The next few quarters will clearly be rough for Mobileye. But after that?
Shares of Mobileye Global (MBLY -1.97%) had a rough week. The Israeli maker of machine vision and other advanced driver-assist systems for vehicles cut its full-year guidance sharply on Thursday — and the stock promptly fell by over 20%.
That was a huge hit for an important name, raising an obvious question: Is this a buying opportunity?
To answer that, let’s dig into why Mobileye cut its guidance — and why the market reacted so strongly.
Mobileye cut its guidance sharply on Thursday
Mobileye sells advanced driver-assist systems (ADAS) and machine-vision solutions to nearly all the world’s major automakers. It’s the clear leader in the segment and a well-managed company with a genuinely visionary CEO, Amnon Shashua.
For years, Mobileye’s stock has been a leading choice for investors looking to bet on a future that includes a whole lot of self-driving vehicles — because Mobileye’s chips and systems will likely be key components of most of those autonomous vehicles if or when they arrive.
Mobileye reported its second-quarter results on Thursday morning. The results themselves weren’t bad: Revenue and earnings per share were both down from a year ago, but both were better than Wall Street had expected.
But the guidance was another story.
Mobileye had previously told investors to expect 2024 revenue of between $1.83 billion and $1.96 billion. [2023 revenue?] But now, the company said it expects revenue to come in between $1.6 billion and $1.68 billion — a 13% reduction at the midpoints of the two ranges. And it now expects an operating loss roughly 31% wider than in previous guidance.
Why Mobileye’s concerns center on China
The good news is that the longer-term thesis for Mobileye stock appears intact. But the next few quarters may be a rough ride.
Here’s why Mobileye cut its guidance. During the earnings call, Shashua said “near-term volume challenges” will hurt sales for the remainder of the year and possibly longer. Most of those challenges, he said, are related to China.
Right now, China is experiencing the most intense competition around ADAS features. Local automakers compete fiercely, as Mobileye does a lot of business with Chinese automakers, and that business is facing three separate challenges.
First, China’s new-car market is slowing, meaning orders from Chinese automakers and global automakers doing business in China are coming in lower than expected. Second, a key customer that had planned to launch a high-volume model outside of China — a model loaded with Mobileye-powered ADAS features — has delayed those plans. And third, increased U.S. and European tariffs on Chinese-made vehicles have also dampened volume expectations for Chinese automakers hoping to boost exports.
Long story short: Mobileye’s shipments will be lower than expected through the end of 2024, possibly longer.
A Polestar 4 equipped with Mobileye’s SuperVision system. Polestar’s corporate parent, Chinese automaker Geely, is an important Mobileye customer. Image source: Mobileye Global.
Is this dip an opportunity to buy Mobileye stock?
Several Wall Street analysts cut their banks’ price targets for Mobileye stock on Friday. While most of the analysts’ notes were unremarkable, one stuck out for me: Morgan Stanley summed up Mobileye as a “high-quality asset navigating a challenging time.”
I think that’s exactly the right take. This is an innovative company with a huge share of a market that’s likely to grow significantly in the coming years. That longer-term thesis remains intact. If you liked Mobileye a year ago, there’s no long-term reason to like it any less now.
That said, it’s clearly going to be a rough ride for at least the next couple of quarters. I won’t argue if you want to open a position or add to an existing one right now.
But keep this in mind: For all of its high-tech excellence, Mobileye is fundamentally an auto supplier. Its revenue and stock price will move up and down with global auto sales.
If the global economy slows, Mobileye’s stock could well go even lower. Given that, dollar-cost averaging might be the best way to build a position over the next several months.