Pando

Car wars: In lieu of Detroit becoming more Valley-like, the Valley becomes the new Detroit

By Sarah Lacy , written on December 17, 2015

From The War Desk

Back when I hosted a show for Yahoo Finance, I interviewed Elon Musk.

It was at the launch of the prototype and pre-orders for the Model S, at a time when Tesla’s fate was still far from certain. The interview caused waves in the media world for a lot of reasons; unfortunately, it’s no longer available online because, well, Yahoo.

One of my central questions was something many people were asking Musk back then. And that question wasn’t: How does it feel to be the greatest entrepreneur of all time and the model for IronMan?

It was this: Are you fucking nuts? He bet his entire fortune on a rocket company and a car company when the rest of the PayPal mafia largely bet on social media and user generated content. And following the dot-com bust, even those bets seemed crazy.

He answered: I would not have done this if I was trying to get the best rank-ordered return on investment. He acknowledged essentially that from an investment standpoint, yeah, the bet was nuts, but the mission was important to him.

How things change.

Not only has Facebook – and with it the promise of social media – turned into a $100 billion+ win that very few believed in, but the Valley has gone full-on Detroit.


Check out this graph by CB Insights showing tech’s disruption of the automotive industry by some 41 companies:

Clearly, it’s no longer an “are you crazy?” kinda play.

Here’s a look at the current landscape, almost none of it predictable just a year ago:

Uber makes cars?

One of the many justifications for Uber seeking to add an additional $10 billion onto a valuation that already makes it the most highly valued private company in Silicon Valley history, is a plan to make its own self-driving cars one day.

As first reported by TechCrunch , Uber is working with Carnegie Mellon University on a research facility to develop its own self-driving car technology.

Side note: How’s that for a driver fuck you from a company that excels in them? In a matter of years Uber’s talking points have gone from (1) liberating drivers from the hegemony of medallions to (2) drivers are kinda expensive and inefficient to (3) hey! self driving cars are where it’s going and if we want to be part of the future we just have to go along… to (4) let’s just build the fucking cars ourselves.

Google screws over Uber?

Google is an investor in Uber, and once looked like it could be the ideal partner – or even potential acquirer for Uber. The two already have a commercial relationship. Uber wants a world dominated by self-driving cars. Google wants to make the cars. Google’s Dave Drummond is even on Uber’s board. (Still!)

Great! Silicon Valley synergy at work! This is why corporations invest in startups, right? And what it sounds like when doves cry?

Apparently, wrong. Bloomberg has reported that Alphabet is planning on making its self-driving car division a stand-alone business under the umbrella next year. This is on top of an early Bloomberg story that claimed Google is developing a rival to Uber, to go along with these cars.

Uh, ok. One day the story behind that relationship will come out…

From Brad Stone’s February scoop:

Those comments, according to the person familiar with deliberations of the Uber's board, have left executives at Uber deeply concerned—for good reason. Google is a deep-pocketed, technically sophisticated competitor, and Uber’s dependence on the search giant goes far beyond capital. Uber’s smartphone applications for drivers and riders are based on Google Maps, which gives Google a fire hose of data about transportation patterns within cities. Uber would be crippled if it lost access to the industry-leading mapping application, and alternatives— such as AOL's MapQuest, Apple Maps, and a host of regional players—are widely seen as inferior.

Google’s entrance into the ride-sharing market would also leave Uber without a partner in the suddenly plausible future in which cars without steering wheels roam the streets. Uber will either have to develop the technology itself or form an alliance with a company that can if it wants to offer autonomous vehicles within its fleet. Mercedes, Audi, Tesla, and other carmakers have said they are developing driverless cars, though it's not clear that any is as advanced as Google's.

So, if these reports are to be believed, make that two Uber competitors with deeper pockets: Didi Kuaidi and Google. Not great for a company trying to raise money at a $10 billion pop in price while it struggles in the global expansion of its core business. Yet another force that should be applying downward pressure on its valuation.

Padmasree Warrior and China take on Elon the great?

Out of nowhere this week, one of the most famous and accomplished women in the tech world, former Cisco CTO Padmasree Warrior, announced her entrance into the car game. It’s not self-driving cars, it’s electric cars. And it’s with NextEV, a Chinese electric car startup. Warrior will be its US CEO.

It’s hard to think of a Chinese tech company making such a high-profile hire in the Valley ever. It reminds me of the coup when Google China hired Kai-Fu Lee, but it’s even bigger, because a lot of Lee’s cred was built in the US before he went back.

It’s yet another sign of just how much China has arrived when it comes to the tech industry. NextEV was founded by William Li, who came from the auto-related internet company BitAuto – who I met with years ago reporting in China. Just as in the US, generations of talent and capital have built on one another to make China the most formidable challenger to the Valley that’s ever existed. A trifecta of Chinese investing giants are behind the company: Tencent, Sequoia China, and Hillhouse Capital.

From the WSJ yesterday:

NextEV hopes to develop electric cars that are affordable for consumers, selling initially in China and then branching into other markets, Ms. Warrior said. It hasn’t set a timetable for bringing those vehicles to market.

First, though, the company hopes to deliver what it calls a “supercar,” a 1,360-horsepower speedster that would compete against high-end sports cars, Ms. Warrior said.

And as has been widely reported, Apple too may be getting in this game. The only giant missing seems to be Facebook.

As the coup de grace, another bit of news: California – the home of so many of these companies – is getting regulation happy. The California Department of Motor Vehicles is proposing a law that requires someone with a driver’s license to be present at all times the cars are in motion. That would kill a lot of the dream of transporting, say, kids without a parental chauffeur. It’s likely the first of many laws to alleviate natural fears with something this new and this outside of human control. And those laws will likely be different state by state.

These are a lot of ostensibly well-funded, moving parts that may or may not conflict in coming years. But a few things are clear: When we used to talk about atoms and bits in the Valley we meant things like Amazon selling books or Uber helping lease real cars. Now this is all moving into a different realm, with manufacturing fucking cutting edge cars. We worried about labor worries in the sharing economy? What happens when Uber operates factories?

A second thing will be fascinating to watch: Will hardware or software rule? All-devouring software is the Silicon Valley cult. Obviously both Google and Uber are posturing they’ll be both. Which is the answer tech investors want to hear. But you always really excel at one. Uber will always have its home in software; Google will in hardware when it comes to cars. Or at least that’s where each have a lead. Warrior’s job will be building software for cars, showing how much NextEV prizes that part of the business; and great software was one of Tesla’s many accomplishments as well.

It’s a fascinating world to think that what’s currently the most highly valued company in Silicon Valley history could wind up being “a TiVo”– i.e. a company that ushers in a change in all of our lives, but ultimately companies with bigger network effects or deeper pockets takes that “disruption” mainstream.

A third thing is crucial to understand, and to me it’s the only given in a surprising landscape: China is a huge, huge factor. When it comes to nearly anything car-related, China is the largest market. China has shit loads of cash. And China now has several generations of excellent entrepreneurs and managers. And apparently, can recruit top Valley talent too.

That a Chinese company has recruited someone as senior as Warrior speaks volumes about where this balance of global power is going.

Oh and one more note: This is going to be a slow moving battle royale, that may not ever really materialize the way the press wants it to today. Richard Windsor of Edison Research put out a note yesterday saying, It is going to be way beyond 2020 before autonomous vehicles begin impacting the lives of the average consumer - the market will take much longer than expected to develop and those that are now rushing to get to market are likely to arrive way too early.”

With all of Uber’s challenges around the globe and billions committed to winning markets with expensive subsidies, do we seriously expect this company to start making cars anytime soon?

Likewise, we won’t really see for another five years or more what an Apple vehicle would even look like, if the reports are accurate. The maps good enough for these cars won’t even be available much before then. And since most of these companies don’t make cars their core business, all of this may wind up being a mix of rumors, slides in fundraising decks to get higher valuations, or skunk work projects that don’t go far. Events that have nothing to do with the promise of this business could scuttle these plans.

Silicon Valley hasn’t relied this heavily on manufacturing plants since the days it was known for making things out of silicon. This won’t be iterative, you can’t move fast and break things, or be embarrassed of your beta launch, because safety and perfection is so crucial and missteps could put a chill on the entire industry. If these companies are serious, there will have to be a cultural change to accompany the business change. And so far, Google and Tesla seem the only Valley entrants who take that seriously.