Acuity Insight: M&A Activity Changes Gear as Autonomous Vehicles Get Ever Closer

Autonomous Vehicles (AVs) look as though they will be roaming our roads quite soon. Tier 1 companies and private equity firms, with large stakes invested already in this sector, have only success in sight. To date, the major players in AVs have risen out of the tech sector – Silicon Valley’s Google, Apple, Tesla; China’s Alibaba, Baidu, Tencent – but traditional car companies – General Motors (GM), Toyota, and BMW – are vying to catch up.

The range of specialised skills required to make AVs viable is immense. Lacking this range of expertise, these companies are looking to OEMs to help them partner with cutting-edge technology firms. The auto-tech M&A transactions made in the first-half of 2018 reflect this desperate need; not only are the number of transactions on par with the preceding four years (approx. 100 transactions per annum), but the value of these deals has increased as well (up 54% to $2.39 billion).

Fleet Management and Ride-Sharing

The prospect of creating AVs raises the question: will the individual car ownership give way to a world in which all transport is shared, or will we instead cling to our cars and our autonomy?

To avoid this dilemma, companies are taking the middle road, opting to roll out their first fleets of AVs as taxi-like services, introducing them tentatively to our city streets. Thus, the auto-tech M&As of 2018 have focused in on the acquisition of ride-sharing platforms and fleet management firms.

This year, KAR (a used car dealership) purchased STRATIM, a fleet management SaaS, able to track, monitor and maintain over one million vehicles in-car or ride-sharing services. Clients include BMW, Ford, Toyota and GM. GM is already using STRATIM in its Maven Gig Programme, but the company aims to release as a ride-sharing platform a range of all-electric Chevrolet Bolts. GM also plans to create a steering wheel and pedal-less car by 2019. Ford hopes to follow suit by 2021.

They are not alone. In February, BMW i Ventures and Toyota AI invested $11.5 million in seed funding May Mobility, a start-up building self-driving electric shuttle-buses in Detroit. In August, Waymo, part of Google’s parent, Alphabet, launched its commercial, ride-hailing minivans in Phoenix. Waymo have grand ambitions to create a fleet of 62,000 vehicles. And just this month, Honda Motor Co. Ltd. announced it will partner with GMs’ Cruise – the company’s self-driving unit – in the quest to develop AVs. They plan to invest $2.75 billion dollars-worth of funding and assistance for a 5.7% stake.

Ride-Sharing and Ride-Sharing Apps

Given the first fleets of AVs are due to be introduced as taxi-like services, the auto-tech sector has seen a number of large investments in existing ride-sharing and car-pooling companies: MyTaxi, Chauffeur-privé, Careem, Uber of course, as well as its major Estonian rival, Taxify. Daimler, which already owns a number of online taxi services, led a $175 million equity round in Taxify this May. Didi Chuxing Technology (DiDi), a major Chinese conglomerate in the auto-tech sector, is also invested heavily in the company.

A notable partnership was forged this July, when DiDi partnered with SoftBank Corp., a significant Japanese firm that operates as a multinational holding conglomerate. Their plan is to create a taxi-hailing company in Osaka, aimed solely at Chinese tourists. SoftBank Corp. will be an exciting firm to watch, given that Japan is the most advanced country in AV manufacturing outside Europe and North America, and they were involved in another deal in May, investing an enormous $2.25 billion in GMs’ Cruise, raising GMs’ shares by 13%.

To protect the jobs of Japanese taxi drivers, ride-hailing has, until recently, been illegal in Japan. One might ask whether legislators changed their position on this after recognising that ride-hailing is a necessary first step in the emergent AV race. Exhibit A: just as the law changed, Japan’s biggest car manufacturer, Toyota, invested $500 million in Uber. Their plan is to merge Uber’s proprietary self-driving system with Toyota’s Sienna Minivan.

In the UK this June, another statute change was made in favour of AV technology: remote-control parking has been made legal. In January, the BMW Group purchased ParkMobile LLC, creators of an app that allows users to remotely detect and pay for parking spaces. The benefit of this technology is that it allows cities to reduce congestion (most city congestion is caused by people looking for spaces to park); the benefit to BMW is that they can build it into their AVs. No doubt British automotive firms are already looking to invest in similar software.

Software Developments

Given that AVs are to be rolled out in major cities, there is a need for software that allows AVs to function in city spaces. AVs will not just be vehicles, they will be super-computers: they will need cameras to observe, radar and LiDAR to detect, sensors to communicate with other vehicles (V2V communication), and in-built, high-speed data transmission to communicate quickly via The Cloud. They will also need massive computing power to gather and analyse all this data.

In June, Gores Holdings Inc., a private equity firm, purchased Verra Mobility, a company that specialises in creating systems for managing traffic systems, railway crossings, and the like, listing it as a public company with a marked cap of $2.4 billion. Smart mobility will require AVs to have this kind of data and analytics software embedded into their systems.

However, the predictable – to brake when red, to stay in the right lane – are the easy parts; AVs must also observe and react, in real time, to unpredictable stimuli. Last year, Chinese tech company, Baidu, acquired xPerception, a start-up researching object recognition and depth-perception. Also last year, GMs’ Cruise bought Strobe Inc. for $36.5 million. Strobe is a company that specialises in LiDAR (using lasers to create a 3D map of the car’s vicinity), given AVs a sense of exteroception.

But LiDAR tends to favour agreeable weather. Efforts are being made to combat nature: Aptiv, a Dublin-based mobility solutions company with expertise in software, AI, and machine learning, purchased KUM in May, a South Korean company that specialises in connector supplies and automotive interconnect technologies to be used in harsh environments or bad weather.

An alternative to navigating real city centres, bustling with the unpredictable, is to test in virtual space. In July, Spectris acquired VI-Grade, a company that creates hardware and software for automotive simulation. This technology has the benefit of allowing manufacturers to test their products in a risk-free environment.

Cybersecurity

To qualify as roadworthy, AVs need to be able to send and receive telemetric data to one another. The huge self-inflicted risk of doing this – of turning cars into supercomputers and hooking them up to the Internet of Things (IoT) – is that it will expose AVs to the severe risk of cyber-attack and data theft. Paradoxically, to make AVs safer, they must create more risks. If Malware was to infect the Electronic Control Units (ECUs) and Controller-Area-Network (CANs) of onboard systems, hackers would then be able to meddle with braking and steering operations, creating huge risks. Aware of this, the UK government have already released cybersecurity guidelines that must be met by AV manufacturers.

Argus Cyber Security, which specialises in end-to-end security and intrusion detection, was bought by Germany’s Continental and its subsidiary, Elekrobit (EB) last year precisely as a countermeasure against such threats. GM is going one step further: in August, it began a ‘bug bounty programme’, allowing “white hat” hackers free reign to attack their software to expose any weaknesses within.

Managing Risk

In April, at a time of debate regarding whether AVs will make driving safer or more dangerous, Stone Point, a private equity firm, invested in Mitchell International, an auto-collision claims management company that uses advanced analytics, AI, and SaaS infrastructure to connect itself to customers. Mitchell International is rumoured to now be worth $3 billion, triple the value it had in 2013. Perhaps Stone Point understands that AV manufacturers might well spot potential in a company that has the ability to keep track of AVs that become compromised in the age of auto-hacking and driverless collisions.

Whether the public will embrace AVs is still an unknown, but given that cars remain idle 95% of the day and congestion is a major problem in city centres, ride-sharing AVs seem like a sensible way to kill two birds with one stone. This may also involve motor firms changing their business models – as they may wish to accumulate revenues through usage rather than through the old method of selling individual cars to private customers.

Donald Trump recently announced he was considering a pilot programme that would allow firms to road test a limited number of vehicles on U.S. streets, and the UK government has said it believes AV technology will be worth £900 billion by 2025. Whether AVs will overcome their list of technical hurdles to achieve Level 5 Autonomy by then is still a question, but it is evident that tech and motor companies have a vested interest in acquiring and partnering with promising R&D start-ups, and that doing so may well prove very lucrative in the decades ahead.

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