Auto-tech focus moves away from self-driving cars

Tesla control system Photo: Shutterstock ASAP Creative

The Israeli auto-tech sector has raised $500 million so far in 2019, with fewer direct investments from the auto-industry and more investments from venture capital funds.

The Israeli auto-tech sector has raised $500 million so far in 2019, not including financing rounds still in progress that have not yet been reported. Together with the money raised in the fourth quarter of 2018, the amount raised is nearing $700 million. An analysis of the investors this year in the Israeli auto-tech industry shows a clear trend towards fewer direct investments from the auto industry than in 2017 and 2018 and an increase in the share of venture capital funds.

There are a number of reasons for this trend, above all the fact that autonomous vehicles are no longer the auto industry's top priority. This "dream technology" fired the imagination of investors and analysts in recent years and sent the share prices of companies in the sector soaring, with riveting forecasts for the medium and short term. It is already quite clear, however, that the length of time needed for self-driving technology to cover costs and generate substantial revenue is quite a bit longer than expected.

Meanwhile, the auto industry is facing far more urgent problems, such as the China-US trade war, which threatens to spread to Europe, and the new stringent targets for reduction of emissions from new vehicles, which will force the industry to make huge investments in developing an electric car in the next three years. Another reason is a major increase in the valuations of some Israeli auto-tech companies, which is making investment in them much more expensive.

Most of the large players in the auto industry are therefore using their local offices in Israel to conduct a careful selection. Others prefer to make their investments through specialist funds that conduct the selection for them.

The vacuum created is being well filled by investment concerns from China. They have become dominant in recent financing rounds, to a considerable extent due to the growing barriers now imposed by the US on Chinese investment in US high tech. Taking into account the close Chinese government supervision of Chinese investments outside China and the strategic and defense importance of some of the technologies being developed by Israeli auto tech, it will be no surprise if it turns out that the Chinese turn towards auto tech is also the result of a deliberate initiative by the Chinese government.

Cyber protection for cars: Waiting for the regulator

At least seven startups and several veteran companies are operating in the vehicle cyber protection segment in Israel. It is no exaggeration to say that this is an extremely competitive and crowded theater in the local auto-tech industry. This inflation is occurring because Israel has highly developed cyber defense technology and a major pool of know-how and personnel moving from the army into the auto field, from defense concerns and civilian cyber defense companies. It can also be assumed that the $450 million "lightning exit" by Argus Cyber Security in 2017 contributed to this development.

All of the players in this crowded sphere, however, are now running up against the slow pace of global regulation in the industry. The auto industry became aware of vehicle cyber defense in the middle of the decade, after the vulnerability of modern vehicles to attacks from outside the network was demonstrated. Cyber defense is regarded as especially critical for autonomous vehicles, which, in the absence of a human driver, are liable to become a remote-controlled weapon. It is also, however, a critical defense layer for non-autonomous vehicles with high connectivity. Tens of millions of such vehicles will roll off the assembly lines in the next few years.

Despite the fact that this technology is already ready and effective, and even though the matter has been on the agenda of regulators worldwide, there are still no global regulations requiring the installation of cyber security in new vehicle series. Some of the responsibility lies with competing lobbying groups, which are trying to push regulators around the world in the direction of their technology, while thwarting their competitors.

A breakthrough could come this year from the US Congress, which has been conducting a particularly intensive debate in recent months aimed at formulating regulation requiring the installation of cyber defense in a new vehicle. The auto industry is receiving an additional push from the legal system, which is threatening to approve class actions amounting to billions for the potential cyber risk for vehicle owners. Meanwhile, the auto manufacturers continue to consider, and sometimes to install, cyber security technologies for new vehicle models and for the external systems installed in them, such as multimedia and vehicle communications systems.

For their part, Israeli startups are meanwhile trying to cover various focused secondary niches, such as cyber defense for railways, ships, trucks, etc. The question is how many of these startups will survive the regulatory upheaval and duplicate the exit by Argus.

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

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

Tesla control system Photo: Shutterstock ASAP Creative
Tesla control system Photo: Shutterstock ASAP Creative
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