companies like BMW and Mercedes will fall by the wayside. Driving will be an elitist exercise done off public roads at country clubs, he writes, and manufacturers will be relegated to a Nokian existence where they are simply providing the equivalent of handsets.
“The era of the human-driven automobile, its repair facilities, its dealerships, the media surrounding it—all will be gone in 20 years,” Lutz writes. “The companies that can move downstream and get into value creation will do ok. But unless they develop superior technical capability, the manufacturers of the modules, the handset providers, if you will, will have their specifications set by the big [fleet] transportation companies.”
Paley says the ideas presented in Lutz’s piece illustrate what’s at stake. “If you assume it’s the end of the automotive industry as we know it—if you believe that, it’s not that hard to come up with [high acquisition prices], especially if you think your whole business will go away in a short amount of time.”
Paley also believes self-driving cars will provide enough societal benefit to trump the fears of the old guard. There will be less congestion on the roads, more productivity, and many fewer accidents. Parking lots in city centers could be converted to green spaces or be repurposed for economic development projects. People wouldn’t need to own or lease cars to get around because they could join a fleet network and rent on-demand by the hour or day, potentially saving a significant amount of money.
Chris Thomas, co-founder and partner at Fontinalis Partners, a Detroit-based VC firm focused on investing in mobility companies, says all of the auto industry’s incumbents are currently in “build or buy” mode. Fontinalis invested in both NuTonomy’s seed and Series A rounds.
Thomas agrees with Paley that car manufacturers are trying to determine if they have the in-house talent to build the required self-driving technologies—and after that, they’re looking at startups through the lens of best in breed. The industry also now recognizes that some technologies formerly thought of as nice to have are in fact must-haves, and these must-haves are reaching the point where they’re broadly deployable.
“It points to the validation of the marketplace,” Thomas says. “Ten years ago, if you had said mobility companies would be acquired at these valuations, people wouldn’t have believed it. Today, it’s taken as commonplace. It denotes the importance of the technologies the companies being acquired represent.”
Thomas thinks we’ll see more acquisitions based on the quality of the teams being acquired, and consolidation throughout the industry as a whole. “As recently as two years ago, if you had said these are must-have technologies, you still would have had disagreement. I don’t think we have that at all today.”
Paley also says the debate over whether autonomous vehicles will become a reality is finished. “The great news is that everyone believes it’s going to happen,” he says. “The great, historic automotive franchises will be irrelevant if they don’t lead.”
