Long dominated by car manufacturers and supported by a limited network of large system and component manufacturers, the automotive industry is going through a fundamental transformation. The electronics and software content in cars have doubled in 15 years, going from 15% of total car cost in 2000 to close to 40% today, a trend that is expected to continue upward (source: Goldman Sachs reports).
The following chart from ABI research depicts the six transformative paradigms of “smart, sustainable automotive transportation”. These mega-trends essentially rely on fundamentals originating from outside of the car industry, which means they will likely be driven by new players, from leading technology giants to agile hi-tech start-ups. The area of optical sensing for ADAS and autonomous car applications follows this model.
Source: ABI Research
This creates a totally new context where large OEMs and tier-1 suppliers seek collaboration with technology disrupters to select the right technologies and integrate them into efficient and cost-effective systems. The future competitiveness of car makers will depend of how well they can define and execute this roadmap towards “smart mobility”. In addition, the capacity of tier-1 suppliers to act as system integrators becomes even more strategic in their relationship with automotive OEMs.
The ongoing speculations and discussions about the opportunity for tech companies to become car makers themselves strike the imagination and reflect this shift in dynamics (i.e. could Apple acquire BMW? Is Google considering buying Tesla?). Other large tech players like China’s Baidu also aim to enter the race towards autonomous cars. While it is unclear if entering the car making business would be a wise move for these tech giants, it clearly shows where most of the added value and innovation will lie in the cars of the future.
Technology now represents almost 40% of total car costs, up from 15% in 2000.
New automotive active safety systems rely heavily on a variety of high-tech electronics, from the sensor to the control units, and use software and complex algorithms to run its applications. Specialized suppliers and new entrants have a large role to play in their development, becoming part of a new value chain, as automakers and their suppliers try to keep up with the flurry of new technologies and seek to acquire the skillsets required to integrate and implement them.
Recent acquisitions and investments in the area of optical sensing and Lidars reflect the importance given by large vendors to integrate the key enabling technologies into their portfolio. Here are a few recent examples:
- Early 2016, Garmin snatched the startup PulsedLight, maker of the Lidarlite Lidars, although it is yet unclear what are Garmin’s intentions for future automotive applications;
- This March, Continental announced the acquisition of the hi-res 3D Flash Lidar business from Advanced Scientific Concepts (ASC), describing it as a “breakthrough enabler” for highly or fully automated driving;
- On April 7th, 2016, DENSO announced a strategic investment in TriLumina, a semiconductor laser technology startup that focuses on providing light sources for LiDAR and interior illumination products. DENSO is looking to speed up the adoption of LiDAR and driver monitoring technologies in ADAS.
This trend is highlighted in a just-released TU Automotive white paper stating that automakers are not guaranteed to maintain their customer base if they don’t innovate and invest in or acquire new companies. This great need for collaboration with technology disrupters in order to secure their long-term future is fuelling a very fertile M&A environment, as automakers and their suppliers are willing to “take calculated risks on tech companies that could allow them to lead the pack”.
The fact that tech companies hold large patent portfolios relevant to key features of future car generations is certainly not a coincidence. This trend attracts the attention of potential investors, as summed up in a recent report from Goldman Sachs titled “Monetizing the rise of autonomous vehicles – It’s the technology, not the cars. Buy the suppliers”.