Jefferies Positive On Potential Alphabet-Honda Deal Over Self-Driving Cars

Jefferies is positive on an announcement from Honda Motor Co Ltd (ADR) HMC that it has entered into formal discussions with Alphabet Inc GOOG GOOGL's Waymo over integration of its self-driving technology with Honda vehicles.

Way More Progress With Waymo

The news comes just a week after Alphabet announced it is spinning out its self-driving car project into a new company called Waymo. Alphabet is investing heavily in self driving technology and has logged over 2 million driverless pre-mapped miles (and another billion in simulation) since testing began back in 2009.

The potential deal could allow Waymo to deploy its self-driving sensors and software in Honda vehicles.

“The news supports our expectation that Waymo will be focused on technology with the potential to license to vehicle manufacturers rather than making the cars themselves,” analyst Brian Fitzgerald wrote in a note.

The Technology

Currently, the analyst said he is mostly at Level 2 (according to NHTSA automation levels), which is essentially partial automation or “hands off” rather than full conditional automation or “eyes off.” He believes no company has full autonomous vehicles in production.

“While we are encouraged by the advancements Google is making, right now we do not have self-driving vehicle efforts modeled in our long term numbers,” Fitzgerald continued.

The analyst seeks parallel development of both connected and autonomous vehicles. As of now, connected vehicle technology currently lags autonomous vehicle technology, but both can develop in tandem along with proper infrastructure support.

Meanwhile, Research and Markets forecasts the global autonomous vehicle development platform market to grow at a CAGR of 105.56 percent during the period 2017–2021 on improved smartphone ecosystem.

Analyst's Bottom Line

Fitzgerald has a Buy rating on Alphabet shares, with a price target of $1,000.