Level 4 is dead, long live Seeing Machines

Here’s the latest piece of analysis from Colin Barnden, Lead Analyst at Semicast Research on Seeing Machines, Driver Monitoring Systems (DMS) and the auto industry.

“EuroNCAP has moved to 2022*. This is why contracts aren’t being announced, as OEMs and T1s have more time to do evaluations (see Hansen Report). Ironically, the delay takes away the ‘Takata penalty’ hanging over Seeing Machines. Had 2020 stood for camera DMS, pretty much every OEM would have had to go with SmartEye, other Tier 2s or the in-house Japanese Tier 1s. The first half of 2019 is likely to be busy for OEM direct wins, ready for 2022.

Level 4 is dead for mass market vehicles. The trend I see is ‘less autonomy, more DMS’ (L2/3 with DMS). That suggests to me the technically best DMS. The key part of Fovio is the hardware accelerators for real-time vision analysis (and to lower power consumption). ‘Hardware agnostic’ is a trade-off not a free ride. The significance of the 1.3 bn kms RNS in the summer is also now clear. Artificial Intelligence/Machine Learning is all about quantity of data. I see Seeing Machines even put live updates of the total on their website. This is smart.

OEMs are acutely aware of regulatory and political threats. Dieselgate was a disaster and emissions in general has been handled poorly. Now the political threat is number of road deaths (hence Vision Zero) and that issue is also being dumped on OEMs’ doormats. Waymo and robo-taxis are an existential threat, OEMs have got to find a way to reduce fatalities fast and win political points. They won’t mess up twice and DMS is the obvious way to proceed. Again that suggests technical excellence over anything. If they are smart, OEMs will ‘front run’ the politics and put DMS into everything as fast as they possibly can. There could be a huge ramp from 2023-2025. Again, a fast ramp up supports longer evaluation times and careful decisions for T1s and T2s.

That’s as far as market analysis can go. What matters now is the actual decisions OEMs make. My role is to make an argument but it is up to everyone to make their own individual decisions about how they think things will play out. No one has a crystal ball.”

*’Europe on the Move’ announced Advanced Distraction Recognition (camera-based DMS) from September 2023. EuroNCAP 5* requirements are looking like they will move to demand camera DMS about a year before.

Chris Menon holds Seeing Machines stock.

EU mandates DMS for 2020

As part of a move to make European roads safer the EU today recommended making driver monitoring systems mandatory for new cars. It’s a momentous decision that is great news for Seeing Machines, causing its share price to shoot up today and Cenkos to upgrade its price target from 10p to 16p.

I asked Colin Barnden Lead Analyst at Semicast Research for his reaction and this is it:

Colin Barnden: So the paint is still wet from the announcements today, but I can draw some basic conclusions.

The EC has today announced the WHEN for a series of automotive systems to become mandatory, a list which includes distracted & drowsiness driver monitoring systems (DMS). My reading of the timeline is as follows:

  • 1 September 2020 for Type Approval (the certification process for new models, facelifts, major changes etc.).
  • 1 September 2022 for all other new cars, irrespective of Type Approval.

That is a two year phase-in period, and from today to the beginning of September 2022 gives a little over four years. That is a sensible timeframe over which to introduce a new technology like DMS.

The EC appears to have left the WHAT of a DMS to be defined by Euro NCAP and I expect the specifics of DMS requirements to follow in short order. This doesn’t guarantee that camera-based DMS will be mandated, nor specified by Euro NCAP. However looking at some of the other systems on the list (AEB, LKAS, ISA, EDR) these are all electronic systems so it would not follow that a mechanical (and very poor) DMS would be specified, even more so for a primary safety feature. Also the entire focus of this regulatory announcement is road safety. I regard AEB, ISA and LKAS as systems needed to compensate for distracted and drowsy drivers, so the obvious way to improve road safety is not so much to correct speed and steering errors, but to keep hands on the wheel, eyes on the road and minds on the task [of driving]. The very best DMS is the obvious way to do that and that points to a camera-based system, from the likes of Seeing Machines for example.

There are two excellent articles I would suggest as backgrounders for your readers for DMS:

http://www.thedrive.com/tech/20843/elon-musk-reportedly-rejected-driver-monitoring-for-tesla-autopilot-but-why

https://www.eetimes.com/document.asp?doc_id=1333236

If I were to also speculate on the WHERE; my view is that Japan will go next for mandatory DMS, probably followed by South Korea. Also, OEMs in the US are on a voluntary agreement (not mandated by NHTSA) to introduce AEB by 2022. I would speculate that they would be highly likely to add DMS on the same timeline.

The key is now what Euro NCAP announce.

Chris Menon: What exactly is the difference between ‘Type Approval’ cars and other new cars?

Colin Barnden: Okay. So, as an example, take the VW T-ROC. It was just launched and would have gone through Type Approval probably late last year. Type Approval is a bit like a new car MOT, someone looks over it and says: “Yes it has seat belts, yes, it has airbags, yes, it has brakes etc.” If it meets all the legislation in place at the time it gets… ‘Type Approval’. Provided no changes are made to the car it maintains Type Approval and no more need be done. Sometimes this can last for four or five years until the model is refreshed. However, from 1 September 2022, new T-ROCs would need to have DMS added, not for Type Approval (which it already has) but to be legal for sale.

Now take a next generation Golf going for Type Approval on 2 September 2020. The list will have another entry “yes, it has DMS” and you get Type Approval. If it doesn’t have DMS, it doesn’t get Type Approval and cannot be sold in the EU.

So on 1 September 2020, only cars going through Type Approval will have to have DMS (or a bit before most likely). By 1 September 2022, it will be in 100% of new cars sold in the EU. This is how the phase-in is managed.

Seeing Machines set to win 75% of global DMS market

Multiple industry sources are telling me that Seeing Machines’ Fovio technology is so advanced compared to rival systems that it is set to dominate the global auto market for DMS.

This market is growing fast and last year was estimated by ABI Research to be around 65m cars a year by 2020. Although I personally think this figure is now likely to prove an underestimate, given the fact that a driver monitoring system is becoming a standard feature in forthcoming car models. This trend is being driven (I love my puns) by increasing autonomy in cars, higher safety standards and legislation to reduce road deaths caused by driver inattention and drowsiness.

By my calculations, just using the 65m figure for 2020: Fovio will have at least 75% of that. As Seeing Machines (SEE) gets approximately US$25 for each car that uses its Fovio chip it should obtain annual revenues from autos of US$1.2bn.

How can I be so sure of this 75%+ figure?

Ford, Volvo and Audi

Admittedly, it is an estimate. But based on research.

I’m being told that Fovio will soon be contracted to Ford, Volvo and Audi. (That’s in addition to General Motors, Mercedes and BMW). Moreover, those same sources are telling me that by the end of this calendar year Toyota will definitely be committed to using it and, most likely, Honda.

Don’t expect absolute confirmation immediately. When they are eventually announced these contracts will be released as nameless wins, contracts for ‘premium’, ‘mass market’ country-specific OEMs. Seeing Machines will also have to be very conservative about the revenues forecast.

For those who know Seeing Machines as a perennial disappointment, a ‘jam-tomorrow’ stock, I urge them to look again at its growing dominance in the global automotive sector. This dominance in DMS now rivals that of Mobileye in external auto vision.

Fund Manager

If you don’t believe a dumb ‘ol journalist, maybe a super smart fund manager may make you look again at Seeing Machines?

Max Ward, Manager of The Independent Investment Trust, recently took a 4.46% stake in SEE. I wanted to know why and he kindly furnished me with the answer: “What attracted me to the business is the scale of the potential in the automotive division together with the evidence of clear market leadership in the DMS field.”

Previously, SEE successfully flew beneath the radar.  This was partly helped by its not having a PR agency in London, the harsh non-disclosure terms prevalent in the auto industry and the fact it was an AIM-listed minnow.

Fortunately, all that hasn’t prevented the global auto industry rushing to knock on its doors as increasing automation and safety concerns have led to tightening regulation, making its Fovio technology a vital ‘must have’ feature in future car models.

Now, at last, Seeing Machines is about to have the spotlight focused directly upon it. For dominance in global DMS makes it a very attractive strategic acquisition for big industry players.

Takeover time

Just as Mobileye was snapped up by Intel for US$15.3bn, Seeing Machines is likely to be bought fairly soon.

Indeed, I believe numerous companies now have Seeing Machines in their sights as a target this year. Who will pull the trigger first, I wonder? Names that have been mentioned to me recently include: Intel, Nvidia, Xilinx, Autoliv and Bosch.

Let the takeover battle begin.

The writer holds stock in Seeing Machines.