous vehicle has been deferred again and again, and there’s no agreement regarding what the right business model is. Mobileye will have to finance many years of research and development on the operations of its robotaxi services, before its autonomous vehicle operations begin to generate significant revenues. Beyond that, Mobileye still needs to prove that autonomous taxis are in fact a product for which there is demand, value for the consumer and a sustainable business model.

To do that, it will need to subsidize its taxi trips in Israel and Germany for an unknown duration to offer prices that consumers find attractive. It will also need to successfully navigate considerable regulatory hurdles. All that costs money.

Without Intel, Mobileye will be an independent Israeli company facing off against several of the largest corporations in the world – including Tesla and Apple – in a complex, long-term and risky sector. Several leading companies in the autonomous vehicle field have also embarked on huge funding rounds in recent years. Others have been sold or merged with other companies.

Waymo, which was born at Google and now operates separately under Google’s parent, Alphabet, has raised about $5.7 billion in the last two years. And General Motors’ Cruise subsidiary has raised $2.75 billion.

In addition, as a public company, Mobileye will have to show growth to investors, in addition perhaps to other sources of income, and to justify its prior acquisitions, such as Moovit. Whether coincidental or not, Moovit has recently begun featuring advertising on its screen, to the annoyance of some users of the public transportation app.

Several statements by Shashua in the past year or two have clearly hinted that he believed Mobileye would remain and needed to remain an Intel division. In the interview with Globes, for example, he said: “The deal with Intel was the best thing that we have done. We are an independent company in every respect, and instead of having 20,000 shareholders who are always causing volatility, I have one shareholder.”

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