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Mobileye Global (MBLY) stock lost almost a quarter of its market cap yesterday, after the company forecasted 2024 revenues well below estimates and warned of a supply glut. Here’s what the tepid guidance tells us about the health of the auto chip industry and autonomous driving.
In its preliminary report, Mobileye said that it expects revenues to be between $1.83 billion-$1.96 billion in 2024, while analysts were expecting the metric at around $2.58 billion. It also forecasts Q1 2024 revenues to be down around 50% from the corresponding quarter last year.
Mobileye Blames Excess Supply Chain Inventories
Mobileye blamed the excess inventory on tier 1 automakers in light of the chip shortages of 2021 and 2022. In its release, the company said, “As supply chain concerns have eased, we expect that our customers will use the vast majority of this excess inventory in the first quarter of the year.”
As investors might recall, the severe crunch of automotive chips between 2021 and 2022 took a toll on global automotive production. Companies went overboard with their chip purchases, which was reflective of the kind of “hoarding” behavior that we saw during that period.
We have seen a reversal in many industries, and while retail companies had to mark down and sell excess inventory at a discount, tech giants that went on a hiring frenzy amid the labor shortage had to announce mass layoffs last year as revenue growth slowed down. Even solar companies are battling with excess supply chain inventories, and Enphase Energy (ENPH) has said that its shipments are running below end demand.
Mobileye Went Public in 2022
Mobileye went public in 2022 when its parent company, Intel (INTC) - which acquired the business in 2017 at a valuation of $15 billion - sold some of its stake in the IPO. The shares surged after the IPO, which wasn’t very common that year amid a tough market for new issues.
Wall Street analysts have also been quite bullish on Mobileye shares, and ahead of the company’s profit warning, the stock had a consensus rating of “Strong Buy." Just a day before Mobileye's warning, Deutsche Bank predicted that Mobileye would be the proverbial “last man standing” in the autonomous driving market, and said that it was a “rare secular growth story.”
As expected, chip stocks crashed yesterday after Mobileye’s preliminary guidance. However, the warning did not exactly come out of the blue, as in November Analog Devices (ADI) also lowered its outlook - citing, among other factors, weak demand from automakers.
Sales Growth of Electric Cars Has Been Tepid
Both electric vehicles (EV) and autonomous driving stocks were quite popular among investors a couple of years back. However, EV demand hasn’t kept pace with supplies, and multiple companies like Fisker (FSR), Lucid Motors (LCID), and Polestar (PSNY) cut their 2023 production guidance. Legacy automakers like Ford (F) and General Motors (GM) have also taken a cautious stance on their EV investments, and even Tesla (TSLA) is going slow about its upcoming factory in Mexico.
Autonomous Driving Is Under Scrutiny
Autonomous driving has itself been under scrutiny. Last year, Cruise - which is backed by General Motors - paused its operations after collisions. Tesla, whose CEO Elon Musk believes that the bulk of its valuation is linked to its autonomous driving business, is also facing investigations over crashes.
Notably, autonomous driving has been a tough nut to crack, and none of the players has reached L4, or fully autonomous driving – even as Tesla terms its software as “full self-driving,” much to the displeasure of regulators.
In 2022, Ford gave up on its L4 ambitions and wrote off its $2.7 billion investment in autonomous driving startup Argo AI. In 2020, Uber (UBER) sold its self-driving business to Aurora Innovation (AUR) in exchange for a stake in the company. Chinese ride-hailing giant Didi did something similar last year when it sold its self-driving operations to Xpeng Motors (XPEV) and took a stake in the startup EV company.
Mobileye Expects Revenues to Normalize
Meanwhile, after the projected 50% fall in Q1 revenues, Mobileye expects revenues to “normalize” in the subsequent quarters. However, the company’s revenue and profit warning is yet another reminder that the once red-hot sectors like EVs and autonomous driving are looking vulnerable, at least in the short term.
Also, automakers like NIO (NIO), Volkswagen (VWAGY), and Porsche (POAHY), which all use Mobileye’s chips, seem to be getting cautious about their near-term outlook amid the projected slowdown in the global economy this year.
On the date of publication, Mohit Oberoi had a position in: F , GM , NIO , XPEV , INTC , ENPH . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
