This 4-Star Stock is a Buy Right Now

Note from Daily Trade Alert: The following article first appeared in The Growth Stock Advisor, a premium newsletter offered by Investors Alley.

Who would have ever guessed that Tesla (TSLA) CEO Elon Musk is a Luddite?

Before the Musk fans go crazy, let me explain: Musk famously disparaged lidar sensors for autonomous vehicles back in 2019. He said that they are “expensive sensors that are unnecessary” and likened them to “a whole bunch of expensive appendices.”

The reason for Musk’s distaste for lidar technology was mainly because the sensors have been so expensive—a system for just one vehicle could cost as much as $70,000! Instead of endorsing lidar, Musk argued that sophisticated cameras were sufficient for self-driving cars’ visual systems.

But now, technological innovation has almost completely undermined the underlying assumption of Musk’s argument.

Anand Gopalan, CEO of Velodyne Lidar (VLDR), says that Musk’s view of lidar technology is “five, six years out of date.” And he’s right. Here’s why…

Lidar Sensors’ Costs Have Plummeted

Velodyne Lidar is the leading manufacturer of lidar sensors. It has developed a product with a price only one-hundredth of those available up until now.

This dramatic drop in price for the sensors at the heart of many autonomous car designs will speed up the day when self-driving vehicles become a reality.

Most of today’s autonomous vehicles are equipped with two key types of sensors: camera and radar. That’s where lidar systems come in. Lidar is a method for determining distances by targeting an object with a laser, and then measuring the time it takes for the reflected light to return to the receiver.

Sensors using lidar work similarly to radar-based systems. The only difference is they use laser light instead of radio waves.

Lidar technology uses near-infrared light to detect objects around a vehicle. The big advantage is that it can generate precise three-dimensional (3D) images of everything from cars to traffic lights to pedestrians in a wide range of environments and under all sorts of lighting conditions. A system composed of multiple lidar sensors is capable of 360-degree vehicle coverage.

Consider the world’s first certified Level 3 autonomous driving technology. It’s not from Tesla. It is new self-driving Legend luxury sedan by Honda Motor (HMC)…and it uses lidar.

As the cost of lidar sensors decline, they can be combined with cameras to create vision systems for autonomous vehicles that are truly safe and affordable—a route many major automakers are taking. For example, Honda and Volkswagen (VWAGY) are Velodyne customers. So is Alphabet (GOOG), with its Waymo autonomous vehicle subsidiary.

Velodyne‘s Breakthrough

So how did Velodyne lower the cost of lidar sensors? By developing solid-state lidars. This new method helped shrink the size of the sensors, which eliminated moving parts in the optical mechanisms and enabled mass production, bringing costs down dramatically.

Velodyne‘s latest model—its smallest so far—could be sold for around $100 with high-volume production.

As the costs of making lidar sensors continue to fall through mass production, the total cost of in-vehicle lidar technology will also fall sharply. Velodyne‘s Gopalan said: “Past 2025, I think you will see the cost of lidars [systems] come down even more, in the $700 range [per vehicle].”

Of course, Velodyne has competition. For example, Luminar (LAZR) has also developed low-priced lidar sensors, priced at $500 to $1,000.

And in addition to Luminar, at least five other U.S. lidar startups have gone public the same way as Luminar did—via a SPAC merger.

Not Just Vehicles

I like the fact that Velodyne is spreading its wings into areas beyond vehicles.

Government agencies are adopting Velodyne’s Intelligent Infrastructure Solution, which combines Velodyne’s lidar sensors and Bluecity’s artificial intelligence (AI) software to monitor traffic networks and public spaces. The technology generates real-time data analytics and forecasts that can be used to improve traffic and crowd flow efficiency.

This system is already deployed in a number of North American locations, including the Canadian provinces of Quebec and British Columbia. There are upcoming installations in New Jersey.

Velodyne’s website describes the system as:

…creating a real-time 3D map of roads and intersections, providing precise traffic monitoring and analytics that are not possible with other types of sensors like cameras or radar. It reliably collects data in any lighting or weather condition, supporting 24/7, 365 days a year operation, while also protecting people’s privacy.…the system advances safety through analytics that detect various road users including vehicles, pedestrians and cyclists. It can predict, diagnose and address road safety challenges, helping municipalities make informed decisions to take corrective action.

Investment in Velodyne

Velodyne‘s advancements in lidar technology make it a buy; however, with so much competition in the sector, it’s only a 4-star stock. It can be bought at any price up to $15 a share.

— Tony Daltorio

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Source: Growth Stock Advisor