Legacy Carmakers’ Only Hope to Compete With Tesla
Imagine automobiles so intelligent that they could recognize, welcome and understand a driver’s likely destination on approach. Now, imagine how much that service would be worth.
On Thursday, Elon Musk revealed the Model S Plaid, the flagship vehicle from Tesla, Inc. (Nasdaq: TSLA).
Besides being the fastest, it’s the most technologically advanced production vehicle ever made, and it’s a huge artificial intelligence (AI) wake-up call for legacy carmakers.
It should not come as a surprise that Tesla engineers are pushing the envelope of what is possible for vehicles.
A decade ago, Musk tasked product managers with the goal of making an electric vehicle (EV) that would force the industry to adopt electric vehicles.
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At the time, the concept seemed preposterous. Today, every major automaker is transitioning to EVs.
Volkswagen AG (OTCPK: VWAGY) will spend more than $100 billion to get there. Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM) have allocated about $30 billion to retool plants and jettison their current fleets. Volvo ADR (OTCPK: VLVLY) managers want to go fully electric by 2030.
EVs are definitely the future of automobiles, yet getting legacy fleets to match Tesla’s AI pizazz is another matter altogether. Tesla vehicles have software in their DNA. Code is tightly integrated into everything, even mundane functions like heating and air-conditioning.
Musk spent five minutes at the Plaid reveal on YouTube talking about a new heat pump that uses machine learning to rapidly cool the battery system after the vehicle is launched repeatedly from 0-60 mph in less than two seconds. And how the three-zone interior heating, ventilation and air-conditioning (HVAC) system is completely ventless. Airflow is directed by a computer algorithm.
More algorithms control entry and navigation.
Based on the biometrics from a driver’s smartphone, the car recognizes who is approaching and unlocks. The vehicle understands where the driver is headed based on personal calendar integration or analysis of previous trips. Tesla managers even removed the driving stalk for forward and reverse because the software makes manual input superfluous. There are no buttons to push or levers to pull. Drivers get in and drive away.
This kind of automation is not exactly full self-driving (FSD) capability, although Musk says the company is getting close there, too.
However, this is a powerful competitive advantage over every other vehicle on the road. Legacy carmakers may have exciting new EVs, but by comparison, their technology still seems old.
Trailing in the EV battle is certainly not ideal, but there’s help on the way.
Enter Nvidia Corp. (Nasdaq: NVDA) and Aptiv PLC (NYSE: APTV).
NVIDIA is best known for making state-of-the-art video graphic hardware. The fast-growing San Jose, California-based company is also the only true AI rival to Tesla.
The NVIDIA Drive Orin system is essentially a bolt-on system to bring full self-driving to emergent EV platforms, yet it is also versatile enough to power personalized entry, voice recognition and next-generation infotainment systems.
Last January, managers at NIO Ltd. (NYSE: NIO), a cutting-edge Chinese EV maker, showed off a slew of highly personalized software features all running on top of NVIDIA hardware.
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Its Nio ET7 sports sedan is the closest Tesla technology competitor, with a full in-car AI system and a 0-60 mph time of 3.9 seconds.
Aptiv might be a lot more unfamiliar. The Irish firm was spun out in 2017 from Delphi Automotive, one of the first auto part suppliers.
The company designs Advanced Driver Assistance Systems, the software that takes over braking and steering when a vehicle’s onboard computer senses peril. Aptiv also makes next-generation power and signal solutions. That’s a fancy name for the software architecture car companies — including Tesla — use for electric routing.
Vehicle makers will launch 45 new high-voltage platforms by 2022, according to a June Aptiv investor presentation. Bookings for these systems are expected to climb to $1 billion annually by 2022, a 40% compound growth rate from current levels.
Investors need to be aware that the automotive sector is in a state of flux. Legacy car companies are spending furiously to catch up with Tesla, the sector tech leader.
The introduction of Plaid last week created an even larger sense of urgency.
One promising strategy for investors to consider is buying shares of the companies that will help legacy automakers compete. Right now, Nvidia and Aptiv look like very strong candidates.
Best wishes,
Jon D. Markman
