Industry and investment outlook
Current prices for most LiDAR companies are exorbitantly high even though many of the newer technologies being marketed are likely ten years away from commercial deployment on mass-produced automobiles. The companies commanding the highest prices are those developing InGaAs-based, solid-state LiDARs, or other emerging technologies such as AI-augmented sensor suites. As there are many hurdles to obtain regulatory approval and deploy street-ready sensor technologies for self-driving cars, the pragmatic approach would be to invest in an array of competing sensor companies including the new types of radars, cameras, and established LiDAR makers.
We believe that companies taking a more prudent approach to realizing commercial self-driving cars by developing in-house technologies while testing with established sensor manufacturers, including LiDAR makers will be financially and technologically better positioned in the race to deploy street-legal self-driving cars when the regulatory, technological, and societal environments are ready.
When looking at the current sensor market for self-driving cars or as they are more accurately called autonomous cars, there is a gold rush of sorts underway. Now this gold rush is not unlike past pursuits of bonanzas in that it is, for the most part, centered in Silicon Valley and has prospectors (investors) chasing the proverbial motherlode which they believe will take the form of an autonomous car, robotaxi, etc. (e.g. Level 5 car). Capitalizing on and controlling this rich vein, and all of the accompanying players that will ostensibly make up the ecosystem of this new economic order is the ultimate objective.
At present, the relevant vendors are mostly companies that sell their own level 2, 3, 4, or ‘5’ cars, components and/or the software that make up such systems. Among these overvalued (real or imagined) companies, with which carmakers are racing to secure or develop partnerships, the most coveted by an order of magnitude are the LiDAR plays. Indeed, a cursory survey of Silicon Valley reveals a profusion of companies as well as groups and individuals with nothing more than ideas seeking to secure vast funding from companies scrambling to not to fall victim to the latest ‘disruption’ or to have competing investors beat their average return on investment. To succeed in such an endeavor, investors must take massive risks (online pet food delivery, anyone?) to secure the “game-changing” technology du jour, which today happens to be LiDAR. Hot on the heels of LiDAR are competing sensor and related technologies, such as metamaterial radars, IR cameras, time-of-flight (TOF) cameras, virtually anything that begins with an ‘A’ and ends with an ‘I’, and others.
Fear drives funding
However, despite the torrent of funds pouring into almost any company which can ostensibly provide a solution that can help secure the holy grail of a Level 5 car, the onrush of funding is not equal to the rate of technological development. Among investors and companies, the fear - whether generated by the Silicon Valley hype machine or organically - is palpable. The danger is that because the narrative has been told so many times, in so many ways, and in so many languages, that it becomes a self-fulfilling prophecy.
The prevalent fear is that if one fails to invest in companies developing technologies for Level 5, one runs the risk of going extinct in the new world order that emerges from the Fourth Industrial Revolution. The cautionary tale of the last buggy-whip manufacturer is oft-cited—and for good reason—it is a great story to raise the already stratospheric valuations of some LiDAR plays into orbit.
Even when looking at the widespread adaptation of other mobility technologies, as well as the socioeconomic changes brought about by their proliferation, there is a common thread: prudence. Of course, the hawkers of overvalued technologies make the claim (one heard in every bubble) that this time the story is different, and that failure to act quickly will lead to an untimely demise before the grand drama of the Fourth Industrial Revolution reaches its climax. Of course, we have witnessed wars over the supremacy of new technologies many times before. The companies that emerged victorious from those wars - and they were wars, not merely battles - were those that could sustain the attrition while developing or securing intelligent solutions and integrating them into their core business areas while developing new ones. These include companies such as Apple (NASDAQ:AAPL) and Microsoft (MSFT), not the long-defunct Pets.com.
To be clear, we are not advocating the shunning of investment in the technologies in question; rather, we believe the low visibility in the development pipelines of these technologies (e.g. as described in recent press articles about some high-profile companies in the space) means that one should exercise prudence and not heavily weight investment in very dear LiDAR companies with the belief that they will deliver the keys to the Level 5 kingdom.
“One death is a tragedy; a million deaths is a statistic” – Stalin
Self-driving cars are unlikely to be deployed in large scale in the next five years. It is presently little more than marketing hype and journalistic sensationalism for boosting investment funding for companies and clicks for media. However, it will, based on current technological, social, regulatory, and other challenges, arrive within a decade.
In the face of this eventuality, we must not pretend that humans will be exempt from the causalities of the mass deployment of fully-autonomous technologies. All forms of transport, be it aircraft, automobiles, trains, or watercraft, share a common trait in their evolution and proliferation—they were all very costly in terms of human life (with some still racking up high mortality figures). Humans are somewhat schizophrenic in terms of how we react to death from certain causes; on the one hand, we are blasé about deaths and injuries related to automobiles and fried foods. However, when it comes to new technologies, autonomous cars, for instance, we are hypersensitive to the point where we run the risk of retarding their development and deployment. Compare the collective shrug over the worldwide carnage caused by conventional cars (a person is killed every 25 seconds in road-traffic-related injuries) to the media frenzy over a single death in a Level 3 car.
The blame game
Liability is another issue. Engineers are loath to become the scapegoats when courts start looking to assign blame for deaths in an autonomous car case. At the end of the day, someone will have to take the blame for the use of sloppy code or whatever prosecutors deem as the most compelling story for the judge and jury. When this starts, and it will be sooner rather than later, we will see backpedaling on the deployment of fully autonomous cars, at least in markets with more stringent regulations protecting human life. Unlike cleaning robots, social companion robots, or even military robots, autonomous cars can and will eventually kill people in very public demonstrations, which will lead to the demise of some companies.
Considering issues of safety, practicality, and real-world testing, the most sensible way to develop, deploy, and capitalize on LiDAR technology is to install them on trams, which are widely used in crowded cities around the world. Rather than attempting to hastily tackle complicated, unstructured environments, in which data must be collected, analyzed, and acted on in real time, it makes more sense to focus on the deployment and testing of these sensors on trams. Commercially, tram deployment is compelling, as it helps governments and companies cut back on legacy costs by reducing costly benefits and pensions, as well operating costs, the savings from which can be reallocated to more progressive areas such as education. As trams travel in semi-structured environments, and at slower speeds than automobiles but with ample variables in play to accelerate development, the benefits relative to costs are simply too attractive to overlook. The decreased costs, increased safety, and invaluable data acquired from urban environments about pedestrian and automobile activities, in addition to the aforementioned considerations, make it patently clear that this is where this technology should be deployed en masse.
This raises important questions. If we can generate data that helps accelerate the creation and deployment of Level 5 cars, as well as save money now and in future, then why has this not been implemented? If the technology is as close as the marketing hype says it is to enabling street-ready Level 5 cars, then why should it not be implemented on trams as a safer first real-world commercial step toward the wider deployment of these technologies on public, and then private cars? In addition to the economic and social benefits this would also help to engender the public’s trust in these systems as they would enjoy the benefits, and it would mitigate the number of fatalities that would be caused by unleashing these systems on the streets.
Evolution, not revolution
How then should we proceed? Companies and investors should take a more prudent and fiscally conservative approach to investing in these technologies. Even though most of the companies building LiDAR technologies are startups, the companies pouring money into them are often public, and thus have a fiduciary duty to their shareholders to ensure that they generate the highest return on investment. Look to companies that focus on mass deployment with incremental improvements, rather than the promise of total disruption in an area that can be replicated by a rival with a lower-cost option. This game is evolutionary, not revolutionary, contrary to the view propagated in the popular press. For this reason, established LiDAR makers such as Velodyne, Leddar Tech, and Hokuyo, which, despite lacking the performance specs and media buzz that the impressive solutions offered by potential disruptor companies such as Luminar, Ouster, or Aeye, are attractive in terms of price and real-world operational hours, and should eventually have products that are on par with the pricier companies. In addition, there is a steady stream of competitors emerging almost weekly in the startup space, which could, through supply and demand, drive down the valuations of existing players. In the meantime, the companies taking a more measured approach to development are in a position to capitalize on the rapid growth the deployment of autonomous vehicles, service robots, drones in agriculture, which is poised to be one of the most promising sectors for robotics. For other robot sensors, IRs, cameras, and radars are also very interesting options going forward. For attractive public companies in Korea developing key technologies that can be invested in at reasonable prices, we like companies such as Samsung Electronics (OTC:SSNLF), SEMCO (OTC:SMSGF), and Hyundai Mobis (OTC:HYPLF).
In other sensor tech, the story is pretty much the same; we simply do not know which technology will emerge as the Holy Grail—if there is an actual Holy Grail in this game. Look to companies augmenting existing platforms with technologies that are practical and increase the probability of survival in the evolving business ecosystem. Some automotive companies are moving in the right direction with their investments and their outlooks on how to allocate their funds on the right players, while others are simply emptying their war chests in the misguided hope of winning the Level 5 lotto jackpot. We recommend betting on the former.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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