Digital Automotive – Badly needed space.

Falling investments give OEMs more space.

• Since the deflation of the autonomous hype balloon, investments in automotive technology have fallen which will slow the pace of innovation giving the badly struggling OEMs some breathing space.
• Data from Pitchbook (see here) indicates that in 2019 756 deals raised a total of $33.5bn down significantly from $58.7bn from 886 deals in 2018.
• The average valuation has also fallen 33% from $66.3m in 2018 to $44.3m underlining the falling confidence in when or if investments will earn a return for investors.
• A large part of this is due to falling investments in autonomous driving start-ups which were confidently predicting their systems would be in the market by 2020 or 2021 and now have to admit that they don’t know when they will start earning revenues.
• The smart move here was to address advanced driver assistance systems (ADAS) at the same time as working on autonomous systems.
• This is because:
  • First: ADAS is a precursor to autonomy and
  • Second: one can sell product now to keep the lights on while autonomy finds its feet.
• This is something that Mobileye has done to great effect.
• This collapse in sentiment for autonomous driving has also had knock-on effects elsewhere and it is here where I think that the OEMs will find some relief.
• RFM research has long concluded that the one real asset that the OEMs have in the digital vehicle is the data that the vehicle generates.
• This data can lead to far more accurate insights about what is going on the road and elsewhere and therefore should power better services compared to those that use a smartphone to make estimates like Google currently does.
• The OEMs’ position relies on them having a lock on this data but the innovation I have seen in sensors indicates that this is under threat.
• The longer the OEMs leave the data locked up in the vehicle, the more they are incentivising innovators to design retrofitted sensors that can collect the data and use it for digital services.
• I view this as a real threat because this has the potential to erode the one real advantage that the OEMs have, further reducing them to commodities.
• A fall in valuations:
  • First:  makes it easier for them to acquire companies to help them avert this threat and
  • Second: the fall in absolute levels of investments means that the threat will emerge more slowly.
• I still have grave concerns for the long-term future for the OEMs as they do not seem to be doing much to help themselves, but the last 12 months has seen the deadlines pushed out somewhat.
• The real digitisation of the vehicle looks like it will be delayed until electrics vehicles really take-off and falling investments in automotive technology will slow down the emergence of technology capable of undermining their lock on vehicle data.
• I still think the outlook for the OEMs is pretty bleak, but they do have more time than initially forecast to get their houses in order.