Rivals take aim at Mobileye

Benjamin Netanyahu in Mobileye car  / Photo: Abir Sultan Reuters , Reuters

From Europe to China, alliances of startups, auto manufacturers, and tier-1 suppliers are preparing to challenge Mobileye and Intel with their own ADAS systems.

In August 2019, a well-attended cornerstone-laying ceremony was held for the new large global R&D center of Mobileye, still the market leader in advanced driver assistance systems (ADAS). Those attending included Prime Minister Benjamin Netanyahu, Minister of Economy and Industry Eli Cohen, and Mobileye CEO Amnon Shashua.

A few days later, the foundations were laid for one of the most intensive competitive attacks on Mobileye's global hegemony. The attack was launched at intervals of a few days from Europe, Japan, China, and Israel, but it was not a surprise attack. The ADAS market is now one of the auto industry's most attractive segments, with over $5 billion in projected revenue in 2021 and systems being installed in tens of millions of cars a year.

What really is surprising in this story is the long period of time during which Mobileye, a US-owned Israeli company, enjoyed almost complete dominance, with a 70% market share of this rich global market and no serious competition.

The business model used by Mobileye, in which a closed package of a processor, camera, and logic is marketed, combined with the company's extraordinary power in the market, have put it in a unique position that severed the industry's usual chain of value. Mobileye is ostensibly a tier-2 sub-supplier that merely supplies a single component to a large supplier. In reality, however, it is bypassing the global tier-1 suppliers and supplying finished kits for installation in vehicles. Mobileye works directly with the auto manufacturers, while leaving the tier-1 suppliers only a few crumbs of profit.

This makes the conventional large suppliers grit their teeth - and look for alternatives. It can be assumed that the  revenue reported by Mobileye has only added fuel to the fire. According to reports by Intel, Mobileye's parent company, Mobileye's revenue totaled $700 million in 2018, and grew to $400 million in the first half of 2019.

Competition will now change the rules of the game

The first public indication of what is taking place in the global ADAS industry came last week, from Israel, of all places, in the form of a joint announcement by Israeli artificial intelligence (AI) company Cortica, Toyota, BMW, and major tier-1 supplier Continental of the first financing round in a subsidiary named Cartica, which is commercializing Cortica's auto algorithms.

The announcement did not disclose how much was raised, but the sector believes that the amount was fairly modest, because of the complex structure of the parent company, but that there was also a commitment by the investors to increase their investment in the next round. The announcement also omitted any specific timetable for implementing Cartica's technology in vehicles.

The real story, however, is not the financing round itself, but the significance between the lines.

1. The manufacturers are looking for alternatives

The first important point is that this not just another venture capital investment by auto industry players in an Israeli autotech company; it is a preliminary step for commercialization and actual installation of the technology in ADAS systems in mass-produced vehicles. Partners of this caliber do not usually invest in startups without checking things out thoroughly. A hint of this can be found in what the CEO of BMW's venture capital arm said: "Cartica offers a series of technological breakthroughs for auto manufacturers… this is of huge value before a new system is launched. We believed that Cartica will have a key role in the development of ADAS systems by auto manufacturers and tier-1 suppliers."

Since the timetable for installing new technologies in in the auto industry is very long, it can be concluded that these manufacturers have been looking for an alternative to the next generation of Mobileye/Intel chips for a number of years.

2. A close race for technology lead

The second important point concealed in the announcement derives from the identity of the companies participating in this project. Toyota's involvement in a "conspiracy" against Mobileye is no surprise. The world's second largest auto manufacturer has never been a customer of Mobileye, and announced in 2017 that it was developing, together with Japanese tier-1 supplier Renesas, a chip and logic solution for machine vision with AI for ADAS systems at an autonomy level of 2-4 (from the level of systems such as independent braking to the level of fully autonomous driving, but with restrictions such as predetermined routes), slated to begin mass installation starting in 2020. The system on Renesas's chip, on which Cortica has so far presented its algorithms, is the same system selected by Toyota three years ago.

The involvement of Continental, the largest tier-1 supplier in the auto industry, with 240,000 employees and annual revenue of $44 billion, is also no surprise.

The elephant in the room is luxury auto manufacturer BMW. Not only was it one of Mobileye and Intel's partners in 2017, but BMW enjoys the unique status of a technology leader in the auto industry.

The company operates one of the most advanced engineering and R&D setups in the industry, and has the reputation of an early adopter of future technologies. In other words, what BMW installs today will reach the rest of the auto industry tomorrow. Here, too, it is fairly clear that BMW would not have made the investment had Cartica's technology not passed its lengthy obstacle course.

3. The struggle for market share and quantities

The third important point is the future market shares and quantities that this alliance will generate. The integration of the future ADAS system with Renesas's chip and Cartica's IP in the plan for Toyota's future models can easily culminate in the installing of 15-20 million units.

BMW is not a manufacturer of quantities, but it has always been inclined to buy the most advanced versions of ADAS systems on the market, and these are also the most profitable for suppliers. For its part, Continental has a long list of "heavy" customers in the auto industry, which starting in 2020 will probably be offered an alternative to Mobileye.

4. German company Bosch is also entering the picture

Continental is not the only tier-1 supplier to announce its rebellion against Mobileye/Intel recently. In an announcement that barely made the headlines, but which made waves in the industry, German tier-1 supplier Bosch also announced that it was beginning to offer an integrated unit of a chip, camera, and algorithms with advanced performance for the ADAS market.

The company presented specifications and claimed impressive performance that can compete directly with Mobileye/Intel's 3G and 4G EYEQ unit, at least on paper, in low-to-medium levels of autonomy, which account for most sales in the ADAS market at present, and will continue to do so in the next few years.

Bosch also said that its system supported AI applications, and offered massive computing power. This means that it is probably planned in advance for future upgrading to Level 4, and even Level 5 (full), autonomy, if and when there is substantial demand in the auto industry. In other words, it will compete with Mobileye/Intel's EYEQ5 chip.

Although Bosch and Mobileye are cooperating in technology, mainly in ADAS systems for trucks, the German company has never made a secret of its intention of developing independent ADAS technology to compete with that of Mobileye. The big breakthrough probably came from Renesas with the same system on a chip selected by Toyota.

Bosch's auto division is not as big as Continental, but it is an important supplier and a technological partner of Daimler. Daimler is also a technological leader in the industry, even though its production capacity is "only" 3.4 million vehicles a year. In contrast to BMW, Daimler is also dominant in the global trucks and buses market, which is super profitable and attractive for sales of ADAS systems. Mobileye has concentrated considerable marketing and developing efforts in this market in recent years.

5. The Chinese industry is invading the market

The third attack in recent weeks came from China, where two Chinese startups displayed their own AI-supporting systems-on-a-chip developments for ADAS applications at autonomy levels 2-4.

The first startup was Black Sesame, which accompanied the unveiling of its system with an explicit declaration that it intended to "take market share away from Mobileye." The first generation of its chip is now being sent to customers for testing, with the aim of beginning mass production in the fourth quarter of this year. At the same time, Black Sesame also unveiled the second generation of the chip for Level 5 autonomy, now in development. On the same occasion, it also published a list of partners for its strategy, including Bosch and Chinese auto manufacturers SAIC Motor, BYD, FAW, and others. At least some of these are sizeable customers of Mobileye.

Chinese company Horizon displayed its own AI-supporting chip plus algorithm, which it said went into mass production in August. In line with the usual practice in China, the two Chinese companies claim that their processing performances are "among the best in the market, and substantially outstrip those of the Western competitors."

At least for now, there is no objective way of judging whether there is anything behind these statements. But, and it is a big but, this must not be regarded as just another pretentious attempt by anonymous startups to gain access to investors' wallets. Behind this measure lies a massive push by the Chinese government, which is pouring $5 billion into this sector in order to put 30 million cars with high levels of autonomy and equipped with independently developed chips on Chinese roads in the coming years.

When such a measure has government backing, it means that there is potential for market-breaking prices for ADAS components, with government subsidies and a very large number of captive customers in the auto industry unable to purchase Western products, especially from the US. Most of the Chinese auto industry is government-controlled, and its production capacity is almost 20 million cars a year.

In this case also, the writing is on the wall. In November 2017, "Globes" detailed Mobileye's feverish efforts to conquer the Chinese ADAS market, and the Chinese government's official statement of its intention "to produce a local Mobileye." We warned at the time that quite a few Western companies entering high-profile deals in the Chinese market were discovering that the locals were fast closing the technological and business gap with government assistance, leaving the Western companies lagging behind. This was true even before the trade war. Now that Mobileye is a branch of a US chip company, this warning should be hung from the flagpoles in deepest red.

6. Mobileye is maintaining its orders backlog for installing its system

Despite all of this, a eulogy for Mobileye at this time would be out of place. The company is well positioned for the short and medium term, because the development cycles in the auto industry for new models are long and locked in for several years ahead. Mobileye therefore still has an orders backlog in the millions of units for the coming years.

Mobileye also enjoys the advantage of having installed tens of millions of units on vehicles traveling on the world's roads. This is an asset that can generate substantial revenue in tangential fields such as mapping, vehicle fleet management, etc. Just this month, for example, the company began commercializing its cloud computing-linked Mobileye 8 Connect system in cooperation with the Orange mobile communications company. This system will enable Mobileye to offer byproducts, such as vehicle fleet management and constant mapping of continents, not just countries

It should also be kept in mind that parent company Intel has enough business and economic endurance to wear out its competitors, absorb price cuts, and flood the market, as it has frequently done in the home computer and business market. There is no doubt, however, that in the long term, Mobileye faces a substantial threat, with great upheavals in store. This is especially true in view of the continually lengthening worldwide timetable for adoption of a driverless car.

Published by Globes, Israel business news - en.globes.co.il - on September 12, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Benjamin Netanyahu in Mobileye car  / Photo: Abir Sultan Reuters , Reuters
Benjamin Netanyahu in Mobileye car / Photo: Abir Sultan Reuters , Reuters
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