How will Israeli innovation contribute to the future of mobility?

While Israel is already known as the “start-up nation”, was all that high-tech translated into the world of mobility? Is Israel also a “self-driving cars” nation?

To dig deeper into that question, I interviewed the founder of the sole Israeli VC focusing exclusively on Mobility — “Maniv Mobility” (Maniv in Hebrew means to bear fruit/produce): Michael Granoff, and his partner, Olaf Sakkers. (Interviews conducted during August 2017)

First, let’s review the evolution of autonomous Vehicles in Israel.

Autonomous vehicles and mobility in general give rise to multiple critical categories:

  1. Localization and hail transportation/ride: find the location of the car, passenger and the route it needs to drive within a map of the near environment.
  2. Communication/connectivity and analytics: transmit and process the data that has been collected by the sensors to make a driving decision within a fraction of a second, while notifying other vehicles of your location.
  3. Sensors and Computer vision: The eyes on the road. One of the critical components of the car is to capture the surrounding and make a decision based on all the data gathered through the sensors (Camera, Lidar, radar, ultrasonic, etc).
  4. Cyber security: Connectivity makes the car vulnerable to cyber security attacks. To protect the car from hackers, the car needs safer protocols and sophisticated software so that no one will have control of the car but the car itself.

(Cyber is the most important topic in my opinion, and you can read more about it on one of my previous posts: )

All the technologies mentioned above might be new to the automotive industry to build self-driving cars, but NOT AT ALL to Israel. Israel has proven itself as a major player in all of the areas above. Elbit and Rafael are two veteran companies in the areas of sensors and computer vision (mainly developing weapon systems). Checkpoint is one of the world’s leading cyber security companies. Mellanox is a leading communications company. They are all leading in their fields and are all based in Israel, employing (and giving top-notch training to) thousands of engineers, some of whom are now thinking about how to apply their knowledge to self-driving cars. In my view, those companies’ expertise are important building blocks of the new autonomous vehicle innovations we see (and will see) coming out of Israel.

Big car companies such as General Motors, Daimler Group (BMW), Volvo, Honda and China’s SAIC Motors, already recognized the talent that Israel has and opened local R&D centers.

Moreover, recently (August 2017) Renault-Nissan announced that it would open a smart-car incubator in Israel. Even Intel joined the race for AV and acquired Mobileye, an Israeli technology company that develops vision-based advanced driver-assistance systems providing warnings for collision prevention and mitigation. Nvidia, one of the leading companies in self-driving cars also opened an R&D center in Israel and for the first time will have their GTC conference in Israel, this coming October.

It’s overwhelming to see how many innovations and companies in the area of self-driving cars rise from Israel in the last few years (see picture below for examples of startups in the field).

Now that we have a better understanding of Israel’s self-driving cars sphere, I’d like to share the insights I learned from Michael and Olaf as experts in this field.

Q: Why do you think Israel is a hub for self-driving cars and why did you choose to invest there? What are Israel’s competitive advantages?

Michael: “Disciplines that have become essential to the future of automotive and mobility more broadly are some of the disciplines that Israel had in the past like machine vision and machine learning, a lot of sensors, software of cyber security and so forth. In our fund a lot of companies are not coming from first-time founders but from seasoned entrepreneurs (with) their second, third or fourth startup, with exits in other areas, some of which overlap to what they are doing.”

Olaf: “Israel is a small country, and you can deploy AVs at very high numbers which creates some network effects to allow for second-order benefits for self-driving cars. At the same time, Israel is a small and innovative country with a really strong tech ecosystem. Outside of the US, Israel is probably the densest tech ecosystem, so those two things can combine with the deployment of autonomous vehicles and a local kind of development community.”

Q: China is the biggest car market in the world. Are there partnerships or interest from Chinese investors regarding Israeli technology?

Michael: “There has been a lot of competition in the last major automotive technology around electrification between China and the US, and Israeli technology is in the middle of that. Now I think we’re seeing the same kind of dynamic and I think that China is going to play a major role in the future of automotive technology and Israel-China axis is going to be very common on that. I think Israel has a lot to offer to China.”

Q: Culture, driving behaviors, rules and conventions in different countries such as Israel, US and China are very different. How do you think Israeli companies approach that and do you think Israel has a disadvantage being far from the market? For example in your portfolio you have “Congnata” doing simulation. How those differences impact a company like that?

Olaf: “I think it’s quite obvious to Israelis that there are different styles of driving and that self-driving cars will have to deal with a variety of driving conditions to reach scale. Cognata is a good example because the system allows that scaling. It’s designed to scale many different cities and test them in simulation and then take a lot of different data sets of driving behaviors and use all of that to allow for self-driving car developers to scale their systems globally. Right now all self-driving cars are being tested in a very narrow set of applications. Even Waymo which has done the most significant range of testing, are only testing in four different US cities. That’s still a very limited range of driving profiles and behaviors.

Q: Israel is already a cyber-hub. Will it also be a car cyber hub?

Michael: “Yes, absolutely. We have looked at 15 automotive cyber companies in Israel in the last few years. We invested in one called ‘Upstream security’ that does security on the cloud.

In this field, there’s not going to be a silver bullet. There are going to be a bunch of different solutions, but we’re being very conservative in our approach to this, because it’s going to be very dynamic and hard to figure out. Cyber is definitely a critical topic: even a simple thing such as putting masking tape on stop signs in various configurations can confuse the sensors. There are many ways of malicious behaviors and you need to protect around that: in the code or the infrastructure or something else in the system. It is going to be a big business to keep these things safe.

Q: Why did you decide to invest in ‘Upstream Security’?

Michael: “(They have a) very specific and dedicated approach to helping fleets protect themselves using the cloud and communications between the fleet vehicles and the cloud that coordinates them. The team is terrific: has done analogous situations in enterprise security. Also, co-investors are “Glilot”, who are one of the leading investors in Israel focused on cyber security.”

Q: What do you think about cyber security regarding to rules and regulations of different countries?

Michael: “It’s very early. There’s a bill in the US Congress which speaks about the need for cyber. I think it is likely that the global regulation will be reactive and it’s hard to predict what it would be reacting to. But I think even more important than that, the public is not going to feel comfortable about automated vehicles unless they have a sense of security and a sense of comfort that they are protected from bad actors.

It’s a complex topic. There are a lot of responsibilities on the manufacturing level and at the service provider level and a lot of room for smart, creative innovators to get involved in filling all those needs. I’m confident that it’s not going to prevent this revolution from happening, but still (regulation and cybersecurity) is going to be a very big topic.”

Q: How do you think regulation will influence where R&D will be done?

Michael: “We’re seeing a bit of competition within the US on this topic. A couple of states such as Nevada and Florida are in the forefront of creating regulatory regimes to encourage development to come to their states. Globally, the UK has been aggressive as has Singapore. I think it’s a big opportunity for Israel and this is something that the government starts to pay attention and recognize. The US bill I referred to would create some harmonization of regulation across the US so you would not have a situation that a car could not cross across the states line because of different regulations.”

Q: Intel CEO, Brian Krzanich, points out in a recent article that each autonomous vehicle will be generating ~4TB of data a day. Do you think the current computing HW, storage and software are ready for this load? If not, where will the most significant improvements be in the future: in the computing HW (semiconductor industry)? In cloud storage and communication speed? In getting smarter algorithms that do not require collecting that much data and can pinpoint more on the relevant data?

Michael: “The simple answer is all the above. There is no end to the volume of the data that will be collected with all the sensors and all of the software. We are seeing a beginning of this already, with companies such as “Nexar”, from our portfolio, that is able to figure out what of the data is significant and what is unusual and should be preserved, and transmitted to the cloud — just the relevant data and not the whole bulk of it.

Otonomo” in our portfolio is another company that monetizes this data in the cloud that is another element to it. All of these things are coming to play, and this is the area that might be the most interesting right now in terms of opportunities around this business because this data is beginning to come in huge volumes”.

Q: Daimler’s head of Group Research & Mercedes-Benz Cars Development, Ola Kaellenius, said he thinks self-driving taxis are the only way forward, because privately owned self-driving cars would be too expensive, at least in the beginning. What do you think on this topic?

Olaf: “The cost of shared mobility services is relatively lower than the cost of owning a vehicle. Autonomous might be more expensive initially and shared autonomous vehicles will be significantly cheaper. Consumers are cost conscious, I think, and when given a choice between an Uber or a slightly cheaper Lyft they will choose a slightly cheaper Lyft. It is hard to compare the decision of buying a car and using a car on an on-demand basis, but if the on-demand basis is significantly cheaper a lot of people will shift.

Finally, I think there will be other benefits for autonomous vehicles that will push people towards them, such as you don’t need to park with autonomous vehicle nor have to spend any energy driving the vehicle, so you’ll be able to do other things. The downside, compared to owning your own car, is sharing but I think overall, the various benefits will shift a lot of people toward the autonomous vehicle solution once the technology is ready.”

Q: What do you think is the role of startups in self-driving cars vs the role of the big companies? Is there things you think big companies can only do, and other things only startups will be doing?

Michael: “The question is whether the car manufacturers are well positioned to survive or to thrive in the new environment, whether it’s the technology companies such as Google or Baidu or whether it is startups or Uber and other ride hailing companies. I think they all have their advantages and disadvantages.

It’s proven that it’s not easy to scale on manufacturing and therefore even if we have fewer vehicles that have higher utilization rates, the factories and the OEMs are not going to go away. There might be consolidation, and there is still an open question as to whether they will continue to be brands. In a world in which you have mobility as a service on demand (there’s still a question if) people pay more or less attention to the type of vehicle and whether the features that matter have to do with traditional OEM manufacturing or have to do with the digital layer added on by a technology company. Those are all open questions and the automotive industry is recognizing that this disruption is happening and tries to respond to it.

One of the reasons we invest in early stage startups is because we find it easier to figure out what technologies are going to be relevant to the future, than figure out who is going to be the integrator and who is going to be the supplier to the end user. We are going to help our companies try to continue developing technologies and get them into the selection.”

Q: By now AV is a sort of a hype. Do you think Israeli startups have come to their peak or it’s just the beginning?

Olaf: “It’s always hard to tell when you are in a bubble mentality or when companies are legitimately interesting and get lots of investment because of real value. The fundamentals here are extremely good: there are a billion cars in the world, and the utilization of these assets is on average about 5%. Imagine you’ve got a factory that’s generating a billion different parts and has a trillion dollars’ worth of capital investment, but it’s only operating at about 5%. Anybody with sense would want to try and find ways to improve efficiency and utilization. That’s on top of the fact that more and more people die every year in car accidents, and billions of hours are lost in productivity just through waiting in traffic jams.

The danger of the hype is around timing. People believe this technology is about to be deployed on a mass scale and that’s just not the case. The technology is very difficult technically: there are still a lot of scaling issues related to fundamental technology. There could be a correction to the hype because people are overestimating the readiness of this technology, but the fundamentals are very strong, and it’s a great time for us to invest, especially in the seed stage, which is less crowded and we as a fund can add a lot of value.

Q: When do you think we will see the first self-driving car?

Olaf: “The problem state of the entire world is too broad and complex for computer systems to deal with. All the exceptions create a very long tail of edge cases, so you have to narrow the problem. One way in which you can narrow the problem space is to geo fence the area to which autonomous vehicles can be deployed, and the other way is by limiting the functionality of autonomous systems: that’s why we have L3 (level 3) and L4 (level4). The first case is “everything somewhere”, so the autonomous vehicle can act autonomously but in a limited geographic area and the second case is “something everywhere”, so the vehicle can do something autonomously everywhere but there’s no full autonomy. Those things are already happening and will continue to happen increasingly and incrementally.

If I want to put my money on a number, I would say that in 2025 I would expect (fully) autonomous vehicle services to be commercially available and maybe sooner.”

Michal: “We already see Waymo operating in Arizona also GM in SF. The question is when will it become mainstream. I think the key measure as to when this revolution will have really occurred is when the majority of miles traveled are done in vehicles that are computer driven and I think that will happen in 2030, that’s my guess. How fast this will happen is not clear, but it’s really only 12–13 years, which is anyway pretty soon.”

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