While self-driving cars might have seemed like high-concept sci-fi a decade ago, we now have robotaxis from different companies running on our roads. Even though none of them have achieved full autonomy – also known as L4 – the technology has made great strides over the years.
Tesla’s (TSLA) CEO Elon Musk believes his company’s mammoth valuation - which is currently a tad short of $800 billion, and peaked at $1.2 trillion in 2021 - is linked to its autonomous driving segment. But the autonomous driving ecosystem is quite wide, and includes chipmakers who supply high-end chips that enable autonomous driving, lidar makers, automakers who are working on autonomous driving, ride-hailing companies looking to add robotaxis to their fleets, and pure-play self-driving companies.
I believe that Xpeng Motors (XPEV), General Motors (GM), and Nvidia (NVDA) are three solid autonomous driving stocks from across this spectrum for investors to play the growing traction and technological advancements in self-driving.
Xpeng Motors Has Significant Self-Driving Operations
XPeng Motors is a China-based electric vehicle (EV) maker that also has burgeoning autonomous driving technology in the country - even as Tesla does not have permission to do so in Chinese cities, apparently over spying concerns.
The company's autonomous operations have been in the news over the last month. Wu Xinzhou, its vice president of autonomous driving, stepped down in early August, which led to a brief sell-off in the stock – underscoring the segment’s importance for Xpeng Motors.
However, late last month, Xpeng Motors acquired the self-driving operations of Didi – the largest ride-hailing company in China – in exchange for a stake in the company in a deal valued at $744 million. XPEV's deal with global auto giant Volkswagen (VWAGY) is also a testimony to its prowess in autonomous driving
Xpeng Motors offers its autonomous driving service in several Chinese cities, including Beijing, and is looking to expand to 50 Chinese cities by the end of the year. Simultaneously, the automaker is aiming to cut the segment's bill of materials by 50% by 2024 - which would help to improve its gross margins after that metric went negative in Q2.
XPEV: The Top Stock for Self-Driving in China
During their Q2 2023 earnings call, XPEV’s CEO He Xiaopeng said, “Over the second half of this year, we plan to make additional major breakthroughs in experience and coverage with our XNGP ADAS (Advanced Driver Assistance System) to further drive customer acceptance and the adoption process, widening the technology gap with our peers.”
Autonomous driving is a focus area for the Chinese government, and Xpeng Motors is among the best ways to play the theme. With a market cap of around $16.5 billion and next-12 months (NTM) price-to-sales multiple of 2.46x, XPEV looks reasonably valued, and markets don’t seem to be fully appreciating its self-driving business - which can add significant long-term value.
General Motors is Another Underappreciated Autonomous Driving Company
While rival Ford (F) gave up on its L4 ambitions and wrote off its $2.7 billion investment in autonomous driving startup Argo AI, General Motors continues to invest in its Cruise self-driving business, of which it holds the majority stake.
Cruise has had its share of controversies - like many other autonomous technologies, including Tesla’s full-self driving - and last month, GM slashed its robotaxi fleet in San Francisco by half after two collisions. That said, GM is working on commercializing the service after years of investment.
Responding to an analyst question on whether General Motors would also consider licensing the Ultra Cruise driving system to others, CEO Mary Barra said during the Q2 earnings call that she sees the product as both “revenue-generating and profit-generating” – while keeping more details for the company’s investor day event in the fall.
I believe that along with strong automotive operations and the EV pivot, GM's autonomous driving business will also drive long-term value for investors, even as the asset is currently being underappreciated by the markets.
While Warren Buffett’s Berkshire Hathaway (BRK.B) has been gradually selling GM shares, I believe with a single-digit forward price-to-earnings ratio and significant autonomous driving operations, GM stock looks like a good buy at these prices.
Nvidia: Another Autonomous Driving Play
Chips are the cornerstone of most modern gadgets and technologies, and Nvidia is one name that has chips to offer for applications ranging from artificial intelligence (AI) to the metaverse to, yes, autonomous driving. The company also has a dedicated Automotive segment that sells chips to automakers, including those based in China.
Nvidia stock has more than tripled this year because of soaring sales of its AI chips. The sales of its Automotive segment, incidentally, fell 15% in fiscal Q2 2024, which was attributed to lower demand from China. While Nvidia’s Automotive business is pacing at an annual revenue run rate of just above $1 billion, the company believes that it could be a $300 billion market opportunity as autonomous driving gains traction.
Currently, Wall Street is bullish on Nvidia’s AI foray and Rosenblatt expects the stock to more than double to $1,100 over the next year.
However, over the long term, the Automotive segment could be a key driver for Nvidia - which makes it an attractive autonomous driving stock.
On the date of publication, Mohit Oberoi had a position in: NVDA , F , GM , BRK.B . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
