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Find other officesOUT-LAW ANALYSIS 4 min. read
16 Dec 2020, 11:08 am
At the same time, many technology businesses are seeking to establish a foothold in the automotive sector by partnering with leading players through acquisitions, collaborative partnerships and joint ventures.
Both industries are now recognising the need to look beyond the vehicle itself to excel; focusing their strategic ambitions on acquiring talent rather than technology and collaborating with other members of the supply chain.
Automotive original equipment manufacturers (OEMs) are adapting to change and need to focus on the latest hardware, and not just the underlying technology which initially proved exciting.
Battery technology and faster charging models, as well as the roll-out of the vehicle charging infrastructure that will be required before electric vehicles can become properly mainstream, are the obvious examples.
Recent deal activity in this space includes:
As vehicles continue to evolve into moving carriers of ICT, connectivity and mobility also remain a strategic priority for companies in pursuit of autonomous vehicles. According to a McKinsey report published in 2019, autonomous vehicles "could, at some point, take over most of the automotive market in China" while mobility services "will lead due to the autonomous vehicle's expected increased utilisation ... and lower labour costs (no drivers)".
Both technology and automotive industries are now recognising the need to look beyond the vehicle itself to excel; focusing their strategic ambitions on acquiring talent rather than technology and collaborating with other members of the supply chain.
These shifts, according to the same report, will "change the rules of the game across the entire mobility space, as software and data become fundamental differentiators when building and operating cars".
Some of the tech giants have recently taken the lead in this space by making strategic acquisitions of automotive-focused companies and collaborating with other tech companies. Examples include:
Investments in mobility and connectivity also allow players in this industry to enhance efficiencies and safety, as shown by Waymo's acquisition of Latent Logic as mentioned below. Latent Logic focuses on 'imitation learning', where a machine is taught how to respond to variances on the road by imitating people in action – for example, a car swerving to avoid a pedestrian.
Both traditional automotive companies and tech giants have made various acquisitions over the last few years which could be deemed to be an acquisition of talent, rather than technology. The UK is no exception to this and, at the end of 2019, Waymo, Google's self-driving subsidiary, acquired Latent Logic, an AI company formed by academics at Oxford University. The acquisition gave Waymo its first real presence in the UK and was seen by many as an acquisition of Latent Logic's people. In the US, Tesla's acquisition of DeepScale was seen in the same way.
Arguably, the objective of acquiring people is to benefit both the acquirer and the acquired: the acquirer obtains much-needed talent; while the acquired gains the platform to authenticate its software and systems and the investment to turn them into a reality for the self-driving car.
In order to meet the pace of technological innovation in the connected and autonomous vehicles space, automotive OEMs and suppliers are joining forces with businesses that have track records for delivering next-generation technology.
Pinsent Masons has been exploring the future of mobility
This concept of 'partnering up' is not new, and we have seen many collaborations and mergers of automotive and technology companies. For example, Toyota has made a number of investments over the past few years, most recently into Pony.ai. This acquisition may not simply have been driven by Pony.ai's AI offering: the company secured a licence for self-driving testing in Beijing in 2018 and, as with other automotive suppliers, Toyota is unable to sell self-driving vehicles in China without a Chinese partner. The deal follows Pony.ai's partnership with Via and Hyundai last October to launch BotRide, a 'robo-taxi' service.
There is little doubt that M&A between traditional automotive businesses and tech companies will continue to grow. As David Riemenschneider, an automotive investment expert, said in response to a survey on auto technology M&A during the first half of 2020: "There is still everything to play for in the global race towards connected and autonomous vehicles".
As the auto giants are increasingly competing with tech giants, technology start-ups are attracting increasingly high values and multiples. Because of this we are already seeing, and expect to continue to see, more JVs and partnerships - which are more difficult to establish and to run in the majority of situations, but far more cost effective in terms of R&D and innovation.
As well as more traditional M&A and JV models, we are beginning to see more collaboration between industry leaders who have recognised the need to join forces to create industry-accepted approaches, following the example of HERE. Examples include:
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