Telenav (TNAV) is a leading provider of location-based products and services for automobiles. Ford (NYSE:F) and General Motors (NYSE:GM) are their main customers, representing 55% and 18% of total revenue in FY2019, respectively. The big question that we have to ask is – will Google (NASDAQ:GOOG) (NASDAQ:GOOGL) replace Telenav? In September 2019, Google and General Motors announced that they are working together to install Google’s voice assistant and apps into GM vehicles beginning in 2021. Telenav’s stock promptly fell by 44.8% on that same day. Investors realize the potential impact and what this deal could mean for Telenav. Our analysis on the current state of affairs and dynamics of the infotainment industry lead us to believe that the sharp decline was unwarranted, especially seeing that the current price is 124.4% lower than its 52-week high. From our analysis, we believe that the company has more to offer and will stay relevant to continue working with their current partners. Investors with large risk appetites and long investment horizon could consider adding this stock to their portfolio.
Side Note: I will follow up on the firm’s financial analysis and projections, so follow me to keep updated.
Are Automobile Manufacturers Becoming Turtles?
First, let us tackle the issue with today’s infotainment market. The automotive industry is confronting a widening and unsustainable gap between software complexity and production capabilities. What this means is that OEMs are not able to produce software that match consumers’ demand. This resulted in security concerns as well with reports of hackers being able to access locks, brake systems, and dashboard displayers remotely via the cloud in several car models. History has shown that tech companies are way better suited to producing high quality software to serve customers’ needs best.
How Far Along is Google?
Previously, Google (Android Automotive) was working with Volvo (OTCPK:VOLAF) (OTCPK:VOLVY) (under Polestar 2, an EV to compete with Tesla (NASDAQ:TSLA)) and Audi (OTCPK:AUDVF). To be fair, both the infotainment system and cars are prototypes starting production in 2020. In the latest partnership announcement, Google and Ford both mentioned that the contract is not exclusive, meaning Ford can continue working with Telenav. But we recognize that the threat is real and potentially disruptive to the current market because of Google’s advancement and innovation capabilities. Google’s system boasts the ability to allow consumers to adjust heat and turn off seat warmers in a vehicle via Google Assistant. The platform is designed to be customizable to suit different automobile styles. Many investors believe, with some merit, that it is inevitable for Google’s or some other tech giant’s infotainment system to be in every vehicle. Amazon (NASDAQ:AMZN) or some other cloud provider could swoop into the infotainment space with their software expertise and cloud solutions to dominate entire OEMs. However, as explained in a later section, we believe that this is an unlikely case.
When asked if Volvo could seek other solutions for other cars while retaining Android Auto on certain cars, Patrick Brady (head of Android Auto) explains it by drawing parallel to mobile phones.
“Yeah. I would say, by and large, though, that the carmakers… it’s not like back in smartphones, where you could afford, as a device manufacturer to have different phones running different systems. I think all the way back to, like, HTC in the early days. They had the HTC Touch or something running Windows, and they had a whole bunch of those, and they had their Android line. Carmakers generally don’t do that. Because the investment in these infotainment platforms is so high that doing multiple different versions of them just increases their cost, and R&D, and time to market, and maintenance, and everything, so they tend to kind of go all in on one. But, short version: no, the contracts aren’t exclusive.” – Patrick Brady
He explains that OEMs generally do not want to have a bunch of different infotainment systems across different cars because of the high investment and related costs. And we agree with him, but there is more to it than just expenses.
Another factor that drives (no pun intended) OEMs is their long-term vision of being valued automotive leaders. OEMs want to avoid becoming a low-margin hardware producing factory that provides no additional value to customers. The second that happens, automobile brands will no longer have the same power and influence they have today. On the extreme end, we could even see tech companies catching up to the hardware production aspect and eventually taking over today’s OEMs. We would like to believe that this is unlikely due to the sophisticated expertise required to design and build an automobile. For example, we saw Apple (NASDAQ:AAPL) trying to build their own self-driving cars but failed and eventually shifted to focus on self-driving software instead. Given that OEMs are highly motivated to not become dinosaurs, a solution would be to band together. HERE is a map database owned by a consortium of OEMs including Audi, BMW (OTCPK:BMWYY), and Mercedes. In fact, HERE provides the map data for Telenav’s navigation solutions. We believe that it would be in Telenav’s best interest to work with Ford and General Motors to come up with other solutions. This would resolve the widening consumer expectance-solutions gap while protecting the value of OEMs, as OEMs now have indirect control and influence over these solutions. Jeff MacDuff at Inrix, a location-based data and analytics firm, agrees that automakers won’t want to give up this data.
“The best analogy… you don’t want to be the dumb pipe. You don’t want to be AT&T to the iPhone. The iPhone made telcos, for a consumer, largely irrelevant. If you’re a brand, BMW or Audi, that’s your customer and your data, and you want to use that data to delight that customer and have that customer attach.” – MacDuff
Tesla has proved that it is possible to deliver an incredible vehicle and software that meets the need of today’s consumers without working with Google or Apple. OEMs would strive to work towards replicating Tesla’s success.
Can Telenav Fulfill This Role?
The other important aspect of this equation is whether Telenav can deliver to be that solution provider which fits right in the sweet spot of advancing OEMs’ software while protecting their interests. We see this through the partnership with HERE (owned by a consortium of OEMs). The core products of Telenav are on-board navigation systems built into vehicles and navigation SDKs that enable clients to add mapping and location capabilities to their own on-board automotive applications. Let us look at Telenav’s strategy for the future to determine if Telenav can provide relevant solutions.
Source: Company Investor Presentation
There are 3 focus areas:
1) In-Car SW/Service: The company plans to release Full IVI VIVID, an aftermarket in-vehicle infotainment. The product will integrate internet-based entertainment services, including Alexa voice assistant, and integrated vehicle functions. In a bid to launch quickly and to reach a greater number of end users, the company announced a partnership with Alpine to offer the VIVID infotainment system via an USB stick that consumers can simply plug into any compatible systems. This would allow a greater number of customers to access the VIVID system in their existing cars, whereas traditionally, customers would have to wait for the system to come with new cars.
Source: Company Website
2) In-Car Commerce & Communication: The company plans to increase their number of partnerships to offer more services to consumers. For example, a customer could order a cup of coffee from the nearest Starbucks right off their system. The company recently partnered with motion auto to provide insurance services. These partnerships could provide additional streams of revenue for Telenav and OEMs.
Source: Company Investor Presentation
3) Road Intelligence: The company provides location and driving data-based analysis and statistics to clients such as GrabTaxi (GRAB), Toyota (NYSE:TM), Mercedes and Bosch.
Now, let us see how Telenav’s strategy might play out. First, we believe that the core business of Telenav will, as much as critics disagree, continue to grow with increasing adoption rates. Reason being this solution allows OEMs to produce their own navigation applications and solutions, therefore protecting their interest. From their latest quarterly report, Telenav has shown an increasing adoption rate for their solutions.
Source: Company Quarterly Report
As for the play on their infotainment system, we believe that it will work too. Now, we have to be very careful here; Telenav cannot completely disconnect with OEMs when coming out with their product as they would be categorized as a threat, similar to how Google is. We believe this possibility to be low; the company has built strong relationships with OEMs and should capitalize on their partnerships to further pursue solutions together. We predict that one of two things could happen in the future – VIVID or other solutions run in cars without drawing attention to their brand, or a consortium of OEM acquires Telenav. In either situation, Telenav stands to gain.
While we believe that not all strategies might play out the way the company hopes they do, Telenav should be able to compete in the market by staying relevant. The company has long realized that it has to keep innovating and has not been afraid to do so.
The Greater Threat…
On 7th January 2020, Ford and Garmin (NASDAQ:GRMN) announced a partnership that will see Garmin cloud-based navigation technology integrated into Ford’s next gen Sync infotainment system in the Mustang Mach-E EV. Telenav’s stock price fell by 8% on that same day. Now, we believe that this represents a greater threat to Telenav than Google does. The underlying motivation for this collaboration is that Ford needed someone to provide navigation solutions which encompasses EV-specific solutions such as looking for the nearest charging point. The way we see this is that Garmin will probably only be featured on Ford’s EV vehicles. We hope to see Telenav catching up in this space but understand the potential downside involved.
It would be a big bet that OEMs stick with Telenav instead of Google and that the collaboration with Garmin is only one-off. We recommend that only investors with enormous risk appetite invest in this company, otherwise investors should stay on the sidelines for now to see how this plays out. That being said, we believe that the downside might be already protected to a certain degree because of the sharp decline in September 2019; investors can place some put options to further protect their downside. I will follow up with this company to further delve into the firm’s financials and projections to determine investment entry and exit points. Follow me to receive notifications when that happens!
On the flip side, we might ponder, is there really a need to build a sophisticated system in the first place? Could it be the status quo of you to connect your phone to it while providing just the essential apps and services works best for all parties? If there are multiple drivers for the same car, security might be a concern if anyone can access our messages and personal details.
Co-existing might be a possibility. This might be harder to picture, but perhaps Google could integrate only some part of their ecosystem which would result in a slight improvement from today’s systems.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.