Seeing the Road Ahead: The Importance of Cameras to Self-Driving Vehicles

This is the third in a series of notes based on our deep dive into computer perception for autonomous vehicles. Autonomy is a question of when? not if? In this series, we’ll outline our thoughts on the key components that will enable fully autonomous driving. See our previous notes (Computer Perception Outlook 2030, What You Need To Know About LiDAR).

If a human can drive a car based on vision alone, why can’t a computer?

This is the core philosophy companies such as Tesla believe and practice with their self-driving vehicle initiatives. While we believe Tesla can develop autonomous cars that “resemble human driving” primarily driven by cameras, the goal is to create a system that far exceeds human capability. For that reason, we believe more data is better, and cars will need advanced computer perception technologies such as RADAR and LiDAR to achieve a level of driving far superior than humans. However, since cameras are the only sensor technology that can capture texture, color and contrast information, they will play a key role in reaching level 4 and 5 autonomy and in-turn represent a large market opportunity.

Mono vs Stereo Cameras. Today, OEMs are testing both mono and stereo cameras. Due to their low-price point and lower computational requirements, mono-cameras are currently the primary computer vision solution for advanced driver assistance systems (ADAS). Mono-cameras can do many things reasonably well, such as identifying lanes, pedestrians, traffic signs, and other vehicles in the path of the car, all with good accuracy. The monocular system is less reliable in calculating the 3D view of the world. While stereo cameras can receive the world in 3D and provide an element of depth perception due to dual-lenses, the use of stereo cameras in autonomous vehicles could face challenges because it’s computationally difficult to find correspondences between the two images. This is where LiDAR and RADAR have an edge over cameras, and will be used for depth perception applications and creating 3D models of the car’s surroundings.

Camera Applications. We anticipate Level 2/3 and Level 4/5 autonomous passenger cars will be equipped with 6 – 8 and 10 – 12 cameras, respectively; most will be mono-cameras. These cameras will play a prominent role in providing nearly 360-degree perception and performing applications such as lane departure detection, traffic signal recognition, and park assistance.

$19B Market Opportunity. Given cameras are the primary computer perception solution for advanced driver assistance systems (ADAS), the camera market is currently the largest computer perception segment and represented a $2.3B opportunity in 2017. While growing adoption of ADAS enabled cars will continue to act a near-term catalyst, adoption of fully autonomous vehicles (Level 4/5) equipped with 10+ units per car, will be the tailwind taking this market to $19B by 2030 (18% CAGR 2017 – 2030). As displayed in the chart below, the bulk of sales will be in the form of mono-camera systems. Note our forecast is driven by our 2040 Auto Outlook and only includes passenger vehicles. Fully autonomous heavy-duty trucks will also leverage similar computer vision technology, and when factoring these sales, the total camera market could be 1.5x- 2x larger.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

When It Rains It Pours; Model S Recall

  • Tesla announced a recall this afternoon on 123,000 (built before April 2016) Model S sedans over a potential power steering issue.
  • Tesla has had other recalls. In 2017 the company recalled 53,000 Model S and Model Xs over a parking brake problem, and in 2015, 90,000 Model S sedans were recalled for a bad seat belt.
  • Assuming $500 (our guess) to repair each recalled Model S, suggests the cost of the recall to be just over $60m.
  • The bigger issue is erosion of brand which impacts demand for Tesla’s and investors’ willingness to keep funding the Tesla mission.
  • We believe the size of Tesla’s opportunity, defined as accelerating the world’s adoption of renewable energy, is so large they will continue to find investors willing to back the company.
  • Our patience is being tested, but we continue to expect Tesla to be a winner in EV and AV.

Tesla is testing our patience. Today’s recall is the third negative news story related to Tesla in the past week on top of the Model X crash and Moody’s credit downgrade. We’re bracing for a fourth negative data point early next week when the company reports production and delivery numbers for the Mar-18 quarter. We’re expecting around 1,500 Model 3s per week, below the company’s target of 2,500. When we heard the recall news tonight we asked ourselves, do we still believe in the story? The answer is yes. Our support is based on a view that the company is uniquely positioned to capitalize on a dramatic shift in auto (computer on wheels), innovate in both EV and autonomy, and usher in a new paradigm of manufacturing efficiencies.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Posted in Tesla  • 

Tesla Mar-18 Primer; Bracing for Another Model 3 Miss

  • We are bracing for another Model 3 production miss. This will be the third time in as many quarters that Model 3 production has fallen short of expectations.
  • We believe the Model 3 production run rate exiting the March quarter will be 1,500, below company guidance of 2,500 and Loup Ventures previous expectation of 2,000 per week. This compares to production exiting the Dec-17 quarter at a run rate of ~1,000 per week.
  • The reason why Model 3 production continues to miss is Tesla’s goal is to build a factory with significantly higher output than a traditional auto factory. This is the right long-term strategy but has near-term consequences.
  • Model 3 likely still has a ~400,000 preorder list, a rare example of a car’s demand outpacing its supply.
  • We believe Tesla will eventually get this right and capitalize on the EV and autonomous opportunity.
Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.
Posted in Tesla  • 

How To Think About Recent Volatility in Tech

Market decline does not change the mega growth opportunities. The heart rate of the market increased the past week because of fears of a trade war, Facebook data privacy, and broken market technicals, but the health of the market is unchanged and the health is good. Core underlying tech trends including artificial intelligence, robotics, big data, and autonomous transportation, will support continued growth.

Hold tech for the long-term. We believe that tech is essentially taking over the rest of the economy; therefore, investors should hold tech long term. Just as every company is now an internet company to some degree, we believe that eventually every company will be an AI company.

Market undervalued. From a valuation perspective, our view is undervalued. The market has rallied back to the old highs, but the S&P is up only 3% per year over the past 17 years, compared to the previous 17 years (1983-2000) when it was up 17% per year.

Putting the size of tech into perspective. The tech sector’s growing clout is not just a U.S. story. Tech stocks have become so dominant in emerging markets that for the first time since 2004, the industry last year overtook finance as the biggest sector in the MSCI Emerging Markets Index. Tech had a 28% weighting near the end of 2017, more than double its level six years ago, according to data provided by MSCI. Facebook, Amazon, Netflix Inc. and Alphabet together account for a 7.8% weighting in the S&P 500, more than double from five years ago.

Company Updates:

Tesla. We remain positive on TSLA. Shares are down 20% in the past month mostly due to fears of another miss in Model 3 production. The recent stock dive is due to a combination of a Model X accident that is being investigated, Waymo’s partnership with Jaguar, which legitimizes a key competitor (the I-Pace electric SUV), growing concern among all companies testing self-driving vehicles amid the Uber fatality, and news that Moody’s has downgraded Tesla’s bonds to B3 from B2, citing significant shortfall in the Model 3 production rate and a tight financial situation. We continue to believe the Tesla story has the best risk-reward among tech companies over the next 5 years.

  • Model 3 production. We’re expecting another miss in Model 3 production in the March quarter but that does not change the story. There is more demand than supply for the Model 3 (about 400k preorders which is unheard of in automotive). It might take a year, but eventually, Tesla will get the Model 3 production right, and ramp output.
  • Model X accident. We see the recent Model X accident the same as accidents with gas cars. It is unlikely that the battery or Tesla’s advanced cruise control “autopilot” were to blame. Tesla disclosed that the autopilot feature properly functions 200 times a day on the same stretch of road where the accident happened.

Facebook. Limited upside to FB. Given the privacy issues, for the first-time advertisers have to think about Facebook as a liability. Separately, it’s unclear about how the recent privacy changes will impact Facebook’s ability to make money.

Nvidia. We remain positive on NVDA. Shares of NVDA dropped 11% in the past week following the announcement that they temporarily stopped autonomous testing, and in part because of the broader market sell off. While the company did not comment on timing, we expect testing to resume in the next 3 months. The big picture is the company is well positioned to capitalize on four mega trends, AI, autonomous cars, gaming, and blockchain through their dominance of GPU processors.

Apple. We remain positive on AAPL. Concern is emerging that iPhone demand in June will fall below Street expectations. We think iPhone demand over the next two quarters is not important to the story. What’s important is the share buyback, services, and the next iPhone.

  • Share buyback. Apple can add 4% per year to the stock price (assuming they use $40B of the $55B they generate in cash each year to buy back stock). Apple will give an update on the share buyback when they report the March quarter, likely late in April.
  • Bigger screen iPhone this fall. We expect Apple will announce a 25% bigger phone in the fall. This will be a positive for unit demand and average selling price.
  • Services. Services account for about 15% of revenue and are growing at 15-20% year over year. We believe this segment will continue to grow at a 15% or better rate over the next five years. This is important because the earnings multiple on shares of AAPL will likely increase as investors view the predictability of services are more attractive.

Google. We remain positive on GOOG. We expect the next six months to be rough for shares of GOOG as questions emerge about how the company uses data. Despite that negative potential, Google is too tightly woven into the fabric of the internet. The company is one of the best ways to invest in AI, given the company has a stated their intention to move from a mobile-first company to an AI-first company over the next several years. Lastly, the company has a stake in Waymo, the leading autonomous car company. We expect years of positive news to come from Waymo.

Amazon. We remain positive on AMZN. The company is best positioned for the future of retail. We see that future as a combination of both online and offline retail. Online sales account for about 15% of global retail, and in the future, we believe it will eventually reach 55% of sales. We also expect Amazon to do more with physical retail locations and we continue to believe the company will eventually acquire Target (TGT). The company’s AWS web hosting business is only 15% of revenue, but it is growing at greater than 30% for the next several years.

Twitter. Limited upside to TWTR. About 14% of Twitters 2017 revenue came from selling data, growing at 18% y/y, compared to Twitter’s ad business that declined by 6%. Selling private data is a toxic label, and this could limit the upside to shares over the next year.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make. 

Tracking Progress in Electric & Autonomous Vehicles

We were set to publish a note on targets from major automakers to ramp production of electric and autonomous vehicles when we heard the news from Tempe.  Regardless of who was responsible, it’s a tragic reminder about the dangers of road safety and reminds us that the move to self-driving cars will take longer than most think. We’ve been asking ourselves: what’s the right way to think about the risks of autonomy? Is the threshold for AVs zero accidents, or is it an improvement relative to human drivers? In the end, we continue to believe humans should not drive, and that traffic and pedestrian fatalities will decline under autonomy.

Tesla’s activity in electric and autonomous vehicles (EV and AV) is well documented. The electric car maker’s unlikely rise as a leader in EV and AV has forced other manufacturers to turn their attention to emerging technologies. Fuel cell technology had been considered the alternative fuel of the future, but Tesla’s success has altered the mindset of the industry and pushed other carmakers to develop battery-powered vehicles. Separately, the development of autonomous vehicles is a hyper-competitive space, with companies pouring billions of dollars in R&D for self-driving technology. Tesla’s Autopilot is probably the most advanced AV system on the road today, but its competitors are nipping at their heels. It’s clear that autonomous vehicles are the future, what’s much murkier is who the winners are going to be and when they are actually going to win.

Toyota

  • EV: In December of 2017 Toyota announced they were ramping up production of various forms of electrified vehicles (i.e. hybrids, battery-powered, fuel cell). They plan to offer an electrified version of every model they have in production. By 2030 they hope to have sell 5.5m electrified vehicles, with 1m of those being zero-emission (i.e. fully electric). Initially, they will roll out their EVs in China before moving to other markets like India, Europe, and the U.S.
  • AV: The Toyota Research Institute is Toyota’s R&D arm that has been doing most of the work in autonomy for Toyota. At CES 2018, they showcased the third iteration of their self-driving vehicle, Platform 3.0. Its major improvement was the 4 long-range LiDARs on the roof that allow it to “see” 200m out all 360 degrees around the vehicle. Toyota says this makes it one of the most perceptive AVs being tested today. In late March 2018, Toyota was rumored to be in talks to have Uber supply them with their self-driving technology, which way mean Toyota’s technology isn’t advancing as fast as they would have hoped.

Volkswagen Group

  • EV: This past week VW came with some big news for EV plans: $25m in battery supplies to begin producing 3m vehicles a year in 16 factories by 2025. Volkswagen expects to spend up to 50B Euro on batteries to supply the initiative. The battery push is a continuation of VW’s aggressive electrification strategy. In September it was announced the they would be producing electric versions of all 300 vehicle models across the group’s 12 brands, a $24B investment.
  • AV: Volkswagen is also heavily involved in AV, even showcasing a concept AV at last month’s Geneva Motor Show without a steering wheel or pedals. Beyond that, they have teamed up with AV software rockstars Aurora and announced production plans for a 4-seat fully autonomous bus.

Ford

  • EV: Ford has been vocal about their commitment to electrifying their vehicles, planning to invest $11 billion in by 2022 and have 40 hybrid and fully electric models (upping their previous announcement of investing $4.5B by 2020).
  • AV: Ford revealed its self-driving “platform” at CES in January, indicating Ford is more interested in being the OS of mobility’s future than simply a carmaker. The company also will invest $1b over the next 4-5 years in Argo AI, who will develop the autonomous technology for Ford to use with their vehicles. Ultimately, Ford hopes to operate a ride-hailing service with an autonomous fleet of Ford cars. No timetable has been set.

Honda

  • EV: Honda got into the electrification game in October of 2016 when they set up an electric vehicle division in their R&D department. They were previously focused on hydrogen fuel cell technology for an alternative fuel system. Then in summer of 2017, they pledged to electrify two-thirds of their globally-sold cars by 2030. Currently, about 5% of sales are EVs.
  • AV: Honda has stated they plan to come out with level 4 autonomous vehicles, meaning they can navigate highways and city roads in most conditions, by 2025. By 2020 they hope to have level 4 cars on the road. It was reported they were in talks to form a partnership with Alphabet-owned Waymo, but those discussions appear to have fallen through.

Renault-Nissan

  • EV: Nissan was an early adopter of electric vehicles with fully electric Leaf in 2010, which has gone on to become the world’s best-selling electric vehicle with over 300k sold. Since then Nissan, French carmaker Renault, and Mitsubishi have formed a strategic partnership and announced their ‘Alliance 2022’ plan in September of 2017. The plan endeavors to launch 12 new zero-emission vehicles by 2022. Furthermore, Infiniti (owned by Nissan) announced in January that they would be moving to an all-electric lineup by 2021.
  • AV: In the Alliance 2022 plan, the three partners state they will introduce 40 vehicles with differing levels of autonomy (i.e. driver assistance up to full autonomy). Reading between the lines means they anticipate having full autonomy (level 4/5) figured out in less than 5 years. Nissan also unveiled a plan to launch a self-driving taxi service in Japan, called Easy Ride. Initially only offering short rides between Nissan HQ and a popular shopping mall just under 3 miles away, Nissan and their partner DeNa said they will expand it to a much wider market by 2020.

Hyundai

  • EV: Hyundai was slow to adopt electrification, finally announcing in 2017 that they would add 38 green cars in the next 5 years. They will not all be battery-powered, some will be plug-in hybrids and some will be hydrogen-powered fuel cell vehicles, which Hyundai still considers to be the long-term future of zero-emission vehicles. They have differentiated themselves from competitors by focusing on range and are planning to offer two vehicles at the high-end of EV’s range of around 300 miles.
  • AV: Hyundai, like VW, has partnered with Aurora to develop AV technology and manufacture autonomy-capable models to sell to fleet services. They anticipate having AVs on the market in 2021, most likely at level 4. Beyond the Aurora partnership, Hyundai had AVs shuttle athletes and attendees to and fro at the 2018 Winter Olympics and had showcased their concept for a mass-market AV back in 2016.

General Motors

  • EV: GM was also an early player in EVs, releasing the Chevrolet Volt plug-in hybrid in 2011, but they have strengthened their commitment to the space and are striving to bring 20 new EVs to market by 2023. They also are aiming to sell 1m EVs a year by 2026. The competitive advantage they are seeking and touting is profitability through leveraging their superior scale in manufacturing and capital.
  • AVIn one of the most ambitious AV announcements to date, GM announced they would be making an AV without a steering wheel or pedals by 2019. They also just announced they will be investing $100m in the production of the car, dubbed the Cruise AV (and based on the Volt), in two U.S. factories. They acquired Cruise Automation, an AV startup, in March 2016 for an undisclosed amount. GM wants to be a full stack AV company where they control all aspects of the production and technology. They also have announced plans to launch to their own AV ride-hailing fleet in 2019.

Fiat Chrysler

  • EV: At the 2018 Geneva Motor Show FCA (Fiat Chrysler Automobiles) CEO Sergio Marchionne admitted that his company made a mistake in underestimating the rise of electric vehicles. Fortunately for FCA, this admission comes after they have implemented plans to electrify their brands’ cars, though only one vehicle is rumored to be all-electric – a high-end Maserati – and the rest will be hybrids. Bottom line is FCA is a laggard in adopting EV technology.
  • AV: Though they may be behind in EVs, FCA has been heavily involved in the development of AVs. They have supplied Waymo with hundreds of minivans for testing and reached a deal this year to supply Waymo with “thousands” of minivans for use in Waymo’s new ride-hailing fleet. FCA also joined BMW and Intel/Mobileye in an alliance to develop AVs. FCA’s role in the partnership will be to add resources and expertise as well as act as the vendor for the planned AV platform.

Volvo

  • EV: Last year Volvo pledged to phase out ICE engines and by 2019 only offer hybrid or battery-powered vehicles. It was a major announcement being one of the first automakers to commit fully to EVs. From 2019 to 2021 they plan to introduce 5 all-electric vehicles and recently unveiled a high-end model from one of their sub-brands, Polestar, that will challenge Tesla’s Model S.
  • AV: Volvo began a unique program called Drive Me where they were going to give 100 AVs to families in Sweden for testing, but in late 2017 scaled it back as the technology wasn’t ready yet. Separately, Uber announced last November that they would be buying as many as 24,000 self-driving Volvos, once the tech is viable, to put in its ride-hailing network. The deal’s terms were undisclosed but estimated to be worth around $1B. They had previously made a $300m deal together to develop AV technology.

Bottom line. We believe that autonomous drivers will be many times safer than human ones but will take longer than most people think to develop. Here at Loup Ventures the initiatives and timelines for AVs given by these companies strike us as ambitious and unlikely to be met. It is unlikely we see something like a fully operational autonomous fleet shuttling folks around in the next 5 years. We are enthusiastic and optimistic about this future of mobility but are managing expectations for how long it will truly take for the ubiquitous adoption of autonomous vehicles. As for electrification, we believe there is enough momentum and fewer hurdles for adoption that widespread use of battery-powered vehicles is imminent.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.