How to bet on the mobility winners of the future, explored by Graham Jarvis.

The automotive start-up scene, symbolised by Silicon Valley, is booming. Yet there is much talk about how you can spot the unicorn that will disrupt the mobility, connected and autonomous vehicle markets beyond recognition.

“Historically, what Silicon Valley has done well is to financially encourage a range of technical and commercial approaches to create better solutions given the advances in enabling technology and evolving market conditions”, explains Damien Scott, chief commercial officer at Renovo.auto.

He finds that data reveals that venture-backed investments in Silicon Valley shows that there are many promising companies based there – each of whom have a marginal success or failure rate. “What does appear to be clear, in the automotive and wider mobility start-up scene, is that the sector will be disrupted beyond recognition,” he adds before pondering: “How that happens, who creates the value and ultimately captures the value is less clear.”

White space analysis

Arunprasad Nandakumar, team leader, chassis, safety and autonomous driving systems at Frost & Sullivan’s mobility practice, suggests that the unicorn is different for different carmakers. He said: “White space analysis reveals that the requirement that one OEM has is different to what another OEM has. When it comes to autonomous driving, the hardware development for OEM A would be Lidar technology while with OEM B it would be object classification software. Most start-ups are trying to address a small problem for a lot of players or a big problem for a few players. For example, start-ups are trying to develop the decision-engine algorithms and path planning software which informs the car about what the next steps are going to be.” The trouble is that most start-ups face a barrier, which the automakers are creating by trying to develop mobility, connected and autonomous vehicle technologies in-house.

This trend shrinks the addressable market that most start-ups would ideally want to tap into and, yet, there a multitude of start-ups working in this area – in a market that isn’t yet showing sufficient demand. “The demand is actually in segments of the software and that is why players who are able to develop individual blocks are the ones who stand to benefit in this space in the short term,” Nandakumar reveals.

Unicorn defined

A unicorn is usually a magical, mythical and mystical creature, so it’s odd to consider it to be disruptive. However, Nandakumar believes that a true unicorn in the context of disrupting markets, “would be somebody who solves a big problem for a lot of players and so the industry needs to shift what is seen as a mythical model for some OEMs because they aren’t used to data-driven business models.”  

In other words, carmakers, vehicle manufacturers, tend to make the products – the cars, trucks, trucks, etc. They then make their money by selling these products but, in the electronics world, he points out that revenue doesn’t emanate from selling hardware but from software and data. Yet, while data will be king in the future of mobility, connected and autonomous vehicles, he stresses that vehicle ownership won’t be completely eradicated in the way that many mobility players anticipate: “The industry will find a balance between ownership and usership. Vehicle usership will become the dominant model but the two models will co-exist. A BMW can no longer sell you a car by saying it’s the best ‘driving machine’.”

Service differentiation

Fleming Lampi, global product director at ACCESS Europe, speaking from a media and infotainment perspective, adds: “The automotive industry has discovered that the best way to stand out is to offer services, which often comes from third party experts. These experts can be either start-ups or established brands but what makes them stand out is an ability to constantly innovate and to service the automotive industry at every turn.”

“By using external experts, manufacturers can reduce their time to market to deliver the kind of services consumers want at the pace that they expect. The market is responding to this challenge by pacing up in terms of the speed of delivering these types of services. The automotive industry is good at automotive but it is new to offering other products and services. The automotive industry realised that consumers don’t want to have to wait for new services, so the industry is getting better at offering new services faster and in a more consumer-friendly way.”

Bridging gaps

Traditionally, start-ups work in a fast-paced environment. In contrast, vehicle manufacturers work to slower lifecycles.  Yet Darren Jukes, UK leader of industry for industrial manufacturing and services at PricewaterhouseCoopers (PwC), says things are changing as they the vehicle manufacturers need to bridge this gap. “Until these business models are finalised and scaled, they are being managed by manufacturers through distinct and separate mobility divisions. They are largely wholly owned subsidiaries who’ve recruited talent, sometimes from outside of the mainstream automotive industry, to ensure innovation and lessons from other sectors are achieved. They bring new perspectives about what consumers want, and they are not restrained by the mainstream thinking of the last 25 years.”

“Manufacturers have been faced with, or have been deliberately shortening, the lifecycle of vehicles. For example, if you look at the VW Golf Mark I against the current Golf, the lifecycle has more than halved. They’ve had to do this because the world has become increasingly more competitive and it’s what consumers are demanding. The acceleration in lifecycles is just one example of how manufacturers have been forced to work in a much quicker environment than it was, say, 20 years ago.”

Incorporating start-ups

Lampi then talks about the best way to incorporate start-ups into their growth strategy by distinguishing which innovative concepts they want to integrate, and which technology resources can fill a gap in their current product suite. “The success of incorporating innovation and disruptors will depend on the result you are trying to achieve; and being clear about the steps needed to take to get there,” he says. He then suggests the automakers ask: “Do they own the enabling technology or simply have partners that are supportive of the delivery?” To answer questions such as this one, he says organisations are now “evaluating what they have and what they don’t have because without this thinking, the whole thing could fall down like a pack of cards”. Therefore, he advises that it’s crucial to be clear about what the end-goal is. “Not being clear means that there is a risk as you go along the journey you could become distracted. You’ve got to stay focused, and once you are, you’ve got to move quickly,” he explains.

Nandakumar replies that the obvious way to incorporate them is through a venture capital route. “The obvious one is to have a VC but the most interesting one is to have a Living Lab where they select a small pilot project to attract small companies to work together on a particular use case. This is quite popular in Silicon Valley. The purpose of the innovation lab is to address some of the white spaces. It comes down to cost and time-to-market. If you stand more revenue to bring it to market earlier, then it makes sense to externalise these things.”

“GM and FCA are both traditional in terms of their routes but they are very different in terms of their strategy. GM has acquired or brought in-house the skills and resources to develop the technology. FCA is happy to get the technology from outside, to be relevant to the market. GM gave up all of their European business, Vauxhall/Opel, and they got out of places such as India in an effort to invest more on disruptive technologies and capitalising on strong markets by giving up lesser profitable regions.”

Innovation Days

Another route is to hold Innovation Days, which are organised by inviting start-up companies to “exhibit their wares to a specific OEM.  It’s a way to stay abreast of what’s happening in the industry, or to get hold of the technology,” he says.

Jukes concludes: “The organisations that are most likely to succeed are the ones who’ve explored a broad cross section of business models. This is about me as a manufacturer continuing to be a provider of mobility solutions – providing the car when you need it and how you need it. There is a shared economy model – an Airbnb Model. The manufacturers then become the facilitators.”

[Mob.Jarvis.2018.03.12]