Are connected cars the next bubble in Israel?
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Google's prototype self-driving car. Photo credit: Google

Google's prototype self-driving car. Photo credit: Google

Israeli startups are diving in head first into the connected car sector. Since when does Israel make cars?

For a country that has never had its own domestic vehicle production, Israel is fast becoming a center for innovation in the global automotive industry. Just in case you’ve been under a rock for the past three years, cars and trucks are quickly moving from machines that get you from point A to B, to smart platforms that focus nearly as much on services as they do on transportation.

This has meant a shift towards the kind of innovation that is found not in the factories of Detroit but in the startup hubs of Tel Aviv and its environs beyond. So who is leading this charge and where does the road ahead?

Lool Ventures hosted a thought-provoking panel in early February at their offices in Tel Aviv, bringing together some of the leading voices in the fast developing field of connected cars.

This author was lucky enough to be tapped to moderate with critical thought leaders on stage like Boaz Mamo (co-founder & CEO of Tel Aviv’s Honda-and-Volvo-backed incubator DRIVE), Gonzalo Martínez de Azagra (head of Samsung Ventures Israel), Jamil R. Mazzawi (founder and CEO at Hybrid-backed Optima Design Automation), Yael Rivkind (partnerships manager at otonomo), and former Amiti Capital Partner Eli Nir.

Photo Credit: Etay Levy

Organizing the event was Hybrid’s Managing Director Eitan Sella and co-founder Fadi Swidan.

Hybrid is an accelerator-type program that works with early-stage companies to launch their product in the right market and raise their first investment, all equity free. Interestingly, Hybrid’s one criteria for entry is that one of the founders must be a member of the Arab, Bedouin, or Druze community.

Why connected cars?

For those that have not been caught up in the tsunami that is the connected car craze, they always ask what all the fuss is about.

As Mazzawi stated to the audience fairly clearly on why he sees cracking challenges like the self-driving car as so crucial for the future, The #1 killer in the world today is car accidents, and if we could reduce that through the autonomous car, that would be amazing.”

South Korean internet giant Naver’s autonomous Toyota Prius (image, Naver)

Whether you are talking about tired drivers, bad drivers, or the increasingly distracted driver playing with their phone, humans are the weak link that endangers us on the road. Even if there are the occasional bugs that lead to accidents in the self-driving car model, they will likely pale in comparison to the situation today.

“When the whole traffic system will be autonomous, we can significantly reduce the number of deaths,” says Nir, noting how he thinks that, “in 20 years from now, it would not be allowed to drive a car. and the reason for that is both that we (as humans) are not good enough machines to analyze the road.”

However, beyond the concern for safety, there is significant quality of life and efficiencies advantages of moving toward the connected vehicles. Samsung’s de Azagra sees room for improvement on our current model, noting that, “The utilization of a car today is very low. Most of the time it’s just parking. If you could just use the car when you need it, and then it goes to serve someone else, that’s a clear advantage. You could do that only if a car is autonomous and connected.”

PITTSBURGH, PA - SEPTEMBER 22: An Uber driverless Ford Fusion drives down Smallman Street on September, 22, 2016 in Pittsburgh, Pennsylvania. Uber has built its Uber Technical Center in Pittsburgh and is developing an autonomous vehicle that it hopes will be able to transport its millions of clients without the need for a driver. Photo credit: Jeff Swensen/Getty Images Israel

An Uber driverless Ford Fusion drives down Smallman Street on September, 22, 2016 in Pittsburgh, Pennsylvania. Uber has built its Uber Technical Center in Pittsburgh and is developing an autonomous vehicle that it hopes will be able to transport its millions of clients without the need for a driver. Photo credit: Jeff Swensen/Getty Images Israel

So if the future seems so bright for the connected car industry, are the investors jumping in head first? As it is still so new, there are questions as to who will set the standards, making the course of the market uncertain.

“It’s a bit of a Wild West until the OEMs make their decisions,” Nir remarked, voicing his expectation that this process will take years with original equipment manufacturers (OEMs). However, more players are entering this market seeing the opportunity.

Nir notes that, “We’re seeing a lot of big players like NVIDIA getting into the car game,” with their contribution that will be needed for the computing power needed for the connected vehicle.

Interestingly, as an investor whose firm has put $7 million into 3D-imaging startup Innoviz, he told the audience he was used to following a long path to the exit and was not put off by the extended timeframe until he would likely see results on his investment. This contrasts strongly with giants like Samsung, who de Azagra says he has had some difficulty in convincing of the wisdom of diving into this field as some of the technologies are not yet fully developed. So how exactly do you catch their attention?

The opportunities

Photo Credit: Etay Levy

Beyond the possibility of saving lives, the panel offered their insights as well on how these vehicles create new businesses as platforms. Connected vehicles collect a large amount of data that will be of interest to a variety of stakeholders.

Whether you are the manufacturer like BMW, Volkswagen, or Daimler, you want to receive feedback about how your car is working in the field. There are options here for insurance companies that want to assess risk better and offer their safer driving clients a better deal. Advertising based on location, need I say more? This list goes on.

Honda’s Autonomous IONIQ Concept (Honda)

As otonomo is already at the center of the sector acting as a safe marketplace for this sort of data, Rivkind is watching the transformation up close, noting, “We’re surprised to find that most of the OEMs are willing to share data with us, like GPS and acceleration.”

“OEMs now understand that they’re becoming an information company, and that’s what the consumers expect. If they want to compete with the Tesla, Google, and Apple of the world, they will have to adapt,” she says, explaining that on the one side opening up their data helps them create a better driving experience through location-based services, and on the other hand it’s a great opportunity to generate new business models and revenue streams.

Google's self-driving car.

Google’s self-driving car. Photo Credit: Steve Jurvetson / Flickr

Stepping into these new layers of the car business, we see Tier One and Two players like microchip-testing startup Optima that can provide hardware and services to the major actors, helping them to solve problems.

One of the key challenges in getting the public to adopt the next stage of vehicles, like self-driving cars, is building trust. Reliability that technologies like LiDAR, navigation, and others will safely control the cars is paramount.

“If a cell phone stops working once a month, it’s OK,” Mazzawi says, whose startup has developed a scalable method of testing the hardening of chips used for mission critical purposes. “But if a car stops working once every 10 years, and the manufacturer sold 10 million cars a year, it means a lot of accidents every year. The reliability issue in this industry is critical, and reliable chips are its foundation.”

Photo Credit: Etay Levy

Are we seeing the early stages of a bubble?

As more startups rush into the space, the question is, ‘Is yet another bubble is in the offing?’ Will this market become big enough to support such a large group of companies?

Mamon is betting heavily that there will be enough elbow room for everyone at the table, remarking that, “Every time there is a blue ocean, Israeli entrepreneurs usually jump in.”

DRIVE founders Omer Shachar, Dr. Tal Cohen, and Boaz Mamo (C) (courtesy)

As Mamo describes the new generation of cars essentially as a connected network of computers, he believes that IT will take a larger role in automotive, a space where Israeli companies have been known to thrive. Despite Daimler and others opening their own R&D centers, he has decided to stake his own spot in the automotive innovation landscape with DRIVE. Having previously set up the transportation-focused EcoMotion, he hopes to be a leader in connecting the large corporations with innovation. They have already announced big name partnerships with Honda and Hertz, giving these giants access to Tel Aviv’s ingenuity.

If there was one point of consensus among the panelists, it was fear on the part of the manufacturers is a driving force behind openness to new ideas in this rapidly changing industry. Specifically, as the vehicle ownership model begins to change, it is putting pressure on automakers to stay ahead of the curve.

This is good news for Israeli startups.

“The traditional manufacturers understand that if they want to stay in the game, they have to move fast, and this enables a lot of new companies to enter the market,” Nir says, expressing that from his perch as an investor, the scene now looks far more promising. “Ten years ago, I would never have invested in automotive. It’s a very slow cycle.”

However, given the rapid movement of the market, he declares optimistically that “the situation today is different.”

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Gabriel Avner

About Gabriel Avner

Gabriel has an unhealthy obsession with new messaging apps, social media and pretty much anything coming out of Apple. An experienced security and conflict consultant, he has written for The Diplomatic Club, the Marine War College, and covers military affairs with TLV1 radio. He mostly enjoys reading articles wherever his ADD leads him to and training Brazilian Jiu Jitsu. EEED 44D4 B8F4 24BE F77E 2DEA 0243 CBD1 3F7C F4B6

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