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Why Tesla (TSLA) Should Replace Nvidia with Intel for Infotainment

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Bloomberg First Word speculated that Tesla, Inc. (NASDAQ: TSLA ) may replace NVIDIA Corporation (NASDAQ: NVDA ) with Intel Corporation (NASDAQ: INTC ) components for its Infotainment. For Intel, it would give the company the positive momentum it needs to crack the automotive market. The big question, though, is why TSLA would make such a move, especially when Nvidia's the favorite supplier for infotainment solutions in cars. Nvidia supplies the two screens-dashboard and console-in Tesla's Model S and Model X.

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Tesla may have noticed Intel's commitment to supplying computing solutions for automobiles, after the chip giant bought Mobileye. Though the Mobileye unit is not responsible for Infotainment, Tesla may expect it will use more Intel-based solutions. Intel's Infotainment is an embedded version of the i3/i5/i7 CPU. If Intel's performance and price are favorable, Tesla may expand the use of Intel parts in its Tesla 3 and newer models.

On Sept. 16, 2016, relations between TSLA and Mobileye broke down when Mobileye voiced concerns over Tesla's safety for the autopilot feature. Any inclusion of Intel parts now could be a way to rebuild the broken relationship it once had with Mobileye. Working with Mobileye would benefit both companies immensely. Intel paid a huge premium ($15.3 billion) for Mobileye.

Having Tesla's business would encourage other automakers to strike a deal with the autonomous vehicle technology supplier. Tesla benefits simply from getting access to Mobileye's superior solutions in the ADAS ('Advanced Driver Assistance Systems') space. ADAS is inherently complex, so getting the help of Mobileye's engineers would improve Tesla's ADAS offering.

TSLA Still Has Lots to Prove

Investors should have a favorable view of any supply changes Tesla makes. Tesla may have struck a sweet deal with Intel that would lower costs. Since the company loses money every quarter, keeping a lid on costs will raise the odds that the company reaches profitability earlier than thought. The EV market is becoming increasingly competitive. Ford Motor Company (NYSE: F ) and General MotorsCompany (NYSE: GM ) are willing to lose money to have a play in the EV market. Dysan is reportedly entering the EV market in 2020. To compete with the bigger players in the long-term, Tesla must cut operating costs as it builds more units.

Bears are placing a big bet that Tesla's share price will fall. The short float is 23.6 percent. The stock chart, which does not predict where shares will move next, still shows a "double top" pattern at the $380 - $390 a share level. At a recent close of around $341, Tesla could fall while traditional automakers buck the trend. GM is trading at a yearly high while Ford bounced off a yearly low of $10.47 a share reached last month. Fiat Chrysler Automobiles N.V. (NYSE: FCAU ) is up two-fold from a yearly low, although the stock is up on speculation it will receive a buyout offer.

Takeaway

Intel winning business for Tesla is a win-win for both companies. The chip supplier is looking for ways to expand outside of the PC market. For Tesla, switching to a lower-cost supplier will add up. As it prepares for mass production of the Tesla 3, every dollar saved by using another supplier will add to the bottom line. In the near-term, though, Tesla's capital expenditures will wipe out any operating cost savings but that is not an excuse for the EV maker to keep its component suppliers the same for eternity.

Disclosure: Author owns shares of Ford Motor Company.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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