Self-driving startups race down a narrowing road

DETROIT/SAN FRANCISCO (Reuters) – Lei Xu and Justin Song once worked at electric carmaker Tesla Inc (TSLA.O), one of the hottest companies in Silicon Valley. But with interest and investments in autonomous vehicles mounting, they left to pursue what they see as the next big thing.

Nullmax CEO Lei Xu drives a Lincoln MKZ sedan equipped with his company’s prototype self-driving hardware and software in Fremont, California, U.S. on October 9, 2017. REUTERS/Jane Lanhee Lee

Their company, Nullmax, is one of more than 240 startups worldwide, including 75 in Silicon Valley, attempting to design software, hardware components and systems for future self-driving cars, according to a Reuters analysis.

Xu and Song are bankrolled by corporate money, but unlike many of their fellow entrepreneurs, they skipped funding from Silicon Valley venture capitalists. Founded in August 2016, Nullmax got $ 10 million from a Chinese firm, Xinmao Science and Technology Co (000836.SZ).

By seeking corporate backing in China, the Nullmax founders managed to sidestep an issue facing other startups in the sector: While big automotive and technology companies are pouring billions into the autonomous vehicle space, Silicon Valley investors so far have been fairly restrained in increasing their bets.

Headlines have been dominated by old-line players such as General Motors Co (GM.N), which jolted the industry last year when it bought a tiny San Francisco software company called Cruise Automation for a reported $ 1 billion. Just this week, top-tier supplier Delphi Automotive PLC (DLPH.N) acquired Boston-based software startup nuTonomy for $ 450 million.

Now, “every startup thinks they will get a billion dollars” in valuation, said Evangelos Simoudis, a Silicon Valley venture investor and an advisor on corporate innovation.

However, investment in untested startup companies remains relatively modest despite all the buzz and lofty expectations. Total funding of self-driving startups from both corporate and private investors has barely topped $ 5 billion, the Reuters analysis of publicly available data shows.

With the notable exceptions of Andreessen Horowitz and New Enterprise Associates, few of the big Valley venture capital firms are heavily invested in the sector. Overall, only seven of the top 30 self-driving startups have received later-stage funding, the Reuters analysis shows, an indication that some venture capitalists are ambivalent about the industry’s potential.

(For a graphic of venture and corporate funding of self-driving startups, see: tmsnrt.rs/2xOX0jN)

Skeptics note that few of the startups are making money. And established auto and parts companies have not demonstrated a clear path to revenue and profitability in autonomous vehicles despite their big bets in the space.

Another sticking point: While the initial wave of self-driving vehicles is expected to begin commercial service in 2019-2020, experts expect the transition from human-driven to automated cars could take a decade or more to roll out.

Cautions Sergio Marchionne, chief executive officer of Fiat Chrysler Automobiles (FCHA.MI): “You can destroy a lot of value by chasing your tail in autonomous driving.”

CORPORATE INVESTMENTS

All told, U.S. automotive and technology firms likely have invested some $ 40 billion to $ 50 billion in self-driving technology in recent years, mainly through acquisitions and partnerships. The full extent is hard to know because big players such as Alphabet Inc (GOOGL.O), whose Waymo subsidiary is considered among the front-runners in the arena, have not revealed the full scope of their investments, although it is believed to be in the billions.

Among the top corporate investors in the sector are Samsung Group [SAGR.UL], Intel Corp (INTC.O), Qualcomm Inc (QCOM.O), Delphi and Robert Bosch GmbH [ROBG.UL]. Corporate investors also have backed five of the six self-driving startups with valuations of $ 1 billion or more.

(For a graphic on key players in the development of autonomous vehicles, see: tmsnrt.rs/2nYv7gc)

Whether the industry is poised to produce more such unicorns is now a topic of much debate. Two former investors in Cruise Automation, for example, are poles apart in their views of self-driving vehicles and technology.

Veronica Wu, managing partner in Palo Alto-based Hone Capital, said her company continues to invest in “quite a number” of self-driving startups, while acknowledging that the technology will take time to deploy.

“It’s a matter of when, not if,” she said. “We’re fairly optimistic.”

In contrast, Sunny Dhillon of Signia Venture Partners, another Cruise investor, said his firm does not see any attractive investments in the sector right now.

The hefty price paid by GM for Cruise, he said, “made the space very frothy, with every computer vision and robotics PhD student seemingly emerging with a new self-driving car startup.”

In addition, he said many established players “already have made their big investments (and) acquisitions” in the sector. That could limit investors’ potential returns and entrepreneurs’ payoffs down the road.

Quin Garcia, a partner in San Francisco-based AutoTech Ventures, concurs that the space is crowded and valuations are inflated. There may still be “a select few IPOs, but there will be many failures of autonomous vehicle startups” by 2021, he said.

NULLMAX IN CHINA

Those odds haven’t deterred Nullmax founders Xu and Song, who are looking to differentiate themselves.

With many self-driving startups looking to supply U.S. and European automakers, the Chinese-born entrepreneurs, whose specialties are camera-based vision systems and artificial intelligence, are focused on China. They expect to deliver the first partially automated systems to Chinese automakers by 2020.

The U.S.-educated entrepreneurs, both 35, now work out of a small shop in Fremont, Calif., not far from Tesla’s sprawling home factory. Xu once worked at Tesla as a senior engineer while Song specialized in supply chain and quality engineering. Tesla declined to confirm their prior employment.

Xu said the company employs about 50 people, most of them in a larger office in Shanghai. He said the company wants to keep a foot in California, which is a hub of U.S. tech talent, and where regulators have smoothed the way for testing of self-driving vehicles.

As for how Nullmax plans to cash out, Xu navigated around that question.

“We’re pretty busy,” he said. “We don’t much time to think about an IPO right now.”

Reporting by Paul Lienert in Detroit and Jane Lanhee Lee in San Francisco; Editing by Joe White and Marla Dickerson

Our Standards:The Thomson Reuters Trust Principles.

Tech

The US Postal Service Is Working on Self-Driving Mail Trucks

Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds—and if the United States Postal Service has its way, the robots won’t stop them, either.

Yes, the agency you know best for bringing you junk mail addressed to whomever lived in your apartment before you has caught robofever. It plans to put semiautonomous mail trucks into service in just seven years, and it seems to think it can pull off a shift away from human driving without shedding mail carrier jobs.

That’s all according to the postal service’s Office of the Inspector General, which oversees the agency and last week released a report on its plans to work autonomy into its 228,000-vehicle fleet. Those plans are already in motion: The post office has partnered with the University of Michigan to build what it’s calling an Autonomous Rural Delivery Vehicle, which it wants to launch on 28,000 rural routes nationwide as early as 2025.

In this vision, the postal worker sits behind the wheel but lets the truck do the driving, sorting mail and stuffing letters and packages into mail boxes while rolling down the street. Eliminating the need to constantly park the vehicle, get out, then get back in and get back to driving would yield, the report says, “small but cumulatively significant time savings.”

This being a semiautonomous mail truck, the driver would have to be ready to take over control at all times. In the beginning, researchers say, this will be especially important while navigating from the post office to the beginning of the postal route, and while navigating intersections.

The postal service reasons the experimentation is less risky on rural routes, which have less traffic and fewer pedestrians and cyclists, “and are therefore more forgiving of an imperfect AV model.” It’s exactly the reason vehicle tech developers like Tesla and Cadillac have released semiautonomous features for highway-only driving. With wide, open, well-marked roads, it’s a much less complicated environment for a robot to navigate.

According to the report, Michigan researchers will deliver their first semiautonomous delivery truck prototype in December of this year. If all goes according to plan, the USPS will pilot 10 prototypes on rural routes in 2019, leading up to that full-scale, countrywide rural deployment between 2022 and 2025. The mail people also say they plan to look into city deliveries and building fully driverless vehicles, the kind that don’t need steering wheels or pedals.

You’ve Got Self-Driving Mail

One reason the postal service wants robocars? They could help solve its money problems. The agency lost $ 5.6 billion last year, mostly because Congress demands it shell out prefunded retiree health care benefits. (The idea here is that all employees’ health care will be completely paid for by the time they retire. No other agency operates this way.)

The report’s authors insist they’re not looking to dump human workers, and that AVs can help by trimming other costs. The agency paid about $ 67 million in repair and tort costs associated with vehicle crashes last year. It also shelled out $ 570 million for diesel fuel. If the robots perform as promised, making driving much safer and more efficient, those costs could plummet.

If the USPS sticks with this plan, the jobs of the nation’s 310,000 mail carriers could change, for better or worse. Once the vehicles do all the driving, the humans will be left with the sorting and the intricacies of the delivery process. Unless, of course, a robot can figure out how to do those too. And whatever the report says about protecting jobs, it’s clear that the best way to cut down on employee health care costs is to cut down on employees. The Postal Service says it plans to sit down with unions to discuss the implications of this tech after the University of Michigan delivers its prototype in December. (Those unions, the National Association of Letter Carriers and the National Rural Letter Carriers Association did not immediately respond to a request for comment.)

But maybe the best reason for USPS to experiment with autonomous vehicles is to keep up with the Joneses. FedEx is investing in small autonomous vehicles that could make deliveries without the aid of human drivers. Amazon has an entire team dedicated to researching how autonomous vehicles (and drones) could transport its goods directly to customers. Google holds patents on unmanned truck delivery. DHL has posited driverless vehicles could be endlessly useful in warehousing operations, last-mile deliveries, and logistics operations. UPS has a test truck that shoots drones.

Which gets us back to one final idea floated by the USPS Office of the Inspector General in the report. Mail carriers drive the same exact routes almost every day. If the service kits out its vans with the right sorts of sensors, those vans could build and constantly update the incredibly detailed 3-D maps that help self-driving cars navigate—for a price, of course. Yeah, other startups and companies have been built expressly to collect and mine mapping data—but don’t count out the letter carriers. If rain and hail can’t stop them, why should the future?

Tech

Self-driving Olli shuttle with IBM Watson debuts in Washington area

Olli, a self-driving shuttle for 12 passengers running IBM Watson Internet of Things technology, made its debut in a shopping area of the Washington suburbs on Thursday.

While some “fine-tuning” of the self-driving features are needed, passengers, by this fall, should be able to ride around and speak directions to Olli on the private roads at the National Harbor shopping and entertainment area on the Maryland side of the Potomac River, according to a spokeswoman for Local Motors, the designer of Olli.

The vision is that Olli will be used in all kinds of venues, such as crowded urban areas, college and corporate campuses and theme parks. It could also become the “last mile” connection from a subway or bus stop to a job site. Miami-Dade County has ordered two of the vehicles for a pilot project there, said the Local Motors spokeswoman, Jacqueline Keidel.

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