More automotive suppliers these days are finding it’s easier to buy cutting-edge technology companies than to develop the complex systems on their own.
It’s the strategy suppliers increasingly have embraced when it comes to developing or incorporating artificial intelligence (AI), augmented reality (AR) and other technologies into the systems they sell to OEM customers.
Most companies are buying this technology to enhance driver experience and safety and improve automotive convenience, said Michael Carnevale, founder of Grand Rapids-based Carnevale ID LLC, a user experience design and software development firm.
Companies in the automotive sector have started to transition from supplying mechanical components to technology systems “at an incredibly rapid pace.”
“Silicon Valley has taken the lead in AI and driverless cars (Uber, Google’s Waymo, Tesla), with extraordinary driver experience as paramount, forcing the auto industry to play catch up,” Carnevale added in a follow-up email to MiBiz. “The fastest way to catch up is to buy, rather than build in-house talent and technology. And they’ve done a good job at catching up.”
For example, Carnevale cites General Motors’ Super Cruise hands-free driving system in Cadillac vehicles, which many reviewers say even bests systems from Tesla Motors.
With its $581 million acquisition of Cruise Automation, GM is one of three automakers Carnevale sees making a big push into the tech industry, along with Ford Motor Co., which committed $1 billion over five years to Pittsburgh, Pa.-based Argo A.I. for self-driving technology, and Volvo’s commitment to electrify or hybridize all vehicles in its fleet for 2019 models and thereafter.
According to accounting firm PricewaterhouseCoopers, the number of auto-tech deals increased to 15 in the first half of 2017, up from just three in the same period in the prior year. The firm attributed a 16.5-percent spike in M&A activity among component suppliers to the push for more technology-related acquisitions.
Overall, automotive-sector M&A deal values rose 14.3 percent to $24.4 billion on 7.4 percent more deal volume through the first six months of 2017, according to the latest data available from PwC.
From a competitive standpoint, the deals are vital for business, Carnevale said.
“It comes down to the merger of diverse cultures,” he said. “How well is the management suited, culturally, to exploit their new technologies, and to integrate them into new and existing vehicle design/production cycles? How well do they understand their Silicon Valley partners’ pace of business, pace of innovation, and pace of failure?”
SEEKING OUT TECH
The auto-tech dealmaking has also pushed out of Silicon Valley and into pockets nationwide, including in West Michigan.
Case in point: Global automotive supplier DENSO International America Inc. acquired Holland-based startup InfiniteKey in December 2017 in a move to improve its technology portfolio.
InfiniteKey’s phone-as-a-key technology eliminates the need for physical automotive keys, allowing drivers easier interactions with their vehicles.
The transaction included several InfiniteKey patents and R&D resources, which DENSO executives cited as being more advanced than what they had developed in-house.
“Their methodology was really superior to ours,” said Bill Foy, senior vice president of engineering at DENSO’s North American headquarters in Southfield, Mich. “For us to do what they were looking to do, we would infringe upon that patent, clearly.”
Acquiring InfiniteKey “offered definitely a technical advantage” for DENSO, he added.
“Once we started to look at InfiniteKey’s (technology), we could see that they had some ways to do things that we were trying to do, (but) in a more efficient, innovative way than we were doing for a portion of the function we wanted to be able to offer,” Foy said.
Former InfiniteKey CEO Kevin Virta, who remains with DENSO after the transaction, said the increasing pace of auto-tech deals is a recognition that technology firms are much more nimble in reacting to consumer trends than legacy automotive suppliers.
“Large companies recognize that innovative startups can move quickly on new technology and can innovate sometimes faster than they can because they don’t have the burden of current customers and production programs,” Virta said. “As all the car companies and Tier 1s try to figure how they are going to participate in that future world, they are looking at young technology startups.”
INVEST FOR THE FUTURE
In other cases, automotive suppliers have opted for investments in tech companies based in West Michigan.
Faurecia Ventures, the Silicon Valley-based investment arm of global automotive supplier Faurecia SA, invested an undisclosed sum in Holland-based AlSentis LLC, a developer of touch-control technology, as MiBiz reported in December.
For AlSentis, which first entered the automotive market in 2013, the investment will help the company push its technology further into new vehicles.
As well, the move helps automotive seating and vehicle interiors supplier Faurecia access emerging technologies in the next generation of connected and smart vehicles. In the future, AlSentis can provide Faurecia the human-machine interfaces, or HMIs, for functions such as seat and climate controls in the auto interior systems.
The company’s capabilities offer Faurecia “an important enabling technology for the future,” Rob Huber, vice president of innovation and ventures for Faurecia Ventures, told MiBiz at the time.
“As things go from the driven vehicle of today toward the connected vehicle and ultimately more toward autonomous, we see that opportunity to create new opportunities for various ways for interacting with occupant and passengers in the vehicle,” Huber said.
Global research firm IHS Markit forecasts more than 33 million autonomous vehicles will be sold globally in 2040, with the U.S. volumes of autonomous vehicles expected to reach 7.4 million units.
AlSentis also serves as an example of a locally-developed technology that’s made inroads into the global auto industry. The company was founded by Dave Caldwell, who once worked in R&D at General Motors and later worked on thin films for the former Donnelly Corp. in Holland. He currently serves as chief technology officer at AlSentis.
Start Garden, now Wakestream Ventures, provided early seed capital for AlSentis.
Additionally, Faurecia’s investment in AlSentis resulted from the two connecting through their involvement in the Seamless business accelerator in downtown Grand Rapids, where the two developed a proof of concept and became familiar with each other’s capabilities.
DEALMAKING TO CONTINUE
Although PwC projects dealmaking in the auto-tech sector “to continue to make headlines” for the foreseeable future, the firm cautions automakers and their suppliers to be mindful not to focus too much attention on those deals while ignoring other aspects of their business.
Meanwhile, DENSO’s Foy said he expects the pace of dealmaking will increase more quickly in 2018, continuing the trajectory from recent years.
“Companies that are around North America or in Silicon Valley are innovating at a faster speed than we are in some particular areas,” Foy said. “Rather than us try to develop something completely on our own, which is probably more of our old style, we are leveraging external resources and external R&D in order to get the speed.
“Whether we talk about autonomous drive or shared mobility … the market is moving at a very rapid speed, and you can see lots of acquisitions that are occurring, especially around autonomous drive. Companies recognize that this is going to happen faster than they were preparing for internally.”
The shift to acquire technology makes sense to tech industry veterans like Carnevale at Carnevale ID, who sees “the integration of augmented reality features” as playing out in the industry as well.
“Nearly every automotive company has a similar story: Traditional company sees the writing on the wall, acquires AI and/or self-driving car company,” he said.
MiBiz Senior Reporter Mark Sanchez contributed to this report.