An interesting phenomenon has occurred when it comes to autonomous driving. About five years ago, when the technology was far from ready to be widely deployed, there was great excitement about it. After it turned out that autonomous driving was only a distant dream, the Street lost interest in the technology. And now, when autonomous vehicles are starting to proliferate, investors are still not too enthused about the phenomenon. As a result, there are indeed some undervalued, cheap autonomous driving stocks that long-term investors should consider snapping up. Here are three such names that are indeed worth buying for smart, patient investors.
XPeng (XPEV)
I’ve long been very enthusiastic about XPeng’s (NYSE:XPEV) self-driving system, which verges on autonomous driving. In fact, the company stated in May that by the end of this year, “the number of manual takeovers per 1,000 kilometers when using our Highway NGP [self-driving system] is expected to be reduced to one or fewer.”
Additionally, last October, the automaker’s G9 SUV passed Beijing’s autonomous driving closed-field test.
And further validating the company’s autonomous technology, Volkswagen (OTC:VWAGY) recently signed a huge collaboration deal with XPeng. Under the agreement, the two automakers “will jointly develop two” electric vehicles. Plus, Volkswagen will obtain a stake of about 5% in XPEV.
I believe that one could infer from the deal that Volkswagen is very impressed by the Chinese automaker’s technology. Otherwise, I don’t think Volkswagen would have agreed to partner with XPeng and spend $700 million on the company’s stock.
Given XPeng’s huge potential in both EVs and robotaxis, I believe the company’s forward price-sales ratio of 4.8 is still cheap.
Aurora Innovation (AUR)
In partnership with multiple trucking companies, Aurora Innovation (NASDAQ:AUR) has been testing its self-driving system for many months on trucks that traverse two routes in Texas.
On August 2, Aurora reported that, as of the end of last quarter, it was 65% of the way finished with the safety checks it needs to complete before fully launching its self-driving system commercially. That was up from 44% at the end of Q1.
Moreover, the company reported it was on track to achieve its Aurora Driver readiness milestones later this year. AUR noted that it was “training” its system to take multiple, extensive steps to avoid collisions in even the most challenging scenarios, such as when a human driver makes very dangerous mistakes. And the company noted that Aurora Driver was able to operate a very impressive 97% of the miles driven without needing any “on-site support” in Q2.
Aurora noted that Volvo intends to start testing a prototype equipped with the Aurora Driver in the first quarter of next year, while the company itself expects to commercially launch the Aurora Driver “by the end of 2024.”
Aurora indicated it will not need any additional funding until the second half of 2025.
ON Semiconductor (ON)
ON Semiconductor (NASDAQ:ON) develops and markets many sensors used to facilitate advanced driver assistance systems (ADAS) and autonomous driving.
In the company’s second quarter, sales of industrial and automotive products generated 80% of ON’s revenue, and the automotive revenue alone surged 35% year-over-year.
On its Q2 earnings call, ON noted it had provided samples of its “automotive-grade image sensor…to [its] leading global ADAS customers and partners.”
According to a February report, “the automotive semiconductor market” is going to grow at a compound annual growth rate (CAGR) of 9.4% over the next 10 years, with the market for chips that enable ADAS and self-driving climbing at a huge CAGR of 29%.
Given all of these points, I believe that ON is very well-positioned to benefit from the proliferation of autonomous vehicles.
On the date of publication, Larry Ramer held long positions in XPEV and AUR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.