How Automotive OEMs Partner with Startups to Create New Opportunities

Published in

The Startup

8 min readMar 4, 2019

Build your strategic approach to partnering with different types of startups to ignite innovation and find new tools for monetization.

Why do auto manufacturers need stable startup partners?

The tech revolution is in full swing, and carmakers have to adapt. It’s not the strongest that survive, or the most intelligent, but rather those most responsive to change. Making fast and bold technological moves is not a particular strength of major automotive manufacturers. That’s why OEMs need startups to innovate and lead the digital transformation. On the other hand, startups need corporations to grow and keep their operations rolling. So partnering is a win-win scenario.

Source: Crunchbase

The biggest car manufacturers, including Ford, BMW, Toyota, and General Motors, have already teamed up with startups over the past five years. Ford, for example, has acquired the Chariot shuttle service, while GM has bought Cruise Automation to advance the development of autonomous vehicles and get an edge on the automotive market.

“Cruise provides our company with a unique technology advantage that is unmatched in our industry. We intend to invest significantly to further grow the talent base and capabilities already established by the Cruise team.”
— Mark Reuss, Executive Vice President of General Motors

So let’s dive deeper into the subject, defining strategies for OEMs to follow when they consider partnering with startups and possible challenges they’ll need to overcome.

Types of automotive startups

First, it’s necessary to understand that not all startups are created equal.

There are over 260 startups in the self-driving car industry. But partnering with just any on this list won’t do the trick. Only in-depth analysis of a startup’s focus and potential will let OEMs decide on the best match to strengthen their market position.

The future of automotive is in increased mobility, use of location data and services, advanced human-machine interactions, cybersecurity, IoT platforms, driver safety, and mapping solutions. These technologies provide high-quality car sharing experiences and support autonomous driving. The goal is for an OEM to find an up-and-coming company that has proven able to innovate quickly and at low cost. According to the CrunchBase data pool, there are over 1,000 automotive startups that have received $26+ billion in funding since 2012.

Most of these automotive startups are in a single technological vertical, centered on mobility issues such as carpooling, use of electricity to power cars, and AI connected automobiles.

Source: Crunchbase

Automotive OEMs can greatly benefit from cooperation with startups in three main areas: hardware, middleware systems/platforms, and applications. There are also different ways to go about setting up cooperation with startups after choosing the one or several areas of expertise that require outside input.

Hardware startups

Hardware startups are developing breakthrough automotive hardware and successful products like sensors for autonomous driving. Unlike software companies that can stay afloat with only several developers, hardware businesses find it more difficult to gather teams. Such startups need hardware engineers, product designers, and software developers to make things work. As hardware is expensive and complex to build, it requires greater effort right from the beginning. Teaming up with hardware startups gives OEMs immediate access to a critical talent pool.

Middleware system/platform startups

Middleware systems or platforms in automotive are like operating systems on any device. They make all the software and applications cooperate, permitting smooth communication and data management. An increased need for middleware systems has emerged because of the ever-evolving demand for in-vehicle applications and software solutions.

Application startups

Automotive application businesses usually start with an idea. They offer a unique approach to solving routine challenges with the help of in-car software and apps. Application startups focus on delivering breakthrough solutions and bringing innovation to the field they’re operating in. Approaching an application/software development startup, OEMs get a pool of creative minds ready to build a quality product.

Car manufacturers and automotive startups: why, when, and how?

The relationship between automotive manufacturers and startups is not an easy one. To understand the complexity of these relationships and draw on positive experiences, we need to look at both the benefits and drawbacks of having a startup partner.

The need for a stable startup partner is not just a gimmick. The issue here is that it can take up to seven years for an OEM to develop a car. While for a startup, it may take just a year to develop a piece of hardware or a few months to create an application. And once cars roll out for production, they can be driven for decades. Losing a technology partner that developed a vehicle’s key components can be costly for the car’s continued maintenance and the OEM’s brand image.

The increasing drive to roll out self-driving cars is one of the main factors in deals between car manufacturers and automotive startups. CB Insights informs that 46 corporations are now working hard to push autonomous vehicles live, including such world-established names as Tesla, Apple, Daimler, Nissan, Audi, Jaguar, and all the other automakers mentioned earlier in this article. Their efforts, however, become more significant when partnering with autonomous car startups.

The pros of partnering with startups

Corporations can scale faster with the help of small businesses. Startups provide access to cutting-edge technologies, dedicated teams, and, as a result, faster releases. Innovation is a proven way to provide future competitive advantage. So to defend their strategic positions and stay on top of market developments, corporations should partner with external innovators that are more open to truly disruptive technologies and solutions.

Plus, by not cooperating with new solution providers, OEMs risk missing out on potential sources of revenue. Startups, with a strong focus on disruption and fewer overhead costs, are an answer.

Startups can also bring an agile culture to old-fashioned organizations. In today’s business world, it’s extremely valuable to foster an entrepreneurial culture and openness to innovation and new, creative business processes.

The cons of partnering with startups

Not every automaker–startup deal ends well. Choosing the wrong partner can cost a company a fortune, so it’s critical to be picky and understand all the risks before taking any serious steps. Take General Motors: their $500 million investment in Lyft two years ago is not paying off today.

Why do such partnerships fail?

Here are some factors that can influence the situation.

Difference in size and structure of a startup and OEM
Offering different products (software vs. vehicle) and divergence in product lifecycle span and production pace
Required constant financial support of a startup and an OEM’s low tolerance for failure
Agility and faster pace brought by startup culture
Integration of several dozen people into thousands is challenging and may not result in success
Sharing/acquiring intellectual property while having different security protocols
Differences in mentality and age resulting in disagreements

Strategies for how automotive OEMs can benefit from cooperation with startups

Acquire hardware startups

Hardware startups are best acquired to get immediate access to the talent pool. It’s essential that the integration process of a startup is integrated slowly. The reason for this is that you don’t want to dismantle the startup culture that attracted talented people. By keeping a startup’s culture intact OEMs have a better chance of retaining new employees in their corporate structure.

2. Establish a partnership with middleware/platform startups

Middleware system/platform startups are keen to get an established partner such as an automotive OEM. Corporations can invest in shared equity while making sure that they have an impact on the startup’s technological roadmap. Most essentially, OEMs need to plan for ways to adopt the products developed by a startup to their needs. Last but not least, OEMs have to be willing to actively promote the newly developed systems among other key market players and consumers to ensure their universal application.

3. Attract application startups

As application startups focus on delivering products and services, they can be easily attracted by seeing them as your customers. OEMs need to ensure that they’re building an ecosystem that is attractive for application and service providers without impacting the mobility of users.

What does the future hold for OEM–startup ecosystems?

By connecting the cautious and slow pace of car development with the fast-paced nature of startups, you may expect frustration in both directions. So why on earth would OEMs continue to attract startups and aspire to create mutually beneficial ecosystems?

OEMs see startups as reliable technology partners to help them innovate, flexible business partners to help them scale, and partners who are unafraid to explore the future of transportation with the help of technology.

Today, there are several large automotive alliances like Toyota in Japan, Fiat-Chrysler in the US, and Volkswagen AG in Germany, to name a few. Every one of them is a large OEM that is trying to build its own advanced ecosystem with the top startups on board. And they can grow and succeed up to a certain point. Then they’ll need to join others to scale.

Drawing a comparison to Apple and Google stories, we see them as the two key players in the mobile ecosystem. Their story was unique as the industry was new and without many players, meaning less competition. Automotive OEMs have no such luxury, as the automotive sector is overpopulated with vendors. In this environment, there’s a clear need for a mega-alliance to build a single mobility ecosystem to rival such tech giants. This can be achieved through mutually beneficial and pragmatic means such as the HERE Open Location Platform, which is a single place to find and use location data and services. HERE gathers a ton of data that can be used for autonomous and future mobility services.

Such mega-alliances may become an answer to the emerging challenges that technologies pose to automotive. Stay tuned to get more insights and don’t hesitate to contact me to discuss this topic further.