Mobileye (MBLY) Gains Early; Added to VW Strategic Suppliers List

(Updated - August 3, 2015 10:29 AM EDT)

Mobileye (NYSE: MBLY) is gaining early (+0.4%) as Morgan Stanley notes the company was added by Volkswagen to its Strategic Suppliers List. Notably, Volkswagen recently overtook Toyota as the top automaker worldwide.

In the report, Morgan Stanley analyst Ravi Shanker noted that Mobileye and Delphi Automotive (NYSE: DLPH) are the only ADAS suppliers that are part of VW's FAST initiative, which they believe "could put both companies in pole position to become VW's core ADAS suppliers." He added, "For MBLY in particular, this could pave the way to vision ADAS dominance, over time."

They believe being part of FAST puts MBLY in pole position for a few reasons.

1. MBLY and DLPH are the only ADAS providers on the list today. Continental is included as a supplier of adaptive cruise control, which could imply VW still plans to use radar for that feature but vision for the rest of the ADAS feature set. We note that VW's current vision provider - Bosch - is not on the list.

2. It would be irregular for VW to put MBLY on its strategic supplier list but use somebody else for its vision systems on the majority of its volume products. A member of VW's board named the FAST suppliers as “important beacons in our network and I am looking forward to even closer and more intensive collaboration”. In short -- while the list can grow from here -- it is an exclusive club. We note that major VW suppliers like Bosch, BorgWarner and Harman are not on the list.

3. While it is possible that MBLY (and DLPH) were included solely because of their existing Audi relationship, this seems unlikely in our view. This is because Audi's chosen ADAS Tier-1 supplier - Kostal - is not on the list.

"If being categorized as a FAST supplier does put MBLY on the path to becoming VW's sole/majority vision systems provider, this is a big win for MBLY, in our view," the analyst said. "As we mentioned in our Apr 15th note, we estimate becoming the majority supplier for VW is worth about $1 EPS to MBLY, once fully ramped up. More importantly, this would give MBLY 23 of the top 25 global OEMs and about 65% of the volume / 75% of the value of the global vision ADAS market, which could effectively crowd out the competition and make MBLY the industry's dominant vision supplier -- eliminating a key pillar of our bear case for MBLY."

The analyst warns investors it may be a while before they find out if MBLY has been formally spec'd on VW's volume MQB platform or not, but they believe being named a FAST supplier is an important step in that direction.

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