To The Moon

Strategy 1

The Next Massive Chip Industry

There’s a major threat rippling across the entire auto- motive industry: There just aren’t enough chips to go around.

Both General Motors and Ford have warned that a shortage of computer chips to take billions away from their bottom line this year.

"Today, electronics account for ?0? the cost of a new car. Increasingly, investing in the automotive industry means investing in chip companies."

And as cars rapidly evolve to become “computers on wheels” with not only powerful computers to power self-driving but also dozens of microprocessors to monitor functions across an entire automobile, this trend shows no signs of decelerating.

Yet not every chip company has made inroads into the auto industry. So as self-driving spurs massive invest- ment into infotainment systems and specialized chips and the rise of electric vehicles shifts the types of chips demanded inside cars, there will be winners and losers inside the industry.

Below, we’ve selected company that we’re confident will be on the “winners” side of the next decade of growth.

Taiwan Semiconductor Manufacturing ($Taiwan Semiconductor Manufacturing(TSM)$) Market Cap:605Bil (Recommended)

(Sales of chips to the auto industry are poised to take off)

Today, sales of chips to the automotive industry account for less than 5% of Taiwan Semiconductors’ sales. The majority of its sales go to cutting-edge chips in both smartphones (48% ) and high-performance computing (33% ).

Yet, in the coming years the growth of chips in both adas (advanced driving assistance sys- tems) and full self-driving will mean the auto industry is increasingly gobbling up Taiwan Semi’s supply of cutting-edge chips.

The result? Taiwan Semi is likely still in the first inning of automotive chip demand, and the industry is poised to provide Taiwan Semiconductor with a powerful catalyst across the next decade.

Strategy 2

EV Chip Titans

While most consumers see self-driving cars as some far-away technology, the truth is that the building blocks of self-driving car technology have been quietly invading cars across the past decade.

For example, technologies like blind spot assistance and adaptive cruise control are becoming common in car upgrade packages. Both these technologies are stripped-down applications of the most advanced self-driving features today. Both also introduce entirely new types of chips and sensors into cars.

The market for ADAS, like the features mentioned above, was $17.6 billion in 2020 but is expected to nearly double to $32 billion by 2023.

Electric vehicles are generally sold with not only advanced ADAS features, but also top-of-the-line infotainment systems, and an entirely different supply chain in parts and the chips needed to power and monitor the cars.

The result? Companies with massive leads in EV chips could see growth rates skyrocket if electric vehicle sales hit the inflection point we believe is likely in the coming years.

Infineon Technologies ($Infineon Technologies AG(IFNNY)$ ) Market Cap:43.95Bil (Recommended)

(36% market share of a critical EV component)

Ever heard of insulated gate bipolar transistors (Igbts)? They’re not exactly a household name, but they’ve also been called the “cpu of the electric vehicle.” With EVs unleashing high volt- age (~1,000V), Igbts are involved in battery management, motor control, conversion of DC to AC current, and other vital features.

Because of this, Igbts are the second most expensive part of EVs after the battery. Infineon leads the world with 36% market share. Perhaps more importantly, it has 58% market share in China, where the highest growth of EVs is likely to take place in the coming years.

ON Semiconductor ($ON Semiconductor(ON)$) Market Cap:15.65Bil (Recommended)

(It’s “highly levered” to the growth of EVs and ADAS)

ON Semiconductor has an automotive industry market share of 4% , making it the 7th largest chip company in the space. However, we’re most interested in the specific markets its sales are concentrated in.

As of early 2020, the company reports it has $50 to $100 worth of chips in a car with a combustion engine. However, in EVs, it sells about $500 per car, and in autonomous EVs its sales rise all the way to $1,800 per car.

The bottom line: with adas and EVs rising, ON Semiconductor is well positioned to rise across the coming decade.

Strategy 3

Self-Driving Chips

Across the past decade, cameras have risen exponentially in importance. Just take one look at a brand-new smartphone and what do you see? Sometimes five or more cameras, and they’ve become the key selling feature when launching new phones.

The car industry isn’t much different. Tesla’s autopilot feature is made possible thanks to eight surround cameras that provide 360 degrees of visibility. Cameras are becoming the “eyes” of just about every new safety feature, and most self-driving cars rely on an array of cameras to be able to interpret what’s happening in the real world.

Even before self-driving cars hit the mainstream, cameras are having a huge impact in cars. In the U.S., it’s now mandated to have a backup camera in each new car. In addition, ADAS features increasingly rely on cameras.

There will be a number of sensors that rise in importance as self-driving cars hit the mainstream. While Tesla has built a system without lasers, or LIDAR, most other auto manufacturers are moving forward with LIDAR technology.

We examined LIDAR stocks for this report, but many are trading at extremely speculative prices. We’re not afraid to pay up for growth, but only if it’s the right kind of growth. That is to say, there is still much to be determined in the use of LIDAR and contrasting technology approaches.

On the other hand, camera use in self-driving cars is a much higher probability. We’ve identified a component play with extremely attractive gross margins that’s risen with smartphones across the past decade but could soon see the rise of self-driving cars add a powerful new catalyst.

Sunny Optical ($Sunny Optical Technology (Group) Co Ltd(SOTGY)$ ) Market Cap:25.02Bil (Recommended)

(The top camera play for the self-driving future)

Sunny Optical makes camera modules and lenses that predominately sell into the smart- phone industry. While the majority of its revenue comes from modules, its lens business drives a 40% gross margin.

That impressive margin is important, because Sunny is a leader in the automotive lens business. Today, it sells lenses mostly into ADAS systems. Yet, the coming years could see the growth of self-driving cars become a powerful catalyst.