Wells Fargo Positive on Mobileye (MBLY), Delphi (DLPH) Mobility Partnership; Affirms at 'Outperform'
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On the partnership:
We believe the autonomous partnership announced by DLPH and MBLY validates that both companies will have a seat at the table during the autonomous vehicle evolution/revolution. We view this as a step towards developing a standardized solution for the industry. The solution seems most compelling for the small and mid-sized OEMs, but ultimately may converge with MBLY's existing partnerships/alliances with large OEMs (BMW, REM OEM partners, etc.). Importantly, both companies have factored the cost ($300-$400M all-in) into their long-term margin/R&D targets. In our view, the major risk include if an OEM or non-traditional player can achieve a cost competitive, production-ready system that can be effectively licensed to other industry participants. We believe DLPH and MBLY's competencies and history together are advantages that should not be discounted by investors. The announcement is a positive for the long term.
On benefits for Mobileye:
MBLY and DLPH have combined forces to develop a turnkey solution for OEMs that want a Level 4/Level 5 autonomous solution. The program should be production ready by 2019 with intention for launch in 2021/22 (launch could be as early as late 2019/early 2020). MBLY and DLPH have essentially wed for the long term. CTO Shashua indicated the company doesn't want to replicate the relationship with other Tier 1s. The partnership does not threaten the BMW-Intel alliance announced at the beginning of July. For MBLY, R&D dollar investment steps up in the interim, but is not all incremental and the company believes it can stay within its target R&D range (7-9% of sales). The average selling price (ASP) for Mobileye's content will be significantly higher than core advanced driver assistance system (ADAS) content ($30-$55 ASP). No quantification was provided.
Wells Fargo rates Mobileye at Outperform with a valuation range of $51 to $54. The firm has Delphi at Outperform with a valuation range of $80 to $82.
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