Self-driv­ing cars race nar­row­ing road

China back­ing helps Null­max de­tour fund­ing road­blocks

Global Times - Weekend - - AUTO -

Lei Xu and Justin Song for­merly worked at elec­tric car maker Tesla Inc, one of the hottest com­pa­nies in Sil­i­con Val­ley.

But with in­ter­est and in­vest­ment in au­ton­o­mous ve­hi­cles mount­ing, they left to pur­sue what they see as the next big thing.

Their com­pany, Null­max, is one of more than 240 start-ups world­wide, in­clud­ing 75 in Sil­i­con Val­ley, that are at­tempt­ing to de­sign soft­ware, hard­ware and sys­tems for au­ton­o­mous ve­hi­cles, ac­cord­ing to a Reuters anal­y­sis.

Xu and Song are backed by cor­po­rate money, but un­like many of their fel­low en­trepreneurs, they skipped fund­ing from Sil­i­con Val­ley ven­ture cap­i­tal­ists.

Founded in Au­gust 2016, Null­max got $10 mil­lion from a Chi­nese com­pany, Tian­jin-based high-tech equipment firm Xin­mao Sci­ence and Tech­nol­ogy Co.

By seek­ing cor­po­rate back­ing in China, the Null­max founders man­aged to side­step an is­sue fac­ing other start-ups in the sec­tor: While big au­to­mo­tive and tech­nol­ogy com­pa­nies are pour­ing bil­lions into au­ton­o­mous ve­hi­cles, Sil­i­con Val­ley in­vestors have so far been less en­thu­si­as­tic.

Head­lines have been dom­i­nated by old-line play­ers such as Gen­eral Mo­tors Co, which jolted the in­dus­try last year when it bought a tiny San Fran­cisco soft­ware com­pany called Cruise Au­to­ma­tion for a re­ported $1 bil­lion.

Just re­cently, top-tier sup­plier Del­phi Au­to­mo­tive ac­quired Bos­ton­based soft­ware start-up nuTon­omy for $450 mil­lion.

Now, “ev­ery start-up thinks it will get $1 bil­lion” in val­u­a­tion, said Evan­ge­los Si­moudis, a Sil­i­con Val­ley ven­ture in­vestor and an ad­vi­sor on cor­po­rate in­no­va­tion.

How­ever, in­vest­ment in untested start-ups re­mains rel­a­tively mod­est de­spite buzz and lofty ex­pec­ta­tions. To­tal fund­ing of self-driv­ing start-ups from both cor­po­rate and pri­vate in­vestors has barely topped $5 bil­lion, the Reuters anal­y­sis of pub­licly avail­able data shows.

Ex­cept for An­dreessen Horowitz and New En­ter­prise As­so­ciates, few of the big Val­ley ven­ture cap­i­tal firms are heav­ily in­vested in the sec­tor. Only seven of the top 30 self-driv­ing star­tups have re­ceived later-stage fund­ing, the Reuters anal­y­sis shows, an in­di­ca­tion that some ven­ture cap­i­tal­ists are am­biva­lent about the in­dus­try’s po­ten­tial.

Skep­tics note that few of the star­tups are mak­ing money, and es­tab­lished ve­hi­cle and parts com­pa­nies have not demon­strated a clear path to rev­enue and prof­itabil­ity in au­ton­o­mous ve­hi­cles de­spite their big bets in the space.

Also, while the ini­tial wave of self-driv­ing ve­hi­cles is ex­pected to be­gin com­mer­cial ser­vice in 2019 or 2020, ex­perts ex­pect the tran­si­tion from hu­man-driven to au­to­mated cars could take a decade or longer.

“You can de­stroy a lot of value by chas­ing your tail in au­ton­o­mous driv­ing,” said Ser­gio Mar­chionne, chief ex­ec­u­tive of­fi­cer of Fiat Chrysler Au­to­mo­biles.

Cor­po­rate in­vest­ments

US au­to­mo­tive and tech­nol­ogy com­pa­nies likely have in­vested some $40 bil­lion to $50 bil­lion in self-driv­ing tech­nol­ogy in re­cent years, mainly through ac­qui­si­tions and part­ner­ships. The full ex­tent is hard to know be­cause big play­ers such as Al­pha­bet Inc, whose Waymo sub­sidiary is con­sid­ered among the front-run­ners in the seg­ment, have not re­vealed the full scope of their in­vest­ments, al­though it is be­lieved to be in the bil­lions.

Among the top cor­po­rate in­vestors in the sec­tor are Sam­sung Group, In­tel Corp, Qual­comm Inc, Del­phi and Robert Bosch GmbH. Cor­po­rate in­vestors also have backed five of the six self-driv­ing start-ups with val­u­a­tions of $1 bil­lion or more, known as uni­corns.

Whether the in­dus­try will pro­duce more uni­corns is a topic of de­bate.

Two for­mer in­vestors in Cruise Au­to­ma­tion, for ex­am­ple, have di­ver­gent views.

Veron­ica Wu, man­ag­ing part­ner in Palo Alto-based Hone Cap­i­tal, said her com­pany con­tin­ues to in­vest in “quite a num­ber” of self-driv­ing start-ups, while ac­knowl­edg­ing that the tech­nol­ogy will take time to de­velop.

“It’s a mat­ter of when, not if,” she said. “We’re fairly op­ti­mistic.”

In con­trast, Sunny Dhillon of Sig­nia Ven­ture Part­ners, an­other Cruise in­vestor, said his com­pany does not see any at­trac­tive in­vest­ments in the sec­tor right now.

The price paid by GM for Cruise, he said, “made the space very frothy, with ev­ery com­puter vi­sion and ro­bot­ics PhD stu­dent seem­ingly emerg­ing with a new self-driv­ing car start-up.”

In ad­di­tion, he said many es­tab- lished play­ers “al­ready have made their big in­vest­ments [and] ac­qui­si­tions” in the sec­tor, which could limit in­vestors’ po­ten­tial re­turns and en­trepreneurs’ pay­offs.

Quin Gar­cia, a part­ner in San Fran­cisco-based Au­toTech Ven­tures, agrees that the space is crowded and val­u­a­tions are in­flated. There may still be “a se­lect few IPOs, but there will be many fail­ures of au­ton­o­mous ve­hi­cle start-ups” by 2021, he said.

Null­max in China

Those odds haven’t de­terred Null­max founders Xu and Song, who are look­ing to dif­fer­en­ti­ate them­selves.

With many self-driv­ing start-ups look­ing to sup­ply US and Euro­pean au­tomak­ers, the Chi­nese-born en­trepreneurs, whose spe­cial­ties are cam­era-based vi­sion sys­tems and ar­ti­fi­cial in­tel­li­gence, are fo­cused on China. They ex­pect to de­liver the first par­tially au­to­mated sys­tems to Chi­nese au­tomak­ers by 2020.

The US-ed­u­cated en­trepreneurs, both 35, work out of a small shop in Fre­mont, Cal­i­for­nia, not far from Tesla’s home fac­tory. Xu once worked at Tesla as a se­nior en­gi­neer while Song spe­cial­ized in sup­ply chain and qual­ity en­gi­neer­ing. Tesla de­clined to con­firm their prior em­ploy­ment.

Xu said the com­pany em­ploys about 50 peo­ple, most of them in a larger of­fice in Shang­hai. He said the com­pany wants to keep a foot in Cal­i­for­nia, which is a hub of US tech­nol­ogy tal­ent, and where reg­u­la­tors have smoothed the way for test­ing of self-driv­ing ve­hi­cles.

As for how Null­max plans to cash out, Xu avoided that ques­tion.

“We’re pretty busy,” he said. “We don’t have much time to think about an IPO right now.”

The Waymo driver­less car is dis­played dur­ing a Google event in De­cem­ber 2016 in San Fran­cisco. Top: Null­max CEO Lei Xu drives a Lin­coln MKZ sedan equipped with his com­pany’s pro­to­type self-driv­ing hard­ware and soft­ware in Fre­mont, Cal­i­for­nia, US on Oc­to­ber 9.

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