Redeye notes, from recent industry news, that investments in driver monitoring (DMS) seem to be the last thing the OEMs want to reduce. It verifies our view that the DMS investments are propelled by EU regulation and Euro NCAP, and therefore largely immune to the Coronavirus.
Japanese car OEM Nissan has announced a major cost savings program. It lists a whole lot of defensive measurements, driver assistance systems being one important exception where it remains highly aggressive. As per always, Smart Eye does not comment on existing or potential future OEM end customers. What we know is that Smart Eye has won three OEMs in a European/Japanese alliance. In theory, there are other European and Japanese OEMs than Nissan and Renault that co-operate in certain areas. However, ever since Smart Eye won the second Japanese OEM of this alliance, we think it is highly unlikely that the won OEMs could be any others than Renault, Nissan and Mitsubishi.
Back to Nissan’s streamlining program. Nissan will focus on the core by e.g., closing plants and lowering its capacity as well as line-up by 20%. The transformation plan involves introducing its advanced driver assistance systems in more than 20 models for 20 markets. It targets more than 1.5 million cars annually to be equipped with these systems by the end of 2023. If Nissan is serious about this timeline, we think it better hurry. The main takeaway though, is that investments in driver assistance systems and driver monitoring are the last things that a car OEM would want to reduce. To us, this makes a lot of sense, considering the Euro NCAP inclusion and EU regulation.
Nissan’s plans add some more meat to the bone to our assumptions, but we maintain our estimates for now. Based on conservative expectations on the 12 OEM end customers we think the stock deserves an ~80% higher market valuation. Our base case stands at SEK 160 vs. today’s levels of around SEK 90.