(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)
Imagine automobiles so omniscient they recognized, welcomed and understood drivers’ likely destination on approach. Now imagine how much that service would be worth.
Elon Musk revealed Thursday the Model S Plaid, the flagship vehicle from Tesla (TSLA). Besides being the fastest, it is the most technologically advanced production vehicle ever made.
Plaid is an artificial intelligence wake-up call for carmakers.
It’s also a big opportunity for Nvidia (NVDA) and Aptiv (APTV).
It should not come as a surprise 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 that would force the industry to adopt electric vehicles. At the time the concept seemed preposterous. Today every major automaker is transitioning to EVs.
Volkswagen (VWAGY) will spend more than $100 billion to get there. Ford (F) and General Motors (GM) have allocated about $30 billion to retool plants and jettison their current fleets. Volvo 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 5 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 2 seconds. And how the three zone interior 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 capability, although Musk says the company is getting close there, too. What it is though is a powerful competitive advantage over every other vehicle on the road. Legacy carmakers may have exciting new EVs but by comparison their tech still seems old.
Old is not good. Enter the help.
Nvidia is best known for making state-of-the-art video graphic hardware. The fast-growing San Jose, Calif.-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 (NIO), a cutting edge Chinese EV maker, showed off a slew of highly personalized software features all running on top of Nvidia hardware. Its Nio ET7 sports sedan is the closest Tesla technology competitor with a full an in-car AI system and a 0-60 mph time of 3.9 seconds.
Aptiv PLC (APTV) might be 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 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 even a larger sense of urgency.
The best strategy for investors is to buy shares of the companies that will help legacy automakers compete. That is Nvidia and Aptiv.