Luminar’s Lidar technology will dethrone Tesla in the self-driving car race

How does lidar work? An advanced type of remote sensing technology, lidar detects surrounding objects by emitting pulsed laser beams and measuring how long these beams take to bounce back. This helps autonomous vehicles detect objects in their path. Luminar’s website highlights the importance of implementing safety and ubiquity in the technology behind autonomous vehicles.

Luminar has partnered with major automakers including Toyota (NYSE:TM) Y Polar Star (NASDAQ:PSNY). But one of the most powerful and influential names in the EV space still refuses to use lidar technology. Elon Musk has described lidar as a “pack of chumps”. However, the system behind Tesla’s autonomous driving has caused problems that have repeatedly lowered TSLA’s stock.

At the first Tesla AI Day in 2019, Musk spoke out against lidar:

“Anyone who relies on LIDAR is doomed. Condemned! [They are] Expensive sensors that are unnecessary. It’s like having a bunch of expensive appendages. Like, an appendix is ​​bad, well now you have a bunch of them, it’s ridiculous, you’ll see.”

Since 2019, Tesla has moved forward with its own FSD deployments. Its vision-based system focuses on cameras. This stems from the core belief that it is best to try to replicate how humans see the road in order to inform vehicle movements. However, this approach has led to problems.

Contrary to claim (it is, regulators have reported accidents involving Tesla’s FSD technology. Taylor Ogan of Snow Bull Capital first compiled the list of these FSD accidents, which the Los Angeles Times analyzed and verified. Many of these roadside incidents occurred when self-driving Teslas tried to change lanes without success. A driver also cited “phantom braking” as the reason for his accident. In mock road tests against other advanced driver assistance systems (ADAS), Tesla’s FSD was also unable to prevent accidents when operating without a driver.

The Economic Case for Lidar

Neither Fennimore nor Ogan are surprised by this result. Specifically, Luminar CFO Thomas Fennimore recently said Investor Place that Musk’s criticism of lidar is out of date. He says that Luminar has reduced the cost of its lidar package since 2019. The company has also made its design more aesthetically pleasing.

“The economy can make sense, especially in the top-of-the-range vehicle, given the price. And then you have all the benefits of providing a 3D sensor to the vehicle and its ADAS, as well as autonomous systems.”

It is important to note here the decreasing cost of lidar. In August, Tesla increased the price of its FSD software suite to $15,000, negatively impacting TSLA stock in the process. However, Luminar’s package is now under $1,000 for companies buying at scale.

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In 2021, Luminar saw a large purchase of return (OTCMKTS:VLVLY) and, more recently, Volvo announced that it will include the company’s Iris lidar package in 2022 models. Mercedes Benz (OTCMKTS:MBGAF) is doing the same thing. Iris lidar includes “camera-like resolution” and “high data fidelity” as well as over-the-air updates.

Finally, while talking to Investor Place, Fennimore addressed Musk’s focus on eliminating human error through technology that replicates how humans see the road. According to the National Highway Transportation Safety Administration (NHTSA), around 95% of highway accidents are the result of human error. As Fennimore sees it, road safety can be improved simply by allowing technology to outperform humans.

“Ultimately, we want to design a system that is much better than the human driver. […] Giving access to the system to sensors that are not available to humans is one way to do it.”

Companies that go beyond Tesla

Tesla may not be achieving that feat, but as Taylor Ogan sees it, other companies are on the way. Specifically, Ogan points to Waymo and Baidu’s robotaxi advancements, as well as AutoX Y

“These are companies that are really delivering robotaxis to the public where there is no driver behind any deal. They continue to roll them out in new cities and are still quite popular.”

Ogan is very optimistic about what companies like Waymo and Baudi will ultimately be able to achieve with ADAS. By contrast, Tesla has proven incapable of operating driverless vehicles. Also, its autopilot division has been scaled back following the departure of Senior AI Director Andrej Karpathy. As Taylor Ogan sees it, this downsizing illustrates why Tesla is losing the driverless race.

“They are left with a very weak team of less than a hundred. These other companies have thousands of engineers in [their] teams, so any way you look at it, Tesla is not going to do it where they are now.”

Longer term, Ogan says Tesla shouldn’t be written off just yet. However, legacy automakers are adopting LIDAR now as well. Bloomberg reports that since lidar prices have fallen, companies such as general motors (NYSE:GM) Y Volkswagen (OTCMKTS:VWAGY) have increased their orders. In China, meanwhile, automakers are adding lidar to vehicles that have lower sticker prices than American competitors. Nearly all of Tesla’s major competitors have seen the benefits that lidar can provide.

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The road ahead for TSLA shares

Clearly, companies that have embraced lidar have a head start on Tesla in the driverless race as of now. But that will be especially true if Chinese companies can apply lidar to lower-cost vehicles. Cornering the autonomous vehicle market is Tesla’s next challenge, and as Ogan points out, it can’t do it with its current FSD technology. Multiple road tests have shown that lidar sensor technology is better at stopping driverless vehicles. Competitors both in the US and abroad are also making inroads that may keep them ahead of Tesla in the future.

That said, while Ogan speculates that Tesla will eventually use lidar “if it wants to stand a fighting chance,” he admits the possibility that Tesla will take a different route and ditch robotaxis altogether.

Tesla’s future regarding AD remains uncertain. However, it is clear that lidar will continue to grow as a critical component of the global automotive industry. The choice to opt for lidar may further damage TSLA’s stock both in the long and short term. However, for companies that produce lidar, the future looks bright.

As of the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the Publishing Guidelines.

Samuel O’Brient has been covering financial markets and analyzing economic policy for over three years. His areas of expertise include electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.

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