The Israeli auto-tech sector is refusing to downshift. The announcement by startup Innoviz of the signing of a contract to supply light imaging, detection, and ranging (LIDAR) components to BMW shows that several startups with the potential to become unicorns are operating under the radar, as it were. Financing rounds and deals by Israeli auto-tech companies, including shared transportation companies, but excluding the Mobileye deal, totaled over $400 million in the first third of 2017. This, however, was only the start of a huge flow of investors from overseas and Israel, who poured money into the sector last year.
The fact that we are at the end of the first third of 2018 and that financing rounds and deals in the Israeli auto-tech industry this year are only in the tens of millions of dollars should come as no surprise. As the hype from the Mobileye deal subsides, investors are realizing that an exit on this scale in a country like Israel was a one-time event. Investors are also gradually coming to understand that despite the optimistic timetables for commercial launching of a completely autonomous vehicle (around 2021), there are substantial technological, regulatory, and psychological obstacles on the way to this goal (to wit, the Uber incident in Arizona).
High performance at low cost
Innoviz's segment of laser sensors for safety systems and advanced driver-assistance systems (ADAS) is only one element in an entire system of advanced sensor technology currently being evaluated by the auto industry. Even in Israel, there are quite a few startups with competing radar, infrared, and other technologies. We will nevertheless take a chance and say that Innoviz's announcement is a seminal event in the history of the Israeli auto-tech sector.
Before you accuse us of being too dramatic, consider what "WirtschaftsWoche," an important German business newspaper with good connections in the German and global auto industry, wrote the day after the deal: "The startup from Tel Aviv, which was founded only in 2016, has spontaneously focused on the auto industry. According to our experts, Innoviz's technology has the potential to put the company in the forefront of autonomous driving technological revolution in the same manner as the multi-billion dollar Mobileye deal."
What makes the stolid Germans so enthusiastic? There are several reasons, above all the technology-cost ratio offered by Innoviz's solution. Laser sensors, which measure distance and speed and map objects at high resolution through light waves reflected at various speeds, have been around in the military industry for many years. They also been used in autonomous vehicle sensors, but the most common solution up until now has been based on moving sensors performing a 360-degree scan of the surroundings. This is a rather physically awkward solution - everyone is familiar with the large "hat" currently worn by test autonomous vehicles on the roof. It is also very expensive - tens of thousands of dollars per unit.
In recent years, accelerated research and development of solid-state (no moving parts) LIDARs has begun, but until recently, most of the solutions in this area included very complicated components costing thousands of dollars per unit. In contrast, Innoviz's solution is a compact silicon-based mass-produced unit designed to cost a few hundred dollars per unit when large quantities are ordered, while still offering serious identification ranges, a broad field of vision, and the high resolution in analyzing small obstacles essential for an autonomous vehicle.
For the auto industry, which scrutinizes every dollar it spends, this is a significant advantage. It is not a super-complicated solution whose price restricts it to a few luxury vehicles; it is an accessible shelf product for use in mass production auto assembly lines. In the future, it can lower the consumer price of a completely autonomous package to a few thousand dollars per consumer.
Despite its young age, Innoviz was smart enough from the beginning to invest the money it raised in setting up an assembly production line for parts around the world in a solid business and financial partnership with Magna, an important auto industry supplier operating as an integrator for the auto manufacturers.
Innoviz, however, is not confining itself to the development of "iron bars" (or silicon bars) of lasers; it is also developing the "brain" for them - advanced machine vision software based on artificial intelligence that improves and accelerates capabilities for identifying obstacles, categorizes them, and "learns" from experience. The company has set up a separate division for this purpose, a startup within a startup, that focuses specifically on developing machine vision and enables the company to offer the auto industry a tempting holistic package.
With all due respect to technology and vision, we are a business newspaper, so there is no avoiding a little talk about money. We will start with the market potential. Fully autonomous (Level 5) vehicles are in the rather distant future, and most of them will be luxury status items with limited production in the first stage. In the not-too-distant future, however, Innoviz's LIDARs will be part of the sensory system of Level 3 autonomous vehicles, which accommodate autonomous driving on specific roads. This increases the market potential for auto manufacturers to hundreds of thousands of units per year and the revenue for the suppliers to tens of millions.
Keep in mind also that even though last week's report referred to a specific deal with BMW, a highly respectable manufacturer in its own right and even a technological leader in the auto market, this is only the tip of the iceberg. It can definitely be assumed that Innoviz has already signed contracts, or is in the process of doing so, to supply its product, in cooperation with Magna, to many auto manufacturers yet to come out of the closet by making public statements.
The company's sensors and accompanying software have the potential to penetrate many other markets outside the auto industry. These markets already poured substantial amounts of money into this sector before the dawn of the autonomous era, e.g. the industrial automation market, the aviation security market, and so forth.
Do not forget the potential for using this technology for the purpose of mapping and building geographic databases for the auto industry, in which Mobileye-Intel and others are now investing billions of dollars, as well as other potential vertical markets. We merely note that up-to-date studies say that the total global LIDAR market will exceed $40 billion in less than 10 years, with an average annual growth rate of 17%.
A bargain price for now
The red-hot market potential of LIDARs has not escaped the attention of the world's investors. At least two of Innoviz's competitors that have presented similar solid-state-based LIDAR solutions for an autonomous vehicle are already official members of the unicorn club. The value of US company Quanergy, for example, is an estimated $1.6 billion, while Canadian company Leddartech's recent financing round was held at a company value of $1.33 billion.
Innoviz, which has now reached a very advanced stage in development, production, and commercialization for strategic customers, such as BMW, and which some will say has a substantial lead over its competitors, held its most recent financing round late last year at a company value of "only" $250 million.
Two things can be learned from this gap in pricing. The first is that Innoviz's next financing round, if and when it takes place, will be at a much higher value, possibly as much as $1 billion. The second is that Innoviz in its current state is something like a "business torch" that draws investors with voluminous pockets from the top level of auto manufacturers and suppliers. It can be assumed that these companies will be interested in acquiring the entire package at a serious price that is still a bargain in comparison with the current pricing of the competitors in the market.
We will not be surprised if such offers are already on Innoviz's table. Officially, the company is saying that it has no plans to sell, and that they "are enjoying the business," but such declarations have been heard more than once in the past, and everyone has his or her price.
In any case, even if the company reaches the billion-dollar threshold or close to it, on paper only, it will still have a positive impact on the entire local auto-tech industry, especially its sensors and machine vision segment, in which Israel currently has dozens of companies, and will signal to investors and customers all over the world that Mobileye was not the end; it was only the beginning.
Published by Globes [online], Israel business news - www.globes-online.com - on May 2, 2018
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