Traditional Industry – New Patterns / Investments in the Autonomous Vehicle Market in Israel – A Review and Looking Forward
By Atir Jaffe and Yael Shimon-Many
The invention of the automobile at the beginning of the twentieth century was considered a symbol of progress and constituted a springboard for the “future”, as people begun driving to work in private vehicles, and the automobile industry became the largest industrial sector in the world, forming the backbone of huge economies.
Naturally, over the years, the automotive industry has adopted innovative technologies and has begun producing smart cars, vehicles powered by renewable energy and internet-based intelligent connected vehicles (ICVs). However, despite its innovation and the resources at its disposal, the industry, which is dominated by a small number of multinational corporations and which suffers from bureaucracy, regulation and other obstacles, has begun to suffer from a technological slowdown. This slowdown reached a peak in the global crisis of 2008, during which car sales declined significantly, and U.S. automobile manufacturers were on the brink of insolvency and had to receive a government bailout to avert collapse.
Nevertheless, the private technological sector, which has enjoyed investment opportunities, technological progress, government incentives, etc., has developed significantly, establishing countless start-ups, funds, accelerators and incubators, and huge transactions were signed involving mergers, acquisitions and IPOs.
The gap created in the automotive sector between the traditional industry and the global high-tech industry in general, and in Israel in particular, has led to a change in the “rules of the game” in the two industries that work side by side.
On the one hand, the car manufacturers that are directing their efforts towards the production of the “next-generation” autonomous vehicles, and that understand that the first of these vehicles will gain a significant advantage over others, have begun looking for quick and efficient alternatives to obtain the technology that will enable them to achieve this goal.
On the other hand, with exactly the same understanding, entrepreneurs from various fields (optics, simulation, cyber, AI, etc.) have begun developing dedicated products that provide an infrastructure and/or complementary products for the autonomous vehicles, with emphasis on early, cheap and quick development, while keeping an eye on the automakers and their needs from day one.
Not surprisingly, it seems as if Israeli entrepreneurs were among the first to identify the potential, and they began the rapid development of the automotive market in Israel in a way that has aroused great interest, leading the global automobile giants to Israel to take part in the local scene.
An example of this is Ford International’s acquisition of Saips in 2016. Saips, an Israeli company, that developed a video and image processing algorithm, was acquired by Ford even before it had raised any money. After its acquisition, the company became Ford’s development center in Israel, and, among other things, responsible for finding similar interesting takeover targets for Ford.
Another example is Mercedes, which in 2017 established a research and development center for futuristic vehicles in Israel, which, among other things, engages in the development of autonomous cars.
Targeting products for the automotive industry, along with the presence of the manufacturers in Israel, has also led to significant joint ventures between Israeli start-ups with these manufacturers. An example of this is the cooperation between Tesla and the Israeli company Mobileye in 2015, as part of which Tesla incorporated a system in its vehicles developed together with Mobileye which facilitates autonomous driving in various situations. Another example is the cooperation between the Israeli company Valens and Mercedes in 2017. A more recent example is the transaction signed several months ago between the Israeli start-up INWISE – which develops LIDAR sensors for the automotive industry – and the German car giant BMW, which will incorporate the sensor in autonomous vehicles starting from 2021.
The direct connection between the manufacturers and the Israeli entrepreneurs has led to direct strategic investments in the companies, mostly from the joint perspective of the parties of a potential acquisition in the future. Some of these investments include Volkswagen’s investment in Gett in 2016, and Hyundai in the Israeli company Autotalks a few months ago. Another step forward in this trend is the establishment of the cyber company CYMOTIVE Technologies by Volkswagen together with former senior GSS officials.
Another consequence of these direct investments is that, in some cases, they render the need to raise funds from investment funds at the beginning of development redundant. This essentially returns the power to the entrepreneurs, and requires the funds to update their traditional investment strategy in order to remain relevant. Accordingly, specialized funds are established with expertise in the field, for example the fund established several months ago by Maniv Mobility, which specializes in investments in Israeli auto-tech companies, and which is expected to invest approximately USD$ 80,000,000.
Looking at the “exits” made in this field in Israel in recent years, we see that the acquisition of Israeli companies comes early in the life of the company, and after raising small amounts of capital. Therefore, along with Saips, we see the acquisition of TowerSec by the American company HARMAN, valued at USD$ 75 million (after raising only approx. USD$ 3 million), and the acquisition of Otto by Uber, less than a year after it was founded, for a consideration of USD$ 680 million – all three in 2016.
It is impossible to talk about transactions in this field without mentioning the acquisition of Mobileye last year, which does not fit into these definitions. By contrast, this is an old established company that underwent many transformations, including an offering on NASDAQ, prior to its acquisition, and therefore it cannot be analyzed according to the aforementioned trends.
It is therefore possible to see that the field of autonomous vehicles has changed the rules of the game for all the participants – manufacturers, entrepreneurs and investors – and, in order to stay in the game, these players must be kept up-to-date constantly about the dynamic market, which will continue to evolve, innovate and surprise in the near future.
