What Is Driving The Surge In Nvidia’s Automotive Revenues?

November 22nd, 2016 by Trefis Team
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Leading GPU manufacturer, Nvidia (NASDAQ:NVDA) reported its Q3’17 results on November 10th. In Q3, the company’s  automotive revenues increased at 61% on a year-over-year basis to $127 million. The key reason driving this growth is the fact that the company is witnessing strong demand for its DRIVE PX 2 platform from autonomous car makers. In this analysis, we discuss key factors driving this demand.

Nvidia’s Offering An Essential Part In The Self-Driving Car Supply Chain

Self-Driving vehicles offer a huge opportunity for a number of companies to step in and become integral parts of the entire self-driving car supply chain or to establish themselves as key players in the market. Nvidia is successfully capitalizing on this opportunity by integrating its deep learning expertise in processing the data and functionality to precisely help locate the vehicle on an HD map and plan a safe path are the key functionalities essential to self-driving vehicles.

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It should be noted that, for a safe experience in a self-driving vehicle, it must be capable of knowing exactly where it is, recognizing objects around it, and continuously calculating an optimal path to the destination. Nvidia has been working on building its automotive computing platform for over a decade and is in a strong position to leverage this growth. NVIDIA continues to believe that the solution to self-driving cars is through computer vision realized by neural networks, with more compute power being necessary to get better performance with greater accuracy.

The key feature behind the growing adoption of the DRIVE PX 2 platform is that it is capable of understanding in real time what’s happening around the vehicle, by constantly processing the data coming in from the vehicle cameras and sensors to produce complex images of objects around the vehicle.

Integration of Pascal Architecture In Tegra SoC

In March 2016, Nvidia introduced its Pascal GPU architecture (built on 16 nm process technology), which has massive performance and power efficiency improvement over its predecessor. The integration of the Pascal architecture with Tegra SoC designs is likely helping the company to enable its leadership in its DRIVE PX2 platforms.

Key contracts Won By Nvidia
Within a short span of time since its launch, the company has gained contracts for its DRIVE PX 2 platform with more than 80 car companies. The company is seeing strong adoption of its DRIVE PX2 platform among Tier 1 OEMs, start-ups and research institutions to develop autonomous driving technologies. In Q2’17, the company initiated a collaborative research in advanced self-driving technology with New York University’s pioneering deep learning team.
Further, the company claims that it will power all vehicles in ROBORACE, a new autonomous car-racing circuit expected to debut later this year. Another significant partnership announced by Nvidia is with Chinese search engine company Baidu for building a computing platform for self-driving cars. [1] The most recent of the contracts of Nvidia is with Tesla Motors last month.
According to the deal with Tesla, Nvidia is likely to power all of Tesla Motors’ factory produced vehicles with the autopilot system with its DRIVE PX 2 platform. According to some sources, the DRIVE PX2 platform costs around $15,000. However, at $15,000 the economics will not work out for Tesla. Even if we assume that Tesla Motors buys a development version of DRIVE PX2 from Nvidia from Tesla at $500, the incremental revenue gain for Nvidia can be approximately 13% in 2017 over our current estimates, with the assumption that Tesla sells 150,000 vehicles in the year.
  

NOTE: We are in the process of updating our valuation for Nvidia.

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Notes:
  1. Baidu and NVIDIA Team Up on World’s First Map-to-Car Platform for Self-Driving Cars, nVidia Blog, September 2016 [↩]