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Cruise in SF Mar 2022.JPG
Autonomous Driving Consolidation Intensifies
November 2022

Tens of billions of dollars have been invested in autonomous driving (AD) since the early 2010s — and particularly between 2016 and 2021 — with the ambition to free human beings from driving and the promise to boost traffic safety. Entrepreneurs, VCs and corporates have jumped on a bandwagon that has turned into a roller coaster since people started to address this very complex task. 

Expectations grew to peak around 2017 — see Gartner’s “hype cycle” below (green dots are Gartner’s). When most of the early launch announcements did not come to fruition, we then hit a low around 2020: the problem was much harder to solve than expected. Then, huge amounts of money were poured into AD software and sensor startups either through private investments or (SPAC-induced) market introductions. This gave the abusive impression that scaling was within reach.

Hype curve.png

Even if the future of true autonomous driving looks grimmer again (red dot above), some players are forging ahead. At this point, a handful of companies have some (limited) commercial activity without safety operators, yet with limited Operating Design Domains (i.e., scopes). In N. America, Waymo started its ride-hailing operations in Phoenix in 2020. Gatik did the same for middle-mile deliveries in 2021 (image below). Earlier this year, it was Cruise’s turn in San Francisco. See their vehicles in action on the images above below. 

Companies must now profitably scale beyond one-city operations which look more like pilots. Gatik already operates in several cities in the USA and Canada, solving for a simpler problem than robotaxis. Waymo is about to start in San Francisco and prepares to launch in Los Angeles. Cruise announced a new ride-hailing service in Austin and Phoenix. How fast will these companies — and others — be able to open new geographies and scale their fleet profitably is the existential question.

If some companies are deploying, things have become quite difficult for many other players. Money has gotten tighter. Many companies that went public lost a very large portion of their value. This naturally results in industry consolidation which has picked up over the past 18 months.


Nominal M&A Activity From 2015 to 2020

A continuous wave of acquisitions and collapses is inevitable in any industry as companies see a strategic interest in acquiring promising startups while others fail to grow. In the AD software space, GM bought Cruise in 2016, Aptiv acquired NuTonomy (AD stack) in 2017, Apple purchased Drive.AI (AD stack) and DeepMap (mapping) in 2019 and Tesla snagged DeepScale (sensor fusion) that same year.

A similar movement has been taking place on the AD hardware side, particularly in the sensor space. The objective of these M&A moves has been for well-financed players to accelerate the development of their AD solutions, essentially moving towards some level of vertical integration. This was made possible by the hundreds of millions or even billions of dollars each of the bigger players raised over the past few years.

For instance, Cruise acquired Strobe (Lidar) in 2017 and Astyx (radar) in 2020. Argo bought Princeton Lightwave (Lidar) in 2017. Aurora purchased Blackmore Sensors (Lidar) in 2019 and Ours Technologies (Lidar tech) in 2021. Last year, Ouster purchased Sense Photonics (Lidar). And this is not exhaustive.

Waymo Jaguar SF Aug 2021.jpeg

Consolidation Acceleration Since 2020

In late 2020, a much deeper wave of consolidation emerged. The acquired parties were no longer startups with up to a few dozen staffers but rather much more mature players with up to 2000 employees. Major capital allocation decisions were made — to some extent as a result of the pandemic — that resulted in large M&A movements.

Uber sold ATG, with its AD development team of about 1,200 employees, to Aurora at the end of 2020. In 2021, Lyft replicated its competitor’s move and sold Level 5, its AD unit with a staff of 300, to Toyota’s Woven Planet. These transactions were based on valuations of respectively $3.6B and $550M.

These two ride-hailing players disposed of their AD activities as the pandemic was putting excessive pressure on their finances as they realized the extent of the task at-hand. It became obvious it was best to focus on the core business and partner with companies that specialize in autonomous driving for future robotaxi activities. In the short term, this stopped the financial bleeding the disposed assets were causing. For the long term, Uber can now count on its partnership with Aurora (and Motional) for its future autonomous trucking and ride-hailing activities. 

Consolidation is building momentum as priorities shift and the perspective on robotaxis’ profitable scaling is eroding. Last month, Ford and VW Group announced they were closing down Argo in which each company has a 40% stake. The AD developer raised a total of $3.6B and built its staff to about 2000 people. The two OEMs decided to shift their focus towards ADAS (L2/L3) which offers a certain revenue stream in the near term. Resource allocation must also account for the shift towards EVs and the Software-Defined Vehicle, both being mandatory for OEMs.

Even more recently, Lidar companies Velodyne and Ouster (both publicly listed) announced they were merging with the aim to reduce their cost base. The companies each lost about 90% of their market cap since their introduction on the NASDAQ in 2020.

The AD-related companies that went public in the past couple of years — mostly via SPAC reverse mergers — have almost all experienced a major drop in their market caps to the tune of 70-90%. This makes it all the more difficult for them to raise significant extra funding. For instance, Aurora has raised a total of $2.1B to-date which happens to be its current market cap, down from its introduction level at $13B mid-2021. Companies that have remained private also face much more difficult financing conditions — including down rounds — that apply generally for late-stage ventures.


Achieving Positive Cash Flows Before Runway is Exhausted 

On the P&L side, business has been slowly picking up for most players. For instance, Aurora reported a S1 2022 “collaboration revenue” of $63M (incl. just $2M from autonomous trucking-as-a-service for Q2) but a net operating loss of $340M. The company still aims for a commercial launch of its autonomous trucking solution early 2024 whereas it expects its current runway to be exhausted by mid-2024. This unbearable challenge explains why Aurora’s CEO presented its board (in a letter inadvertently sent to the staff and later leaked) with options: sell the company, raise more funds, dispose of assets, or reduce their burn rate. There are no easy solutions!

Cruise experienced a $900M loss for S1 2022 but it aims for a revenue of $500M by 2025. Unit economics will be increasingly critical whereas the company has priced its first robotaxi service competitively vs. conventional ride-hailing service in San Francisco when the cost bases are far from being comparable at this point.

Remaining players are racing to scale their businesses while maintaining safety front and center. They must generate significant and profitable revenue before running out of cash or prove they can do so before investors lose interest. The winning players will be the ones that either have backers that are in it with a long-term or have already started to scale with profitability in line of sight. The others will have to be creative in order to succeed.

Marc Amblard

Managing Director, Orsay Consulting

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