Declining market share+high valuation Goldman Sachs downgraded Mobileye (MBLY.US) to “neutral”

The Zhitong Finance App learned that Goldman Sachs recently released a research report stating that it downgraded its Mobileye Global (MBLY.US) stock rating from “buy” to “neutral” to better reflect the current competitive landscape faced by the company and the overvalued stock. Meanwhile, the bank kept its 12-month price target for the stock unchanged at $17.

Goldman Sachs pointed out that since the bank gave Mobileye a “buy” rating in November 2022, the stock price has fallen 38%, while the S&P 500 index has risen 52% during the same period. The bank believes that the reason for Mobileye's poor stock price performance is due to a decline in its market share, a lower than expected number of design contracts, and the overall weakness of the automotive industry (partly due to tariffs).

Although Goldman Sachs still believes that Mobileye has strong visual recognition and autonomous driving technology capabilities, the number of companies currently planning to use Mobileye technology in future advanced driver assistance systems (ADAS) /autonomous driving technology (AV) projects (whether in the Chinese market or the global market) is lower than the bank's expectations.

The bank pointed out that Mobileye's competitors mainly include car companies' own research projects and other chip/system providers. In addition, some car companies are also considering obtaining licenses for L4 autonomous driving technology from technology companies other than Mobileye (such as Tesla or Waymo). The bank still anticipates that Mobileye will be an important player in the autonomous driving market — for example, partnering with Volkswagen and providing autonomous vehicles for Uber/Lyft, but the overall level of participation will be more moderate.

According to Goldman Sachs, MobilEye has a strong position in the ADAS market, has a market share of more than 50%, and covers the L1/L2 projects of most major car companies. However, in terms of higher-level ADAS and autonomous driving projects for consumer and commercial vehicles, although Mobileye has achieved some results in the past few years (in particular, cooperation with Volkswagen in L2++/L3 ADAS and autonomous driving), many car companies that have cooperated with it in the past have announced that they will launch L2++/L3/L4 projects based on self-developed or competitor technology. These car companies include Ford, General Motors, Honda, and Nissan. It should be clarified that some or all of these car companies may still cooperate with Mobileye on certain projects, or eventually choose to fully switch to Mobileye (such as cooperation with Volkswagen and its subsidiary CARIAD), but other cooperation plans announced by these car companies in the past 12-18 months mean that Mobileye faces lower market opportunities than the bank's previous judgment.

Although Mobileye stated during its earnings call for the second quarter of 2024 that it is expected that there will be more design contracts for Supervision and ChauffEUR (L2++ and L3 products, respectively) by the end of 2024, and revealed during Investor Day in December 2024 that five car companies are in the process of due diligence and decision-making, the last bid announcement for these two products was still limited to cooperation with Volkswagen in January 2024.

Goldman Sachs still expects MobilEye to receive more orders for Supervision and ChauffEUR, but if so, the time point will be later than expected, and the lack of orders in the past 18 months, combined with the car companies' choices of other ADAS/AV technology, all indicate that Mobileye's overall winning number of bids will fall short of expectations. Furthermore, even if new contracts are obtained this summer, these orders will not begin to achieve meaningful volume until 2028, according to the industry's product cycle.

Furthermore, Goldman Sachs pointed out that Mobileye's revenue in China has declined. Its share of revenue in China (based on the place of delivery) fell from 31% in 2023 to 26% in 2024. The bank believes that the reasons include tariffs, inventory adjustments, and declining market share. For example, Geely reduced the use of Mobileye Supervision in Krypton car models and instead adopted more self-developed solutions based on Nvidia chips. Mobileye is also facing competition from other chip solution providers such as Horizon.