Many investors are skeptical of automakers that invest in full self-driving technology, and for good reasons. This technology still has many hurdles that it needs to overcome before it can be deployed on any sort of scale. While some of these challenges are engineering problems, others are entirely out of any one company’s control, such as the lack of high-quality, clearly marked roads.
Nevertheless, as driver assist technology has advanced considerably, automakers around the world have come to see full self-driving as an emerging technology that they cannot ignore. If full self-driving can become a reality, it could potentially reduce the number of automobile accidents, give commuters their time back and improve profit margins for automakers and their suppliers. Ride-hailing platforms could even benefit from not having to pay for as much labor, though that would be contingent on getting the costs of self-driving down to a manageable level.
Volkswagen's self-driving efforts
One of the automakers that has recently made headlines for its self-driving efforts is Volkswagen AG (XTER:VOW3, Financial). After the failure of Argo AI, which Volkswagen and Ford Motor Co. (F, Financial) had invested in, both of the big-name automakers moved on to other routes. Volkswagen hired some of Argo’s former employees and partnered with Mobileye Global Inc. (MBLY, Financial). On Thursday, the company made the long-awaited announcement that it is set to begin its first autonomous vehicle test program in Austin, Texas this July.
Volkswagen stands out as what may just be the cheapest autonomous vehicle stock when we consider its price-earnings ratio of 6.11, its global expansion efforts and its strong (for an automaker) financial strength rank of 5 out of 10. However, does the company have what it takes to wow investors with its autonomous vehicles and attract higher valuations?
Autonomous vehicle progress
The autonomous vehicle testing program aims to deploy 10 of Volkswagen’s ID Buzz electric vehicles, equipped with autonomous driving systems developed in partnership with Mobileye Global, by the end of 2023. These vans are equipped with lidar, radar and camera systems, and they will be geofenced to specific areas of the city that have been extensively mapped.
The company plans to have human safety drivers as backup for the time being, as is standard with the early stages of autonomous vehicle city testing. According to Katrin Lohmann, who leads Volkswagen’s self-driving efforts, the company plans to add testing operations in at least four more U.S. cities in the next three years.
Why test in the U.S., since this is a German company we are talking about? Because Volkswagen is not immune to the biggest problem all self-driving cars face, which is that they need clearly mapped, maintained and well-marked roads. That is just not something you typically find outside of major cities in the U.S. and China. The U.S. in particular is known for its car culture and high car ownership, which leads to greater public investment in roads.
Comparison with competitors
While Volkswagen is stuck in the same pit as its competitors in terms of needing road quality that does not exist in most places, it is undeniably behind the first movers in other areas. The biggest name to beat in the autonomous vehicle space right now is Alphabet Inc. (GOOG, Financial), which launched the world’s first self-driving taxi service in 2022, ferrying customers around in certain parts of San Francisco. In 2023, the company expanded service into Los Angeles and went all-electric. Though customers sometimes complain of the vehicles stopping awkwardly in places they should not, overall things seem to be proceeding smoothly.
One would think that with all the publicity Tesla Inc. (TSLA, Financial) gets, it would also be a key competitor to beat. However, while it is one of the first movers in autonomous vehicles, and it does have an enviable database from the cameras installed in all of its cars, research firm Guideline actually ranks Tesla as a “follower” in terms of autonomy, behind “leaders” such as Alphabet and Mobileye Global, “contenders” such as AutoX and “challengers” such as Pony AI. Tesla has come under fire for consistently underperforming on its promises and disappointing customers when it comes to its self-driving technology.
Aside from Alphabet, Baidu Inc. (BIDU, Financial) and General Motors Co. (GM, Financial)’s Cruise are Volkswagen and Mobileye’s biggest self-driving competitors. Cruise began testing self-driving vehicles in 2020, and Baidu and Pony AI began testing their robotaxis in Beijing in 2022.
Valuation and takeaway
The Volkswagen-Mobileye Global partnership looks set to join the ranks of the top companies in the autonomous vehicle space. As self-driving technology continues to improve, this could put the company in a prime position to capture market share. With a valuation that lags key competitors, value investors may want to keep an eye on this one.
