The electric and autonomous vehicle ecosystem is booming. Around the world, resources are being poured into research and development of technologies that will eventually enable vehicles to run on renewable energy sources and pilot themselves. As large automakers like Tesla, GM, and Ford ponder how to actually assemble and market electric vehicles to the public, there are thousands of small (and not so small) companies that are focused on developing the technologies that actually underlie the futuristic vision of self-driving cars.
One of the not so small players is Luminar Technologies Inc (See Ticker: "LAZR"). Luminar was founded back in 2012 by Stanford dropout Austin Russell who stepped out of the classroom in Palo Alto to step under the wing of famed venture capitalist Peter Thiel. Since, Luminar has built a business focused on producing the high-tech sensors used in self-driving vehicles. The company's lidar scanners use strobing lasers to map the physical environment a self-driving car operates in, helping it to identify its surroundings, potential hazards, and features of the road. Famously, Elon Musk doesn't see long-term value in lidar technology applied in the autonomous vehicle context, but that hasn't stopped Luminar.
Earlier this month Luminar doubled down on recent market trends and went public via a special purpose acquisition company ("SPAC"), and the response from the market has been broadly positive:
The large spike in the share value we see in December represents the point in time when the SPAC that acquired Luminar (Gores Metropoulos) effectively disappeared and converted to become Luminar - taking the company public without the legwork required by a traditional IPO. Prior to this point, shares traded horizontally while the Gores Metropoulos SPAC was operating as a shell company seeking a suitable acquisition target.
Luminar's debut on public markets gives investors the opportunity to get in on a producer of high-tech components for self driving vehicles while the wider self-driving industry is still in its reticence. At current prices, Luminar's market value is upwards of $7.8B, and given Austin Russell's ~33% stake, the 25 year old founder is officially in the billionaires club.
Looking forward at the company's potential to generate returns for shareholders, there are two key risks. First, like many other technology start ups, Luminar is not profitable at this time - opting for heavy investment in R&D and technology over profits. However, Luminar's unprofitability should be interpreted differently than the unprofitability of digital platforms like Uber. While loss-making digital platforms are burning cash by using subsidies to grow scale and develop market power, Luminar is burning cash to invest in developing a marketable technology.
The second risk is that the lidar technology Luminar develops ends up being less compelling than other environment mapping technologies being considered by self-driving vehicle producers. Going back to Mr. Musk, the Tesla team believes that cameras will ultimately be a more effective tool for environmental visualization than lidar. If the gold-standard technology develops outside of Luminar's core competency, the company's addressable market will shrink dramatically and its share price along with it. On the upside, if these risks fail to materialize, Luminar may find itself as a key supplier of high-tech solutions to a problem all self-driving vehicle producers must solve, and it pays to be in-demand.