Autonomous driving – Laser seat belt.

Volvo’s safety drive accelerates the Lidar cost curve.

• Volvo’s intention to include Lidar on all of its vehicles for safety reasons is likely to accelerate the cost reduction of Lidar to the point where it is included in everything by default making it as ubiquitous as WiFi.
• This will also have the effect of greatly reducing the cost to deploy autonomous driving in consumer vehicles which will be the biggest hindrance to adoption once the technology has been sorted out.
• Volvo was the first company to install seatbelts back in the 1950s and ever since has promoted safety as a part of its brand appeal.
• The main reason for this move is safety, but Lidar is also widely used as the “eyes” of the vehicle for autonomous driving applications as the signal that it generates is easier to interpret than images from a camera.
• Furthermore, only Tesla and Mobileye are advocates of the camera-only approach which so far has not delivered industry-leading results.
• By all available data (of which there is very little), Tesla is mediocre at autonomous driving and Mobileye uses Lidar in some of its key demonstrations.
• Mr Musk has long referred to Lidar as a crutch for autonomous driving and in many ways he is correct.
• This is because everyone (including Tesla) is unable to accurately perceive the driving environment with cameras, meaning that other sensors are required to reduce the rate at which errors are made.
• The best device for doing this is Lidar but historically this has been so expensive that the cost of equipment to equip vehicles has run up to $50,000 or more.
• This is why Volvo’s move is significant because it will add volume into the Lidar market and may well put pressure on other OEMs to deploy Lidar for safety before they are ready to release autonomous vehicles.
• This in turn will provide demand and revenues that can be reinvested in cost reducing Lidar to the point where it is included in everything whether it is used or not.
• While the price that companies like Innoviz, Luminar, Ouster, Velodyne and so on can charge will come under intense pressure, the volumes that they ship should increase by a much greater degree meaning that as long as they can cost reduce their products, this will represent profitable growth.
• This is where Innoviz and Ouster stand out as they both have a roadmap that aggressively reduces the cost of successive models as volume builds over the next few years.
• Their roadmap also allows them to ship smaller lidars, and I suspect at the end of the day, lidars will become a subsystem that is installed into other components like head and taillights.
• The net result is that Volvo’s move is a further endorsement of lidar in the vehicle which may speed up its adoption in real volumes and be ahead of vehicles being able to properly drive themselves.
• This is one of the main reasons why I have a position in Ouster, but the share price is really struggling at the moment.
• This is in part due to the general risk-off sentiment present in the current environment of rising interest rates and the dreadful sentiment attached to anything that was a SPAC, but also I suspect due to the company’s at-the-market vehicle for share sales.
• The company has gained authorisation to sell 95.8m new shares into the market at the prevailing price and to date, it has raised $15m through the use of this vehicle.
• This has created a large potential overhang of supply into the equity market, and I think that it has crushed sentiment even further which is why the shares have continued to collapse.
• The company’s position is that whatever happens to the share price, it needs to be able to finance itself which for many of these SPACs is fast becoming an existential problem.
• Ouster is now trading at a market capitalisation of $175m and has a net cash position of $120m.
• With 2022 revenues expected at $50m or so, the company is now trading at an EV / Sales of around 1.0x.
• On my numbers, the company has enough reserves to make it to cash flow break-even meaning that I am hopeful that further highly dilutive use of the at-the-market vehicle will not be necessary.
• In the long-term, I remain comfortable with Ouster to a share price of $6.5 but there is nothing stopping the shares from going lower from here in this environment.
• In anticipation of further declines, I am thinking of buying some more.