Competition Heating Up for Automobile Technology

April 7, 2016

Competition Heating Up for Automobile Technology Photo

Last week, Elon Musk, founder and CEO of Tesla Motors, unveiled Tesla’s newest vehicle, the Model 3. The $35,000 electric automobile, which is still a prototype, generated tremendous buzz – and received over 275,000 pre-orders (worth almost $10 billion) in just two days. Impressive for a vehicle that is not expected to begin production until late 2017. While Mr. Musk enthused that “you will not be able to buy a better car for $35,000,” real details on the Model 3 were sparse. Based on the prototype’s lack of traditional dashboard and instrument cluster and a steering system that, according to Musk, will feel “like a spaceship,” many believe that Tesla will announce plans to integrate a fully autonomous driving system into the car in “Part 2” of the vehicle's reveal, which is expected to happen sometime next year. This is all pretty cool for an electric car in this price range that will also do 0 to 60 mph in less than six seconds and has a driving range of over 215 miles.

This announcement and the excitement surrounding it previews an automotive arms race that is heating up. As automobiles become much more reliant on computer technology, the industry is beginning to garner attention from traditional automobile industry players and newcomers alike. Excluding the now-public Mobileye (NYSE: MBLY), which raised a huge $400 million in 2013, 2015 was the most successful auto tech fundraising year in recent history. According to CB Insights, investors deployed $409 million of venture capital in auto tech companies across a record 41 deals – a 154% jump in funding and a 58% increase in deals in 2015 from the prior year. This investment pace shows no sign of slowing.

Investments have targeted such automotive technologies as:

  1. Assisted driving/autonomous software
  2. Driver safety tools
  3. Driving data/connected car
  4. Fleet telematics
  5. Vehicle-to-vehicle communication
  6. Cyber security

This push for innovation in the auto industry has been driven by a number of different players. Aside from the auto manufacturers, their venture groups and traditional VC firms, some of the more active investors in the space include technology players Intel and Qualcomm, automotive supplier Magna, oil and lubricants company Castrol and mobile technology company Nokia. These investors recognize significant change is coming to the industry and are all trying to position themselves to capitalize on it. The innovation that is born out of these ventures has already started to, and will continue to, trickle down into the vehicles that we purchase/operate in the near future.

Key Takeaway: When will the next generation of automotive technologies go from science fiction to commonplace, and when will they find themselves in our automobiles? No one knows for sure. What is certain, however, is that based on the technologies that are currently being developed, the driving experience over the next ten years will look drastically different from that of the prior ten, and those with the ability to spot these trends early will likely be rewarded with strong investment returns.

And on a side note, congratulations to the 2016 Men's Collegiate National Basketball Champions – the Villanova Wildcats. Way to go, Cats!

Tags: Chart of the Week | Venture capital | Technological change | Elon Musk | Tesla | Mobileye | CB Insights | Automotive

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