VCs Are Gearing Up For a Post-Pandemic Auto Industry
(Bloomberg) -- It’s been a nerve-wracking few years for the traditional auto industry given the surge of ride-hailing startups and the expansion of Tesla Inc.
Some investors, however, hedged their bets the easy way, by writing a check to Autotech Ventures LLC, a Silicon Valley venture capital company focused on the future of transportation. In its five years, it’s scored some pretty big hits, including early investments in Lyft, DeepScale (acquired by Tesla in October), and Xnor.ai (acquired by Apple in January).
Now, Autotech is trying to pandemic-proof its portfolio as it prepares to deploy $150 million in a funding round announced this week. We caught up with Managing Director Alexei Andreev to discuss how Covid-19 may change the way we get around. (Spoiler: He’s bullish on farming robots, bearish on ride-hailing, and still can’t figure out electric scooters). (Note: Interviews are edited for length and clarity.)
So what’s your general thesis on the pandemic?
Certain industries are definitely getting hit by Covid-19, and we have a pretty representative portfolio. Pretty much everything that requires public transportation, we have no clue how or when it’s going to recover.
Our hypothesis: We’ll see pretty negative pressure on car-sharing and it will be driven by institutional memory. Even if Covid-19 is all over and we have vaccines, I think as human beings we’re descendants of those guys who panicked. It was an important survival instinct. We just evolved to have some residual fear over a long period of time.
How about on the upside?
We’re looking at different deals for companies that do antimicrobial spraying and things with UV lamps.
Our portfolio companies in logistics are doing really well, especially everything related to last-mile delivery and smart warehousing. What we’re observing is, instead of going to grocery shop, you’re ordering online. I think that’s here to stay. When you have online commerce, somebody needs to do logistics. Amazon is clearly a big winner, but we have several companies in this domain. We are in SpotHero for parking; we’re in KlearNow, which does custom clearance automation and transportation management. They see rapidly growing volumes, so they can say, “Vitamins are exploding, sports equipment is exploding, people are baking more bread.”
The pandemic is the most important factor in the digital transformation of enterprises. People were like, “Hmm, we’re not sure if we should try it.” Now it’s a shock propagating through the system, and the old, traditional way of doing things just doesn’t work. People are waking up to the realization that we have to have more machines, we need to build robustness, we need to diversify supply chains. Coronavirus accelerated the reorganization of supply chains by 10 times.
What does coronavirus mean for the timetable on vehicle electrification?
You can turn on and turn off shale oil pretty quickly, but real oil, you can’t just turn it off or you lose your oil field; you must pump out. Therefore, I think we’ll have an oversupply of oil for the next 18 to 24 months. In the U.S., it depends on who’s going to win in November. If Trump wins, it will be business as usual. The cheaper the oil is, the less likely people will be to buy an electric vehicle.
Europe is really, really into EVs, and this coronavirus is a wake-up call for many countries. They’re saying, “Nature is retaliating. We’ve been abusing it, and it’s fighting back.” My gut sense is China will see an acceleration of electrification and Europe will see an acceleration, because the business model is decoupled from the price of oil. It’s more policies and internal sense of personal responsibility.
And I think Tesla will be fine. I’m bullish on Tesla.
How about autonomous driving tech?
[Original equipment manufacturers] and [major] suppliers are out of money. They just don’t have money to burn anymore. They need to survive, and they’re slowing down investments in autonomy. Second, people have realized in general that highway autonomy is much more challenging than expected.
We’re investors in two off-road autonomous companies. SafeAI, which builds an autonomous stack for mining and construction equipment, and Verdant Robotics, which builds an autonomous stack for crops. Think about apples, oranges, and peaches. It’s all manual labor—thinning, spraying, pruning. Can you take the best pieces of on-road autonomy and build robots to replace humans in dangerous or very unpleasant labor? It’s low-speed vehicles—you don’t have traffic lights. It’s private land, so it’s not regulated. There’s very clear ROI.
On the road, Google is a dark horse and they have a certain decision-making pattern. Think about Android. Nobody wanted to take it, but Larry and Sergei saw it as a Trojan horse. What we may observe is that 12 months from now, we’ll have fully autonomous Fiats and Jaguars and they’ll be growing market share like crazy. And the incumbents may become the equivalent of Nokia and Motorola flip phones. If that happens, we’ll see a dodo dance—some people will go away like the dodo.
Do you think there are institutional investors that are bullish on the technology now that weren’t three or four months ago?
There’s a joke among venture capitalists that we’re a herd of independent thinkers. Overall, we’ve seen a cool-off of, let’s call it general highway autonomy, for the last nine months. I don’t see many new investment rounds getting closed in this domain. And strategics now don’t have money. They used to write those megachecks, but right now everyone is scrambling for liquidity. I expect little to no new financing for quite a while.
Does the pandemic present opportunities where you don’t have exposure?
Last-mile robots are a big deal. We looked at deals for Starship Technologies and the guys with little crawling boxes for pizza deliveries. We were like, “Ah, it cannot be big.” Now everyone wants to use them, and it’s clearly a landslide change in attitude to last-mile delivery.
We didn’t place any bets in micromobility. We don’t have a scooter company. The unit economics don’t make sense; there are no barriers to entry. But do we see scooter 2.0 or 3.0 emerging? We’re trying to figure out if people will use them more or less now. Will they be embraced by cities because they are kind of a replacement for public transportation? We’re wait-and-see.
Big picture, does the pandemic make a better case for personal car ownership?
Yes, but people don’t have disposable income, so instead of buying new vehicles they’ll be buying used vehicles. We’ll see a pretty big hit on new vehicles, and there will be incredible incentives to push vehicles, massive rebates. Companies will be running at zero margins just to have factories running. In nine to 12 months, it will be a good time to buy a brand-new car.
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