Mobileye: Tesla/GeoHot Controversy Just The Tip Of The Iceberg

Summary

• The Tesla/GeoHot Incident is largely irrelevant to near-term operating business, but puts major dent in technological mystique around the name.
• GeoHot, Autopilot, and other developments leading us to believe semi-autonomous ambitions likely to suffer setback/take back seat to full autonomous road maps.
• This benefits competing technologies like LIDAR and High Precision maps which are already seeing ramping adoption at expense of Mobileye.
• Wall Street will need to rethink their out year models, and long-term asp projections on the name.
• Stock now ironically more of a valuation outlier as high growth tech IPO mania has completely died and broader tech beta valuations have drastically come in.

Any sufficiently advanced technology is indistinguishable from magic" - Arthur C. Clark

Last week's Bloomberg Article on George Hotz stirred up some serious controversy in the self-driving vehicle space. While the main controversy centered on Tesla (TSLA) and Mobileye's (MBLY) supplier relationship with respect to the former's Autopilot system, we believe this incident has opened the door to a much more interesting debate about where this whole space is heading. As we have not commented on Mobileye since our initial report, we thought this would be a good time to update our views on our short thesis and address recent developments in the space.

So what's all the ruckus about?

Well, as far as the market is concerned, the main controversy centered around a Bloomberg article/interview in which famed hacker George Hotz shared his own self-driving hack as well as disclosed that he had been approached by Elon Musk to work on displacing Mobileye's technology in-house at Tesla. This was followed by a tweet from Citron Research highlighting Mobileye as their short of the year for 2016. The combination of the two led to a prompt drop in Mobileye's stock price. The next day Tesla responded with your expected damage control 'correction' corporate statement that took some shots at what Hotz has accomplished, and defended their supplier relationship. This was naturally complemented by several immediate sell-side analyst defenses of Mobileye, and a brief but limited bounce in the share price. Pretty much your typical growth stock controversy market scenario as far as relevant stock moving news goes. We went from a hacker in a garage is going to displace Mobileye at Tesla and maybe bring down their whole business on Wednesday, to what he accomplished can be done by any one of Mobileye's CTO Professor Amnon Shashua's computer science students and that Tesla still loves Mobileye by Thursday. That market pendulum

Analyst’s Disclosure: I am/we are short MBLY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Long NVDA