Investment

Family offices eschew driverless cars

Grok Ventures of Australia and Norrsken Foundation are among an elite, but small, number of family/principal enterprises prepared to follow Elon Musk of Tesla in putting money behind driverless cars.

Grok backed driverless Zoox in 2018 but accepted a $1 billion bid in June by Amazon, who hopes its vans will knock $20 billion a year off its shipping costs. 

Grok’s exit leaves Niklas Adalberth as the sole wealthy investor in self-driving vehicles

Norrsken is an impact investor founded by Niklas Adalberth which has backed Einride, whose clients include Lidl.  

Research into fundraisings by Family Capital has found that driverless companies are far more inclined to seek money from the motor trade and large venture capital funds. 

There is no shortage of evidence that their products are going mainstream.

In Phoenix, Arizona, individuals can hail a Waymo driverless taxi. A driverless truck owned by Plus.ai, backed by Sequoia Capital China, has made America’s first coast-to-coast freight run. WeRide robo-taxi services, funded by Nissan, Mitsubishi and Renault, have made their debut in Beijing, China. 

Nuro has raised $500 million from smart investors like Baillie Gifford to deliver pizzas in California. Intel spent $15 billion on tech venture Mobileye in 2017 and it now partners the likes of Ford.

According to Intel driverless vehicles are to generate revenues of $7 trillion a year, as software improves, by leaps and bounds.

But the driverless revolution has been captured by massive tech and motor firms ready to throw big money at ideas, form partnerships and bear the cost of failure. This is the kind of world which does not attract family offices, unless a deal is exceptional.

Companies seeking funding often have an eye on commercial relationships, rather than signing up multi-millionaires whose views will be taken less seriously.

If you dig a little into the Intel forecast, you’ll find the revenue stream of $7 trillion is only reached by 2050.  Its expectation for 2035 is a more modest $800 million.

Partly due to Covid-19, Brian Collie of Boston Consulting Group has deferred his hopes of a self-driving commercial outcome by three years to 2026. Analysts say consolidation is taking place following the creation of a large number of new businesses over the last decade.

Waymo has started to succeed thanks to its technical strength. But this was only built up by the willingness of its owner Alphabet to use Google’s income to bankroll costs of $1 billion a year, partly defrayed this year by a $3 billion fundraising this May which involved institutional investors.

Waymo published a report in October which showed its vehicles had travelled a remarkable 6 million miles without incident. But analysts are only putting a value of $30 million on the value of its business, which is now more likely to be a service provider than a manufacturer. 

As recently as 2018 Waymo’s estimated value was put at $175 billion, according to Morgan Stanley which it cut to $105 billion in 2019,  citing uncertain timing over the rollout of services – a common feature in self-driving.

While dealing with the pandemic and an expanding workforce, Waymo now faces competition from more than a dozen determined competitors including Tesla, Zoox, Aurora Innovations, Argo AI and Cruise Automation. The same goes for Waymo’s diversification into driverless trucks via contracts with Chrysler and UPS. 

More often than not Waymo’s competitors are large manufacturers. Sometimes, as is the case with Daimler and Baidu of China, the threat is international in scope.

Teaming up with a large manufacturer reassures clients but different partners often have different spending priorities, with sales down 20% or 40% due to the pandemic. 

Partnership changes are not unknown, illustrated by the parting of the ways between Volkswagen and Aurora Innovations, whose partners now include Hyundai. 

All of which leads to endless discussion and uncertainty. Tesla is noteworthy for refusing to play the partnership game, preferring to manufacture its own cars.

In the driverless world, a tragic incident has big implications for underlying businesses. Bad news also attracts a great deal of media interest in the driverless world, as Tesla has experienced with recent reviews of its Autopilot.

Uber recently decided to sell its self-driving arm, potentially to Aurora Innovations, as a result of a crash in 2018 as well as the sheer cost of making its technology effective. The value of the division is likely to be way below the $7.25 billion struck in 2019.

Amazon’s purchase of Zoox for $1.2 billion marks another decline in fortunes compared to its 2018 peak value of $3.4 billion. 

The company was founded by Australian designer Tim Kentley-Klay, who abruptly left in 2018.  Michael Cannon-Brooks’ Grok Ventures family office participated in a $465 million funding in the same year and sold its stake to Amazon following its takeover. Grok made money because of the way its deal was structured. 

Grok’s exit leaves Niklas Adalberth as the sole wealthy investor in self-driving vehicles as founder of Norrsken Foundation, an impact investor. 

It has invested in Einride whose futuristic pods deliver groceries for the likes of grocery firm Lidl.

Adalberth was co-founder of Swedish payments processing firm Klarna. Norrsken has taken a stake in Einride through fund raisings with EQT, the private equity firm backed by the Wallenberg family and Sweden’s Ericsson. 

All of which makes Einride something of a local hero. But Einride, like Tesla, is very much in control of its own destiny, not a common feature in the world of driverless cars.

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