Using acquisitions to build a tech-first mobility business

Out-Law Analysis | 16 Dec 2020 | 11:08 am | 4 min. read

Automotive manufacturers are increasingly opting to join forces with technology companies in order to remain competitive and deliver the next generation of vehicles.

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.

Beyond the vehicle

Hardware

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:

  • Volkswagen's recent purchase of a 20% stake in Chinese battery company Guoxuan. This deal comes in addition to VW's already existing strategic partnership with China's biggest battery company, Contemporary Amperex Technology, and its brand new JV with Northvolt AB, which will start producing lithium ion batteries in a new factory in Germany in 2023-24
  • EDF's recent acquisition, through a newly-formed JV with Legal & General, of a majority stake in Pod Point, one of the largest electric vehicle charging companies in the UK. Pod Point was founded in 2009 and has become a leading provider of electric vehicle infrastructure, having implements over 60,000 charging points at UK homes, workplaces and for the likes of Centre Parcs, Lidl and Tesco. This deal, together with EDF's 2019 acquisition of grid scale battery and high voltage infrastructure specalist Pivot Power, forms part of its overall plan to become the leading energy company for electric mobility.
Connectivity and mobility

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:

  • the purchase by Accenture, a technology and consulting services giant, of Chinese company FutureMove Automotive. FutureMove specialises in vehicle connectivity software and services for the automotive sector, having previously provided platforms for the likes of BMW, Ford Motors, Volvo and Audi
  • Apple's acquisitions of Xnoi.ai and Voysis at the start of 2020. Although it is yet to disclose its plans, the two start-ups specialise in AI and, respectively, image recognition and voice assistance apps
  • Blackberry collaborating with Amazon Web Services (AWS), Amazon's cloud computing platform, to develop a platform for in-vehicle applications which combines the safety and security of Blackberry's operating system with AWS' Internet of Things in the cloud and in the car
  • Volkswagen's investment into Aeva, a Silicon Valley-based start-up focussing on a new kind of light detection and ranging sensor
  • the joint acquisition by Japan's Mitsubishi and Nippon Telegraph and Telephone Corporation (NTT) in December 2019 of a 30% stake in HERE Technologies. HERE is one of Google's main competitors in the provision of digital maps for self-driving cars and was re-invented when BMW, Audi and Daimler acquired it from Nokia in 2015 to serve as a much-needed platform for location data and technology
  • Berlin-based 'deep tech' start-up German Autolabs announced a new substantial funding round late in 2019. The company created Chris, the world's first voice AI enabled digital assistant for in-car usage
  • Intel's acquisition of Moovit, a mobility-as-a-service (MaaS) solutions company, for approximately $900 million, announced in May 2020. Moovit is known for its urban mobility app which offers travellers multimodal trip planning by combining public transportation, bicycle and scooter services, ride-hailing and car-sharing.

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.

Acquiring people

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.

Partnering

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.

 

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.

The future opportunity

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:

  • the Autonomous Vehicle Computing Consortium, whose members include General Motors, Toyota, DENSO, Continental, Bosch, NXP and Nvidia. Dipti Vachani, senior vice president of UK tech company Arm, has said that the collaboration will "focus on collaborative projects such as improving safety, security, computing power and software. No one company can do all this singlehandedly, or convince people that taking [autonomous] cars on the road is a safe thing to do
  • BMW, Daimler AG, Ford Motor Company and Volkswagen Group have joined together to create a JV, Ionity, to build a high power charging network for electric vehicles along major highways in Europe. Bringing new participants into the project can only help spread the costs and risk and align the industry to this form of charging.
The way we move is changing radically – climate change, superfast telecoms networks, electrification, AI and digital payments are rewriting the transport rulebook. Autonomous and shared vehicles and mobility as a service are fast becoming a reality.