Israel's auto-tech industry attracts NIS 65b in 2017

By GLOBES/DUBI BEN-GEDALYAHU
November 29, 2017 08:31

Israel's auto-tech industry is buzzing as Mobileye is installed in Chinese buses, startups close large financing rounds and carmakers open offices in Israel.




Un véhicule équipé de la technologie Mobileye

A vehicle equipped with Mobileye technology. (photo credit: COURTESY MOBILEYE)

One figure stands out in the Israeli auto tech sector for 2017: Israeli smart car and shared transportation companies generated NIS 65 billion in exits, investments, and capital raising. This is two and a half times the volume of exports by the defense industry, Israel's leading industry, in 2016.

The most prominent deal, of course, was the sale of Mobileye to Intel for over $15 billion. Before that deal, only professional engineers in the auto industry knew what was being done in the Israeli auto-tech niche. After it, Israel is already appearing on the official map of hot spots of global investment leaders and senior auto industry executives.

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Although we are at a time when summaries of 2017 are being issued, the truth is that it is difficult to summarize activity in this sector at the current time. First of all, it will be no surprise if several more interesting announcements are made even before the end-of-the-year business break. Secondly, this business and technology theater is constantly changing and advancing at a dizzying pace. We will therefore postpone the summaries and retrospectives, and merely provide a glance at the future.

Mobileye's potential in China

Mobileye is no longer an independent public company, and therefore does not issue separate reports of important business events. This does not mean, however, that things have calmed down on its business front. On the contrary; one of the interesting developments is currently taking place in the Chinese bus market. Several months ago, the Chinese Ministry of Transport announced that starting next year, new buses would be required to install advanced driver-assistance systems (ADAS) that include alerts when another vehicle is too close and when the bus is drifting out of its lane.

This market was created almost overnight under the regulator's sponsorship, and its potential is enormous. Nearly 500,000 new buses in various categories are built each year in China. The electrical buses niche alone, in which most of the ADAS will be installed in the first stage, amounts to 115,000-130,000 units annually.

Mobileye, which has been in China for a long time, and took part in government ADAS trials, is now reaping the rewards. Senior company executives recently officially announced cooperation with Yutong Bus, in which Mobileye's warning systems will be installed in all of the company's new electric buses in the coming years. The Chinese press also reported similar agreements with bus manufacturers Golden Dragon and Higer. These three companies alone represent hundreds of thousands of potential installations in the coming years.

This story appears to also have another Israeli angle. These three bus models are currently in the Israeli market, and since Chinese buses currently have a large share of the local market and are also entering government transportation companies at a rapid pace, the importers are now searching for reciprocal procurement projects for the Chinese bus manufacturers in Israel. It will therefore be no surprise if the irregular and interesting connection between the conventional auto market and the Israeli auto-tech theater also generates bonuses in this theater.

As long as we are on the subject of Mobileye and China, we would add a note of caution. Quite a few Western companies entering high-profile deals in the Chinese market are discovering that within a fairly short time, the locals are closing the technological and business gap with government aid and leaving them behind.

This is no trivial matter. A smart car conference took place in Shanghai in early November, at which Chinese strategic policy for the coming years in auto technology, transportation, and smart cities was presented. The keynote speaker at the conference was the chief engineer of the Chinese Academy of Engineering, one of the most influential bodies in determining China's five-year technology plan. His speech bore two main messages: China has to adopt the innovation culture and response speed of Silicon Valley, and it must, as written in the original language, "create symbolic companies like Mobileye that have their own camera and chip." A clearer indication of what is to come would be hard to find.

Skyscraping valuations for sensors

The Mobileye effect is now having a direct influence on other Israeli companies developing smart car sensors. Oryx; BrightWay Vision, which began as a spinoff of Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT); and Innoviz are three prominent examples. Oryx and Innoviz have already raised tens of millions of dollars this year. BrightWay Vision, the oldest of the three, is currently well advanced in the process of raising money from international and local investors, led by the de Rothschild investment bank.

All three of these companies have various connections with auto manufacturers. Although they are far from the financial and business threshold set by Mobileye, they appear to be making significant progress. The reason is the wide range of parties interested and investing in this sector from all parts of the business spectrum, ranging from giant chip companies to tier-1 auto industry suppliers to the auto manufacturers themselves. Only this month, for example, Ford, through its Argo Artificial Intelligence subsidiary, acquired a small Lidar manufacturer from Princeton for what appears to be a substantial sum.

The intriguing question is, of course, what the valuations of the Israeli companies are for their financing rounds. This figure is kept confidential, but a general idea of it can be gathered from other sources. One example is Innoviz, founded in 2016 in Zohar Zisapel's incubator. The company recently raised just over $70 million.

The valuation for the financing round was not published, of course, but in the most recent quarterly report by Delek Motors, one of the first investors in the company, we found the following note: "The group holds shares (5.4%) of Innoviz. The group invested $5 million in Innoviz in a financing round as a follow-up to a $1 million investment in 2016...The company posted NIS 14.3 million in financing revenue in the third quarter of 2017 from an increase in the value of its previous investment."

A mathematical approximation based on the this percentage holding and investment leads to the conclusion that the company value for Innoviz's financing round was nearly $250 million - not bad for a company founded only in 2016. It took Argos Cyber Security almost four years to reach a $400 million value. It will be no surprise if the niche-within-a-niche of auto sensors produces a small herd of Israeli unicorns.

Representative offices in Israel - the wave continues

Another area in which development is continuing is direct activity in Israel by auto manufacturers and multinationals interested in the smart car sector. Various terms were used for the representative offices announced this year: "technological incubators," "accelerators," "R&D centers," and "smart car hubs." Most of them, however, are built on the same format: a relatively small team of managers and engineers on behalf of the parent company, whose main job it is to locate young companies with interesting technologies, connect them with the parent company, and give them financial and/or technological aid in the framework of cooperative ventures on one business format or other.

None of the companies that announced the opening of representative offices this year got in as deeply as GM, which has founded an international expertise center in Israel with hundreds of engineers, but these limited representative offices should not be taken lightly. It was enough to see the importance attributed by the European press to this month's visit to Israel by Daimler chairperson Dieter Zetsche on the occasion of the official launching of Daimler's official R&D office in Israel to realize the importance of such activities.

If we had to choose the hottest spots likely to shape this front in 2018, we would pick out three developments. The first is the anticipated entry into Israel of the Volkswagen group's innovation division. While the group's subsidiaries, Skoda and Seat, each separately announced the opening of auto-tech offices in Israel, parent company Volkswagen has continued to keep its plans for operations in Israel vague. At the oil substitutes and smart car conference last month, however, Volkswagen group customer manager Richard Harrison said, "We are serious about establishing a research and development facility in Tel Aviv… The facility will be similar to the group's futurism centers in Berlin, California, and Beijing." This is definitely a weighty declaration, and it will come as no surprise if the foundations for putting it into practice are being laid right now.

The second hot spot is Hyundai Motors. At the very same conference mentioned above, a senior company representative officially announced a plant to establish an innovation center in Israel in the coming months. Hyundai is one of the candidates to join the Intel-Mobileye strategic alliance, and if that happens, the company's Israeli center will have strategic significance.

The third hot spot is none other than Chinese company Alibaba. The company, whose interest in Israeli technologies is broader than just the auto-tech sector, recently confirmed in China operative plans to set up an R&D branch in Israel. Add to this the potential for "guest appearances" of giants such as Toyota, Chrysler-Fiat, and Chinese companies Baidu and Tencent, and you get a glance at an exciting summary for 2018.


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