Every new car sold in Europe now has to watch the driver's face. Two companies in the world can actually do it, Seeing Machines and Smart Eye, and they spent twenty years and hundreds of millions of dollars getting there. Hugo Navarro's argument is that the market has not repriced what happens next: a roughly 55 million dollar fixed cost base, automotive production going from 488,000 vehicles in Q4 2025 to 2.1 million in Q4 2026, and 20 to 40 million of free cash flow in fiscal 2027 against a 330 million market cap. If Japan and the US follow with their own mandates, close to every incremental dollar of revenue drops straight to free cash flow.

I push back hard in a few places. There is a 55 million dollar convertible due in October that this company has let get within two months of expiry, and my view is that no healthy business does that. Receivables are up 120% against 45% revenue growth. The fleet business, Guardian 3, is running trials that keep not converting, and "we are in a trucking recession" is the kind of management excuse I have learned to distrust. We also get into whether a new entrant can just build this now that the market is 16 million vehicles, why no tier one ever bought them, and whether full autonomy eventually kills the whole thesis.

Hugo's write-up on Seeing Machines: https://smallcaptreasures.substack.com/p/a-cheap-tech-duopoly-posts-333-growth?r=1od1d5

This episode is sponsored by Fiscal.ai: https://fiscal.ai/yav. Fiscal.ai is the modern financial data provider for global equities, and I am a customer who pays with my own money for the API. Two things I use it for constantly: a huge database of fund letters wired into the API, so the first thing I do prepping for a podcast is pull every recent letter on the company, and audit-linked financials where every line in the model clicks through to the source. Use fiscal.ai/yav for 15% off their AI connector.

Chapters:

(0:00) The setup: a duopoly Europe just made mandatory

(0:54) Sponsor: Fiscal.ai

(2:49) Why Hugo kept pitching this one

(3:56) What Seeing Machines does, and why DMS is harder than it looks

(5:13) The math: fixed opex, Europe now, Japan and the US later

(8:06) The seatbelt manufacturer analogy

(10:25) My pushback: what stops a new entrant or an in-house build?

(11:47) Naturalistic data, Mitsubishi Electric, and the accuracy gap

(14:54) The elephant in the room: a $55m convertible due in October

(17:46) Footnote 21 and the accelerated royalty payment

(20:06) Can the regulation slip or get watered down?

(22:00) Robotics: $20 of silicon versus $20,000 chips

(24:39) Smart Eye versus Seeing Machines: software only or full system

(27:38) Why no tier one ever bought them

(29:16) Fleet: Guardian 3 and trials that keep not converting

(35:04) The balance sheet: receivables up 120%

(37:37) How much operating leverage is left in Europe alone

(40:10) Does full autonomy kill the DMS story?

(42:39) Chinese OEMs selling into Europe

(44:14) Licensing the fleet software to telematics players

(46:34) CEO incentives and the overpromising track record

(48:30) My last pushback: at some point it is them, not you

(50:14) Why the stock reacts slowly, and where the risk really sits

Hugo Navarro / Undervalued and Undercovered: https://smallcaptreasures.substack.com/

Links:

Yet Another Value Blog - https://www.yetanothervalueblog.com

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