Patrick Gilday
Jul 2 · 5 min read
Courtesy of Tom Chen

The automotive industry as a whole is known somewhat ironically for being very slow when it comes to big changes, which can be highly frustrating for entrepreneurs. The value chain has been rigid for many years and many attempts to disrupt it have failed. However, there has been a rise of industry based VC’s spurring innovation and the sector is now poised for a larger shake up.

Tech crunch noted a while ago that deal making had yet to concentrate on any sub sector. However, we have seen the massive growth and exits of ride apps and a striking increase in auto related seed rounds (38 in 2017 vs 6 in 2015). The reverberations of this increased activity have been felt more strongly in the huge recent rounds of Nuro and Aurora, both making it into the top 5 financing rounds for Q1 2019 in the Americas at $940m and $530m respectively. Innoviz, providing vision intelligence for autonomous vehicles made the top 10 in Europe, raising $132m in the same quarter, while Grab topped the list of APAC financing rounds (second in all rounds globally) at $4,500m, followed byShanghai based electric car company Weltmeister making the top 5 with $446m. The other change emphasized by TechCrunch was involvement of the big auto players in startup investing. BMW was the clear winner with more than 30 investments since 2012 including a $38 million Series C for Shift, and a $159 million Series B for Nauto.

Clearly things are now moving, but to better examine what venture opportunities we are likely to see next, we must first look at what is driving change in the industry and here there is a clear restructuring: the customers will be in charge. Specifically, we will see a move from emphasis on the product to customer experience. What was once the centre of the industry, the car will now become a part of the wider ecosystem. As Gabriel Seiberth, director of Accenture Digital, recently pointed out, marketing will move away from selling a product to demonstrating a superior experience beyond the point of sale and, almost inconceivably for an industry once based on status signals through model ownership, the new experience might be one with little to no ownership involved. Speaking last year to Suzy Bashford, Seiberth Emphasized “instead, it’s about shared models and mobility as a service, rather than mobility as a product.”

The Amazon effect plays a part here too — customers now expect premium service, so brands must market a service that goes beyond the traditional point of service. End to end experience is what really counts. Continuing on the trend of tech titan influence in auto we are also beginning to see an ‘Apple effect’, BMW for instance are employing experts in flagship stores to inform rather than sell, adopting the Genius model of the Apple Store. For the OEMs, this change — both improving the experience of the customer and their own digitization — will be essential for revenue capture and competing successfully going forward: Accenture projections state that by 2020, for an OEM with $55 billion in annual net revenues, digitization could unlock more than $2.3 billion in new value and a further $2.8bn by 2025 Consumer centrality, mobility as a service and digitization permeating the entire industry will drive combine to produce some clear customer centric trends over the next 5–10 years:

  1. Autonomous and electric: PWC expects autonomous driving to account for 40 percent of overall traffic within the next 12 years, fears over safety will diminish as a result. Many of these new models will be electric or hybrid embracing a welcome and move to environmentally friendly and resource efficient travel, increasingly demanded by consumers.
  2. Beyond just a vehicle: from personalized journeys and advanced infotainment, to algorithm-based insurance premiums and vehicle-to-vehicle communication, as well as real time data telling a driver when maintenance or software updates are needed etc. More IoT enabled data capture, will further boon flexible on-demand multimodal mobility solutions. This in turn will dovetail with new policy initiatives to promote streamlined and sustainable urban transport and infrastructure.The result will be more productive journeys; think less of a car, more vehicles as a mobile marketplace as Forbes recently discussed, enabling ease of control from fuel and parking, navigation and alerts on preferred dealerships, to food ordering, restaurant reservations, hotel bookings and payments.
  3. Decline of traditional ownership: The trend will be compounded by a generational shift foisted by millennials and Gen Zers who are expected to emerge as the biggest customers, and the rising preference for access to, rather than ownership of, a vehicle. Millenials and especially Gen Z will become the key influencers of the industry, OEMs will have to leave behind traditional vehicle features, design and capabilities to fit with new demands. As discussed, subscription services will be a massive part of this — Forbes highlighted in the US alone over 16.3 million new and used vehicles are set to become part of the subscription universe as soon as 2025. Beyond the names already discussed it is worth further mentioning Ford’s pay-as-you-go service GoDrive (which offers guaranteed parking in London), and cars on demand club, Zipcar. PWC, make plain just how big a transformation this will be, highlighting that by 2030, 1 in 3 kilometers driven will involve sharing concepts.
  4. New business models: the trends above will produce a variety of new business models in automotive, including freemium, (offering connected features are as demo, charging one off or as part of a subscription) and monthly and yearly payment models. A great example is Audi’s new eTron launch strategy of offering an à la carte menu allowing the customer to buy connected features on demand (again a focus on wider personalized experience beyond the initial sale with the customer at the centre)
  5. Digitization in manufacturing: moving away from the vehicle into the wider value chain, we are beginning to see systems which allow for the sharing of real-time data analytics, 3D printing, deployment of ‘cobots’ (collaborative robots) and ‘machine vision’ which ascertains safety are all disrupting the traditional production lines — increase efficiencies and lower costs.

Venture investors will be met with a wealth of opportunity in the sector over the next decade, these will take the form of direct industry startups such as Weltmeister and of course the adjacent and shadow markets as shown with the ride hailing apps. As with other industries, it is often these shadow markets that new technology helps unlock or create where the greatest opportunities lie.

Changes in both alliance models (moving away from peer to peer competition, to alliances between manufacturers, suppliers and service providers, as well as with broader infrastructure players) and the product value (increasingly defined by technology catering to software-enabled consumer value, cybersecurity, data privacy and integrated mobility services) will present a variety of new opportunities for investment. As with the OEMs themselves, investors who are perceptive enough to recognize new business models and agile enough to nurture them will see the best returns. In an industry once known for slow innovation, venture investors will now have to move quickly to catch the next Uber or Grab.

Speedinvest

We are a seed investor that offers both capital and operational resources.

Patrick Gilday

Written by

Speedinvest

We are a seed investor that offers both capital and operational resources.

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