Notes from Detroit: The AI in Automotive Conference - The Suppliers' Perspective

Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

Norway Capital goods / Thematic (Sector/Industry)

Cssc Offshore & Marine Engg Group (317 HK)

<p>The <em>Yara Birkeland </em>will be the world's first unmanned container vessel running on electric power that was developed by Kongsberg of Norway for the fertilizer company YARA. </p><p>For those readers more familiar with AI in autonomous vehicle, the <em>Yara Birkeland</em> should be seen as a prototype that is designed to ultimately navigate on unmanned basis but with final control functions onshore rather than onboard.  Hence, what the shipping industry refers to as fully autonomous vessels will be very similar to Level 4 autonomous vehicles with autonomy limited to the operational domain of the vessel's navigational route, with a control/monitor crew on shore.  Off the bat, this goal will be technologically easier to achieve than Level 5 AVs in our view.</p><table class="table table-striped"><tbody><tr><td colspan="2"><h2>The <em>Yara Birkeland</em>: Key Specifications</h2></td></tr><tr><td>Vessel Type</td><td style="text-align: center;">Container Vessel</td></tr><tr><td>Size</td><td style="text-align: center;">120 TEU (3200 DWT)</td></tr><tr><td>Propulsion System</td><td style="text-align: center;">Electric</td></tr><tr><td>Battery Pack</td><td style="text-align: center;">7-9 MWh</td></tr><tr><td>Proximity Sensors</td><td style="text-align: center;">Radar, Lidar, AIS, Camera, IR Camera</td></tr><tr><td>Connectivity &amp; Communications</td><td style="text-align: center;">Maritaime Broadband Radio, Satellite Communications, GSM</td></tr><tr><td>Operational Area</td><td style="text-align: center;">12 Nautical Miles between 3 ports in southern Norway (Coastal Waters)</td></tr><tr><td>Operation/Control Centers</td><td style="text-align: center;">YARA at Porsgrunn, Kongsberg Maritime, Kystverket VTS centre at Brevik</td></tr></tbody></table><div class="content-caption">Source: Kongsberg</div><p><strong>What we like about the <em>Yara Birkeland</em>: </strong>finite set of variability with a well defined goal in the vessel's operational domain, which is distinguishable from a Level 5 AV in the automotive industry whose operational domain is basically infinite.  In other words, commercialization can come very quickly under the right set of regulatory circumstances.</p><p><strong>Where we remain skeptical about the <em>Yara Birkeland</em>: </strong>Cost (USD25mn vs. about USD10mn for similar class new container vessels, plus data validation issues that can potentially arise once the vessel is placed into operation.  IMO regulations currently do not address unmanned vessels and it can take years before a global regulatory framework comes into existence but then again eeder class container vessels are not generally used for international navigation.</p><p><strong>Implications for Investors: </strong>Kongsberg shares have increased by 45.7% over a 1 year period.  Especially in regards to shipbuilding, we suspect it is going to be the technology IP holder who benefits in the long run, as it has happened in the global automotive industry so it will not necessarily be shipyards can undergo potential valuation expansion on the back of this theme.  In Korea, where shipyard related AI has been progressing more briskly than what many sellside analysts are aware of (especially in production process related areas), IP is held closely by the university system, especially KAIST.  For the foreseeable future, autonomous vessels will be mostly for coastal and river route navigational needs, with small to medium sized shipyards which will be ideally suited to fabricate such vessels if cost/benefit justifies ship owner needs.</p>

The Yara Birkeland will be the world's first unmanned container vessel running on electric power that was developed by Kongsberg of Norway for the fertilizer company YARA. For those readers more familiar with AI in autonomous vehicle, the Yara Birkeland should be seen as a prototype that is designed to ultimately navigate on unmanned basis but with final control functions onshore rather than onboard.  Hence, what the shipping industry refers to as fully autonomous vessels will be very similar to Level 4 autonomous vehicles with autonomy limited to the operational domain of the vessel's navigational route, with a control/monitor crew on shore.  Off the bat, this goal will be technologically easier to achieve than Level 5 AVs in our view.The Yara Birkeland: Key SpecificationsVessel TypeContainer VesselSize120 TEU (3200 DWT)Propulsion SystemElectricBattery Pack7-9 MWhProximity SensorsRadar, Lidar, AIS, Camera, IR CameraConnectivity &amp; CommunicationsMaritaime Broadband Radio, Satellite Communications, GSMOperational Area12 Nautical Miles between 3 ports in southern Norway (Coastal Waters)Operation/Control CentersYARA at Porsgrunn, Kongsberg Maritime, Kystverket VTS centre at BrevikSource: KongsbergWhat we like about the Yara Birkeland: finite set of variability with a well defined goal in the vessel's operational domain, which is distinguishable from a Level 5 AV in the automotive industry whose operational domain is basically infinite.  In other words, commercialization can come very quickly under the right set of regulatory circumstances.Where we remain skeptical about the Yara Birkeland: Cost (USD25mn vs. about USD10mn for similar class new container vessels, plus data validation issues that can potentially arise once the vessel is placed into operation.  IMO regulations currently do not address unmanned vessels and it can take years before a global regulatory framework comes into existence but then again eeder class container vessels are not generally used for international navigation.Implications for Investors: Kongsberg shares have increased by 45.7% over a 1 year period.  Especially in regards to shipbuilding, we suspect it is going to be the technology IP holder who benefits in the long run, as it has happened in the global automotive industry so it will not necessarily be shipyards can undergo potential valuation expansion on the back of this theme.  In Korea, where shipyard related AI has been progressing more briskly than what many sellside analysts are aware of (especially in production process related areas), IP is held closely by the university system, especially KAIST.  For the foreseeable future, autonomous vessels will be mostly for coastal and river route navigational needs, with small to medium sized shipyards which will be ideally suited to fabricate such vessels if cost/benefit justifies ship owner needs.

HD Korea Shipbuilding & Offshore Engineering (009540 KS)

HD Korea Shipbuilding & Offshore Engineering

The Yara Birkeland: The World's First Autonomous Ship - Kongsberg's Answer to Tesla?