Corporate venture capital in the automotive sector

Gavigan, James P.; Fákó, Peter; Compañó, Ramón Working Paper Corporate venture capital in the automotive sector JRC Working Papers on Corporate R&D and Innovation (CoRDI), No. 02/2024 Provided in Cooperation with: Joint Research Centre (JRC), European Commission Suggested Citation: Gavigan, James P.; Fákó, Peter; Compañó, Ramón (2024) : Corporate venture capital in the automotive sector, JRC Working Papers on Corporate R&D and Innovation (CoRDI), No. 02/2024, European Commission, Joint Research Centre (JRC), Seville This Version is available at: https://hdl.handle.net/10419/306598 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Corporate Venture Capital in the Automotive Sector JRC Working Papers on Corporate R&D and Innovation (CoRDI) No 02/2024 Gavigan, J, Fákó, P and Compañó, R 2024 EUR XXXXX XX This publication is a working paper by the Joint Research Centre (JRC), the European Commission’s science and knowledge service. It aims to provide evidence-based scientific support to the European policymaking process. The contents of this publication do not necessarily reflect the position or opinion of the European Commission. Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use that might be made of this publication. 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How to cite this report: European Commission, Joint Research Centre, Gavigan, J., Fákó, P. and Compañó, R., Corporate Venture Capital in the Automotive Sector, European Commission, Seville, 2024, JRC139326. 1 Contents Abstract ....................................................................................................................................................................................................................................................................... 2 Acknowledgements .......................................................................................................................................................................................................................................... 3 Executive summary .......................................................................................................................................................................................................................................... 4 Introduction .............................................................................................................................................................................................................................................................. 5 Open Innovation tools and Corporate Venture Capital .................................................................................................................................................. 6 2.1 Automotive CVC – a rising trend? .................................................................................................................................................................................... 6 2.2 Automotive CVC is implemented in a diversity of ways ............................................................................................................................ 7 2.3 Automotive CVC investments are globally spread, but there is a clear concentration of investments in the US – notably in California ....................................................................................................................................................................................................... 7 2.5 The vast majority of CVC investments in startups are made in conjunction with other co-investors .......... 8 2.6 Do newcomers to the automotive industry have CVC activities? ..................................................................................................... 8 Data on CVC activity for a selection of large automotive companies ............................................................................................................ 9 3.1 The Auto25 CVC data set ........................................................................................................................................................................................................ 9 3.2 Time evolution and analysis by VC stage (seed, early, late) of Auto25 CVC activity ................................................. 11 3.3 Analysis by number of investors per deal ............................................................................................................................................................ 12 3.4 Breakdown of Auto25 CVC investment by sector/ thematic area ................................................................................................. 13 3.5 Location of the startup investees ................................................................................................................................................................................ 19 Main messages ................................................................................................................................................................................................................................................. 22 Final words ............................................................................................................................................................................................................................................................ 23 References ............................................................................................................................................................................................................................................................. 24 Annex .......................................................................................................................................................................................................................................................................... 25 2 Abstract The ongoing transformation of the automotive sector is in part driven by factors such as the unrelenting onslaught of electric/hybrid powertrain technologies, in-vehicle and networked software applications, rising demand for electric vehicles, and the emergence of new entrants like Tesla and others notably in China. The response of automotive firms to these challenges includes, inter alia, Open Innovation (OI) tools and strategies of which Corporate Venture Capital (CVC) is one element. CVC investments by large automotive companies are globally spread, but there is a clear concentration of these investments in the US, particularly in California. The vast majority of CVC investments in startups are made in conjunction with other coinvestors, reflecting the high-risk nature of the innovative technologies being developed. Newcomers to the automotive industry, such as Tesla and BYD, are primarily beneficiaries of venture capital financing, including corporate VC, rather than themselves engaging in venture financing. Despite a drop in CVC in 2023, the rising trend in automotive CVC may return over the medium to long term, driven by increasing startup activity in automotive-relevant areas. 3 Acknowledgements The authors are grateful for detailed comments and suggestions received on a previous draft of this paper from Elisabeth Nindl (in the same JRC unit as the authors) and from two internal reviewers - Panayotis Christidis (JRC.C6) and Diego D’Adda (JRC.T1) – working in other Units of the JRC in Seville. 4 Executive summary The automotive sector is undergoing a significant transformation driven by a variety of factors. These include the competition of different electric/hybrid powertrain technologies to displace the internal combustion engine, new software applications, public-policy driven demand for electric vehicles, and the emergence of new entrants such as Tesla. This transformation poses a threat to incumbent firms dominated by internal combustion engines, and has high socio-economic and political significance, particularly in the EU. In response to these challenges, automotive firms are turning to Open Innovation (OI) tools and strategies. OI refers to a structured approach to firm collaboration with external partners – startups, clients, suppliers, academic and public research organisations – aimed at accelerating the discovery, development and deployment of innovation. Corporate Venture Capital (CVC) is one such tool, and involves investing in startups to access their innovative technologies and solutions. This paper combines a qualitative discussion with qualitative analysis of automotive CVC, the latter based on data for 1173 financing deals for 827 startups in which one or more of the top 25 automotive corporates [by worldwide R&D spend] participated. CVC investments by large automotive companies are globally spread, but there is a clear concentration in the US, particularly in California. This is likely due to the presence of a large pool of innovative startups and talent in the region. For example, 49 out of 66 startups in the portfolio of BMW i Ventures are based in North America. The vast majority of CVC investments in startups are made in conjunction with other co-investors. This is understandable given the high-risk and exploratory nature of the innovative technologies and solutions that the startups are developing. Co-investment also allows for risk sharing and the pooling of resources and expertise. Newcomers to the automotive industry, such as Tesla and BYD, are primarily beneficiaries of venture capital financing, including corporate VC. These companies, which are mainly in the electric vehicle business, have received significant financial support from various sources. Some of these newcomers have also begun to invest in other startups, primarily through acquisitions. Despite a drop in CVC in 2023, the rising trend in automotive CVC may return over the medium to long term. This is likely to be driven by increasing startup activity in areas relevant to the automotive industry, such as electric vehicles, autonomous driving technology, mobility services, digitalisation, green technologies, and supply chain optimisation. 5 Introduction The on-going transformation of the automotive sector is driven by many factors such as: different electric/hybrid powertrain technologies competing to displace the internal combustion engine (ICE); new software applications (Teece, 2018; The Economist, 2022); public-policy driven demand for electrical vehicles (IEA, 2023); emergence of new entrants such as Tesla and other car manufacturers particularly from China; and paradigm shifts such as smart factories, connected, autonomous and shared driving (Paunov & PlanesSatorra, 2019). The resulting threat to ICE-dominated incumbent firms (Altenburg et al., 2022, Thun, 2018, has high socio-economic and therefore political significance in the EU where, in 2022, the sector accounted for 7% of employment1, 10% of exports2, and 32% of its private R&D investments3. One way in which automotive firms are responding to the technological dimensions of these challenges is through the use of Open Innovation (OI) tools and strategies. OI refers to a structured approach to firm collaboration with external partners – startups, clients, suppliers, academic and public research organisations – aimed at accelerating the discovery, development and deployment of innovation (see for example the description of Volkswagen Group’s approach to OI at https://www.openinnovation-volkswagengroup.com/#). OI complements traditional approaches to innovation involving in-house R&D, patenting and IP management activity, innovation procurement, research collaborations and joint ventures. Section 2 of this Working Paper gives a snapshot4 of startup orientated OI tools used by automotive firms focusing particularly on Corporate Venture Capital (CVC)5. It describes overall tendencies, citing examples of CVC investments by large automotive companies in the EU, US, China, Japan and the rest of the world (ROW). This mostly qualitative overview section is followed in Section 3 by a quantitative analysis of CVC financing of innovative startups from 2010 to 2023 by 25 automotive companies consisting of the top five R&D investors headquartered in, respectively, the EU, US, China, Japan and ROW.6 The quantitative analysis is based on data on VC deals extracted from Dealroom in which at least one of these 25 companies or a subsidiary thereof is among the named investors. The data sample contains information on 1173 financing deals for 827 startups in which one or more of the 25 automotive corporates participated. 1 13 million jobs (https://www.acea.auto/figure/employment-in-eu-automotive-sector/) 2 https://www.worldstopexports.com/european-unions-top-10-exports/ 3 Own calculation based on Scoreboard Panel for 2021. 4 A comprehensive overview is not possible as corporates frequently adjust, terminate or start new activities aimed at such startups and much CVC activity is not publicly disclosed. 5 i.e. equity financing and nurturing of startups by automotive OEMs or suppliers either by dedicated corporate VC branches or by fully or partly owned subsidiaries set up to manage such funds. N.B. included in this is CVC support to automotive startups by newcomers such as Tesla, Rivian or Lucid Motors in the US, Byd, Nio or Xpeng in China; however, not covered is CVC by corporates which are not primarily automotive firms – Dealroom data shows that there is a lot of such CVC coming from outside the industry - this is in keeping with the big transformations the industry is undergoing and the blurring of its boundaries. 6 according to the 2023 edition of the industrial R&D Scoreboard https://iri.jrc.ec.europa.eu/ 6 Open Innovation tools and Corporate Venture Capital A series of reports on Open Innovation (OI) in 100 global innovation leaders by ‘Mind the Bridge’7, lists six types of startup-orientated OI approaches. Two approaches involve acquiring equity in the startup (CVC, M&A), while the other four do not necessarily (Venture Client, Innovation Labs [including accelerators and incubators], Intrapreneurship, Outposts). CVC and Venture Client were reported in Mind the Bridge’s Open Innovation Outlook 2023 report to be the dominant forms8 of OI, though in its Outlook 2024, CVC is listed in fourth place behind Venture Client, Intrapreneurship and Outpost, possibly reflecting the overall shrinkage of VC in 2023. Automotive-relevant observations in Mind the Bridge’s Dec 2022 “Evolve or be Extinct” report9 include: 1. Outposts: Most innovation leaders have a structured presence in Silicon Valley and Israel (e.g. a CVC office, innovation lab, …) sometimes coupled with other activities – Bosch has both a CVC office and an R&D centre in Silicon Valley; 2. Innovation Lab examples: 1) Honda Xcelerator with presences in North America, Europe, Israel, Japan & southeast Asia, focuses on investment and strategic partnerships; 2) 1886Ventures, a so-called ‘venture builder’ or ‘startup studio’ is a now non-dependant spin-out of Mercedes-Benz. 3. Venture Client: In this approach, pioneered by BMW Startup Garage, no equity is taken but the company positions itself as lead client for the startups. Indeed, many if not all innovation leaders have Venture Client units: For example, Open Bosch was launched in 2018 to enhance Bosch’s CVC activity. Volvo Group’s10 CampX incubator programme works with about 30 early stage deeptech startups not yet ripe for investment. Similar to Jaguar Land Rover’s collaboration with Plug and Play (the world’s largest startup accelerator), CampX permits Volvo to work with many more early stage deeptech startups than its CVC arm – Volvo Group Venture Capital which makes 3 to 5 VC deals per year of between $1-10 million. 2.1 Automotive CVC – a rising trend? A 2017 paper entitled “The limited interest of carmakers in corporate venture capital: insights from a mature industry” (Flamand & Frigant, 2017)11 found a relatively low level of CVC in the automotive sector. In the meantime, this has changed. Corporate venturing is commonly used by traditional automakers and large tier1 automotive suppliers to stay abreast of rapid disruption by accessing external cutting-edge innovation and forging partnerships with startups. Even though CVC has seen a drop in 2023 (following an overall drop in VC investments over the past two years), the rising trend may well return over the medium to long term, driven by rapidly increasing startup activity in automotive-relevant areas:  Electric vehicles, battery technology, charging infrastructure and all types of on-board software;  Autonomous vehicles and self-driving technology;  Mobility services, including ride-sharing, car-sharing, and on-demand transportation;  Digitalization including in-car connectivity and other software-driven features;  Green technologies and processes to reduce the automotive environmental footprint; and  Technologies to optimize supply chains, manufacturing and logistics, and reduce production costs. CVC activity also facilitates collaboration with startups of strategic potential for large automotive firms giving them access to non-core technologies and opportunities such as: expertise on urbanization and smart cities; global expansion via international partnerships; collaboration with tech giants like Amazon, Apple, and Google (leveraging their software and AI expertise); diversification into AI, cybersecurity; etc. 7 see https://research.mindthebridge.com/reports 8 ‘Venture Client’ is where the company takes no equity but becomes the first client for the startup 9 https://mindthebridge.com/evolve-or-be-extinct-report-2022/ 10 Volvo Group produces trucks, buses, construction equipment & engines but does not include Volvo Cars (which has been part of Geely (China) since 2010 and runs its own CVC Volvo Cars Tech Fund since 2018) 11 https://www.tandfonline.com/doi/full/10.1080/13691066.2017.1335959 13 Table 3 Distribution by number of investors per deal of the total number of Auto25 deal participations & the associated number of startups; the number of disclosed deal participations, startups, Auto25 investment and total investment. Source: JRC elaboration based on Dealroom data (last accessed 02.02.2024). #investors # deals #disclosed deals # comps #comps in disclosed deals Auto25 CVC investments* Total investments 1 254 138 228 125 9,110 9,110 2 178 125 150 108 2,872 5,744 3 153 127 127 104 4,056 12,169 4 160 145 134 125 2,403 9,612 5 136 121 110 98 1,088 5,441 6 113 108 97 92 852 5,113 7 107 103 74 70 1,707 11,949 8 85 81 62 58 1,417 11,334 9 44 43 35 34 290 2,606 10 33 32 30 29 148 1,481 11 24 23 19 18 239 2,624 12 24 23 11 10 282 3,112 >12 33 32 23 22 407 7,711 Total 1,344 1,101 n.a. n.a. 24,870 88,006 *: sum of the parts of the Auto25 investors from a certain deal, fractioning uniformly across the total number of investors participating in a deal (e.g. total number of investors = n, number of Auto25 investors 2. The column will show the 2/nth part of the total amount). 3.4 Breakdown of Auto25 CVC investment by sector/ thematic area The data sample of CVC investment deals participations records the area or sector of activity of the startup investees. As expected, most of the startups of interest to automotive firms are active in areas directly or indirectly relevant to automobiles. However, as is the case for corporates across all industrial sectors, many CVC investments target technological areas, which at best have a tentative link to core business or indeed no link at all and as such no different from mainstream VC fund investments. In order to define the sectors of activity we used Dealroom industry categories and subcategories and grouped them further in order to ensure parsimony and relevance. The automotive sub-industries represent the backbone of the present analysis, therefore we provide their definition hereunder24. While for seven out of the eight automotive sub-industries we use the Dealroom definition, for the last sub-industry from the list below (evie) we provide our own (Table 4). We also defined sectors of activity by grouping the Dealroom industry categories (Table 5). 24 The definitions of the remaining industry categories can be found on Dealroom’s website at https://intercomhelp.eu/dealroom/en/collections/4768-definitions-dictionary-taxonomy. 14 Table 4 Automotive and other transportation sub-industries definitions and abbreviation used. Source: Dealroom and JRC elaboration Automotive sub-industry Description Search, Buy & Rent (sbr) Marketplaces and other solutions to enable and facilitate new and used vehicle purchasing, vehicle rental and leasing, as well financing Maintenance (mt) Solutions to improve maintenance and aftermarket for vehicles including platforms to connect users to networks of repair dealers, claim estimation for insurance, B2B solutions and marketplaces for parts Navigation & Mapping (nm) Startups developing solutions to track vehicles, provide navigation and mapping. This includes navigation apps, telematics providers, platforms for mobility data sharing, logistics tracking Autonomous & Sensor Tech (ast) Startups developing solutions for autonomous driving or to enhance other vehicle sensing capabilities. This included autonomous driving vehicles, software and sensors and V2X Vehicle Production (vp) Startups producing or developing solutions for vehicle production, as well as vehicle parts such as motors, chassis Mobility (mb) Startups developing transportation solutions getting people from point A to point B. This includes ride hailing, ride sharing, public transport and micromobility Logistics & Delivery (ld) Startups developing solutions for the transportation of goods, the packaging of products for storage and shipment involving both internal and external distribution networks EV charging (evie) Startups explicitly developing deploying e-v charging and other energy infrastructures Table 5 Clustering of Dealroom industry definitions into larger Sector groups. Source: JRC elaboration, Dealroom Sector (JRC) Dealroom industry Advanced manufacturing, industrials robotics, engineering and manufacturing equipment, 3D printing, chemicals, mining, real estate construction Automotive Autonomous & sensor tech, vehicle production, search & buy & rent, navigation& mapping, EV charging, maintenance Transportation - other mobility, logistics & delivery Energy energy Fintech Fintech ICT hardware semiconductors ICT software enterprise software, security, telecom, hosting Leisure, fashion, entertainment consumer electronics, sports, travel, music, gaming, wellness beauty, fashion, home living Life sciences tech health, food, agritech Marine, aeronautics, space marine & air transport, space Other real estate (other than construction), media, marketing, education, jobs recruitment, event tech Investments of Auto25 investors in 2010-2023 were concentrated in relatively few sectors that are strongly related in their nature to their mother company’s main activity (Figure 3). Thus, 77% of all investments went to the transportation sector, mainly to automotive sub-sector (54%), but the mobility and logistics & delivery industries also got significant capital injections (23%). Relatively lower shares were spent in the energy sector (9%), and in ICT software and hardware (7%). The remaining six sectors, encompassing 26 Dealroom-defined industries got marginal amounts reaching altogether 7% of total investments. Within the automotive sector, the autonomous and sensor tech (ast) industry dominates the landscape of investments with its 64% share of total automotive investments. It is followed by the more general vehicle production (vp) industry (23%). The lower importance of EV charging (evie) investments (5%) may be due to the still relatively smaller share of the EV segment of the automotive market. However, the segment is expected to face significant growth in the 15 near future supported by a predicted six-fold increase of public charging, even though private charging would still dominate (IEA, 2024). It is somewhat puzzling the low share of the navigation & mapping sub-sector, and it may be related to the relatively smaller needs of physical capital. Investments in less capital intensive segments such as automotive retail captured by search & buy & rent (sbr) industry or vehicle maintenance (mt) are of lower importance (3% altogether). Figure 3 Distribution of the aggregate amount of Auto25 CVC investments and Auto25 CVC investments in automotive sub-industries in 2010-23, broken down by the sector of activity of the investee startups. (ast: autonomous & sensor tech, vp: vehicle production, nm: navigation & mapping, mt: maintenance, sbr: search & buy & rent, evie: EV charging). Source: JRC elaboration, data source: Dealroom There are altogether 411 deal participations in the automotive sector, 339 (83%) of them the amount invested is disclosed, for the other 52 the deal amount is not disclosed. These participations represent 328 separate deals, 261 of them disclosed and 67 nondisclosed. Based on the percentile distribution of the cumulated amounts of investment by Auto25, there is a significant concentration of the invested amounts in a fairly low number of deals: while the 3 largest deals account for one third of the total globally invested CVC amount by Auto25 during 2010-23, the top 8 deals account for half of the total, and only 32 deals for 80% of the full amount going to the automotive industry25. The lowest 10% in terms of amounts invested comprise a total of 200 deals. The amounts of these deals are individually less than EUR27 million. Further to this, data shows that 157 deals, i.e. 60% of the sample are less than EUR10mn26. This means that the other 40% of the sample is characterized by relatively larger investments (Table 6). Sector-wise, the autonomous &sensor tech and vehicle production are the two sectors where the largest deals were made, the former being in the lead. Likewise, the US is the region where the most significant investments took place, e.g. the largest three deals, accounting for one third of the total Auto25 invested amounts were all done in the US. However, in the lower quartile with amounts between EUR27mn and EUR125mn per deal, Chinese startups seem to become more interesting for the Auto25 investors: in this value range one third of the deals concern investees headquartered in China (Table 6). 25 Not to confuse the amounts with the full amounts of the deals. The distribution of the latter shows similar trends, the table depicting these amounts is in the annex. 26 Available upon request 16 Table 6 Number of disclosed deals by percentiles of the cumulated amount of investments made by Auto25 CVC investors in the six sub-sectors of the automotive industry by sub-sectoral and geographical breakdown (ast: autonomous & sensor tech, vp: vehicle production, nm: navigation & mapping, mt: maintenance, sbr: search & buy & rent, evie: EV charging). Source: JRC elaboration, data source: Dealroom Perc. amounts, EUR # of D deals ast vp nm mt sbr evie EU US CN JP ROW 25 1.1-2.3billion 2 2 2 32 > 939 million 3 3 3 50 > 346 million 8 7 1 7 1 66 > 197 million 17 9 6 2 1 13 3 75 > 125 million 24 12 10 2 3 14 7 80 > 80 million 32 14 12 3 3 4 16 10 2 90 > 27 million 61 26 17 9 4 5 5 29 20 0 7 100 261 102 58 30 14 36 21 31 122 48 2 58 Key players in the top deals are CVC investors related to Volkswagen A.G. (accounting for the largest deal, EUR2.3 billion, acting also as single investor), Ford Motors, Toyota Motors, and Honda. They participated in the top 4-6 deals of our sample27, investing altogether EUR5 billion in only two, US headquartered self-driving technology companies, Argo AI (EUR3.25 billion) and Cruise (EUR1.75 billion). Volkswagen’s investment in Argo AI is the largest investment of the sample in terms of total amount invested. This is followed by a similarly large (EUR2.28 billion) investment in Northvolt (SE, energy) where Scania and Volkswagen Group participated along 20 other investors, and the EUR2.1 billion investment in Rivian Automobiles, where Ford Motors participated along seven other investors (Table 7). Table 7. Top ten deals – total amounts (left) and Auto25 CVC investor amounts (right). (ast: autonomous & sensor tech, vp: vehicle production, nm: navigation & mapping, mt: maintenance, sbr: search & buy & rent, evie: EV charging). Source: JRC elaboration, data source: Dealroom Automotive and ‘other transport’ relevant startups by far account for most Auto25 CVC investment (Figure 3). However, while the number of automotive deal participations is almost the same as for the ‘other’ sector, the amount of investment per deal participation in automotive startups is significantly higher (Figure 4). The EU, US, CN and ROW headquartered Auto25 companies invest more in automotive startups than in any other areas. JP headquartered Auto25 companies invested more in logistics and delivery and mobility-related areas. They have done so through a relatively limited number of large deals (EUR3.3bn via 9 deals). The EU headquartered Auto25 companies invest disproportionately higher in energy-related startups, albeit of a total that is a small fraction of the amount for all transport-related startups. (Figure 4, left). The fact that these proportions are not at all apparent for the numbers of deals (Figure 4, right) indicates that a number of inordinately high deal values may be behind the amounts invested. 27 Argo AI, Cruise, and Grab were the targets for the top four deals amounting to a total Auto25 participation of EUR4.8bn. Cruise’s further capital injection of EUR1.1bn of which General Motors and Honda related CVC investors account for EUR500mn is the fifth largest deal in the sample. It is preceded by an investment share of EUR653mn made by Honda also in Cruise (US, ast) deal rank auto25 # of inv. year Total, EURmn investee industry code 1 VOLKSWAGEN (EU) 1 2020 2,310 Argo AI (US) ast 2 VOLKSWAGEN (EU) 22 2021 2,283 Northvolt (EU) energy 3 FORD MOTOR (US) 8 2021 2,115 Rivian Automotive (US) vp 4 MAGNA (ROW) 6 2021 2,075 Waymo (US) ast 5 MAGNA (ROW) 7 2020 2,034 Waymo (US) ast 6 TOYOTA MOTOR (JP) 4 2017 1,737 Grab (ROW) ld 7 GENERAL MOTORS (US) 3 2021 1,643 Cruise (US) ast 7 HONDA MOTOR (JP) 3 2021 1,643 Cruise (US) ast 8 SAIC MOTOR (CN) 8 2020 1,247 WM Motor (CN) vp 9 FORD MOTOR (US) 4 2019 1,170 Rivian Automotive (US) vp 10 GENERAL MOTORS (US) 4 2019 1,028 Cruise (US) ast 10 HONDA MOTOR (JP) 4 2019 1,028 Cruise (US) ast deal rank SB_mother # of inv. year CVC investor amount, EURmn Investee ind. code 1 VOLKSWAGEN (EU) 1 2020 2,310 Argo AI (US) ast 2 FORD MOTOR (US) 1 2017 940 Argo AI (US) ast 3 TOYOTA MOTOR (JP) 1 2018 856 Grab (ROW) ld 4 HONDA MOTOR (JP) 1 2018 653 Cruise (US) ast 5 GENERAL MOTORS (US) 3 2021 548 Cruise (US) ast 5 HONDA MOTOR (JP) 3 2021 548 Cruise (US) ast 6 TOYOTA MOTOR (JP) 1 2019 535 Didi Chuxing (CN) mb 7 VOLKSWAGEN (EU) 2 2019 443 Northvolt (EU) energy 8 TOYOTA MOTOR (JP) 1 2018 433 Uber (US) mb 9 MERCEDES-BENZ (EU) 2 2017 348 Beijing Benz (CN) vp 10 MAGNA 6 2021 346 Waymo (US) ast 17 Eight of the top 10 energy deals belong to Volkswagen, who invested EUR752mn in Northvolt through VW Group and Scania (deal included in Table 7), EUR100 million in 1Komma5° through Porsche Ventures28, EUR270 million in QuantumScape, and EUR63 million in Group14Technologies, also via Porsche. The two nonEU Auto25 companies in the top 10 ranking of energy deals are Caterpillar (EUR131 million, Redwood) and Honda (EUR74 million, Lunar Energy). EU headquartered Auto25 such as Stellantis and BMW can be found among others further down, but close to the ranking of the top energy deals. Figure 4 Destination by sector of activity of investees showing volume of CVC investment (left), and number of deal participations (right) summed over Auto25 by HQ location. Source: JRC elaboration, data source: Dealroom As mentioned earlier, the bulk of corporate venture capital investments flew into the automotive & sensor technologies (ast) with 2/3rd of total automotive CVC of Auto 25 companies, followed by vehicle production (vp) with slightly less than a quarter of the total funds (Figure 5, left). Certainly, these two sub-industries are the most capital-intensive ones. The key players in the autonomous & sensor tech field are EU headquartered Auto25 companies who invested EUR3.2 billion (Table A2, annex), which may seem to be a good news for the companies of this region because this is the key sub-industry of the modern automotive industry with likely the highest added value in the automotive sector and that is likely to ensure the largest comparative advantages in the technological race within the sector as a whole. EU firms are followed by Japanese companies (EUR2.4 billion), and US companies (EUR1.9 billion). Investments from companies from the three largest global economic regions (the EU, the US and CN) are more evenly represented in the vehicle production sub-industry, with Chinese companies being somewhat in the lead, investing EUR1bn vs. EUR845 million of the US and EUR821 million of the EU companies (Figure 5, left). The four remaining sub-industries (EV charging, search & buy & rent, maintenance, and navigation & mapping) received more limited amounts of capital. It is noteworthy the relatively higher share of EU Auto25 companies in EV charging (62% of total CVC received by this sub-industry) and in the search & buy & rent (59%) subsector as well as that of Chinese Auto25 companies in navigation & mapping (52%). The autonomous & sensor tech sub-industry received not only the largest invested amounts, but also the highest number of deals, that of disclosed deals as well as the largest average deal sizes (Figure 5, right). The strongest concentration was in the US, where a relatively lower number of deals coupled with significant investments resulted in an average deals size of EUR188mn, spiking out from the series. The largest deals on average in vehicle production took place in China with an average invested amount of EUR60mn per deal, and the same region stands out with its average deal size of EUR51mn in navigation & mapping. However, in navigation & mapping, search & buy & rent, maintenance, and EV charging the generally low number of deals are not robust enough for farther reaching conclusions. 28 VW invested another EUR47mn in 1Komma5, too, but this deal does not reach the top 10. 18 Figure 5 Destination by automotive sub-industries of Auto25 investees showing volume of CVC investment (left), and the number of deals and disclosed deals as well as average deal sizes (the ratio of the invested amounts and the number of disclosed deal participations) (right) by HQ location. (ast: autonomous & sensor tech, vp: vehicle production, nm: navigation & mapping, mt: maintenance, sbr: search & buy & rent, evie: EV charging). Source: JRC elaboration, data source: Dealroom In comparison to their own totals, Japan headquartered Auto25 companies invested the largest share of their capital in ast amounting to almost 90%. They are followed by the EU investors with around two third of the total capital invested as well as US Auto25 investors with slightly more than 60% of their own total. As mentioned previously, this is a noteworthy development given the rather high importance of ast in the modern automotive value chain. Another interesting fact is that although the EU lags behind the US and CN on the EV market, it is the main global economic region investing in evie. This may be due to an even more pronounced lagging behind in EV charging infrastructure. Last but not least, share of Chinese headquartered Auto25 CVC funds seem to be overrepresented in nm. The reasons may be multiple, e.g. continuous infrastructure development of a country of the size of China, share of transportation companies using these technologies, etc. (Figure 6). Further research is be needed to explore the fuller set of reasons behind these relative differences. Figure 6 Share of investments in automotive sub-industries of Auto 25 CVC companies in their total automotive sector investment, by global regional headquarters. (ast: autonomous & sensor tech, vp: vehicle production, nm: navigation & mapping, mt: maintenance, sbr: search & buy & rent, evie: EV charging). Source: JRC elaboration, data source: Dealroom # deals vp ast nm mt sbr evie EU HQ corp. 27 50 20 11 31 20 US HQ corp. 19 15 9 4 3 5 CN HQ corp. 17 30 8 3 6 5 JP HQ corp. 10 40 3 1 6 6 ROW HQ corp. 7 26 8 7 6 7 Total 80 161 48 26 52 43 # disclosed deals vp ast nm mt sbr evie EU HQ corp. 23 40 14 7 22 16 US HQ corp. 17 10 8 2 3 4 CN HQ corp. 17 27 7 3 5 3 JP HQ corp. 8 34 3 1 5 4 ROW HQ corp. 7 25 8 5 6 5 Total 72 136 40 18 41 32 average deal size vp ast nm mt sbr evie EU HQ corp. 36 79 8 5 8 28 US HQ corp. 50 188 18 11 6 17 CN HQ corp. 60 14 51 7 7 5 JP HQ corp. 20 70 8 7 11 7 ROW HQ corp. 27 34 7 4 2 32 Total 42 64 17 6 7 23 19 3.5 Location of the startup investees According to our sample, Auto25 investors from each global economic region under scrutiny target mainly US headquartered startups, except for Chinese investors, who invest mainly domestically. Likewise, US headquartered Auto25 investors prefer to invest mainly at home. European and Japanese Auto25 investors were the largest capital exporters, the latter being the most significant one compared to its own totals: while Japanese startups included in the sample were financed exclusively (100%) by Japanese Auto 25 investors, only 8% of the latter targeted domestic startups (i.e. a relatively modest amount of EUR566mln in total). EU and especially Japanese startups got funding mainly from domestic resources29, which in the present case means first, a fairly large exposure to merely five large automotive companies and second, it may become a limiting factor if home resources of capital dried up for any reason, especially those unrelated to their own business, such as macroeconomic, or industrial policies. US investees are the most internationalised in terms of funding (Figure 7)30. From 2010 to 2023 the amount of Auto25CVC investments in the US was 6.21 times bigger than in the EU (i.e. 13904/2238, Figure 7, left) which is very similar to the US to EU ratio for the total amount of VC investment in the respective economies for the same period – i.e. 6.2731. By this reckoning, the relative amount of EU Auto25 CVC investment made in the EU compared to that made by the same firms in the US (i.e. 23% of the total, Figure 7, right) is considerably higher than the value corresponding to an amount of investment proportional to the relative size of the total VC investments in the two regions (i.e. 14%, based on own calculations using Pitchbook data). While this means that the EU Auto25 CVC investments show a certain degree of home bias in proportional terms, this in no way diminishes the serious necessity of overcoming the persisting deficit of the overall EU VC market compared to that of the US. Figure 7 CVC investment flows between HQ regions of the Auto25 investors and locations of the funded startups, EUR million (left) and % of domestic presence: Column 1: % of CVC by Auto25 firms from a given region or country invested domestically (x) ; and Column 2: x as % of all CVC investment in a given region regardless of its origin (right). Source: JRC elaboration, data source: Dealroom 29 In our dataset there is only one single deal involving a non-Japanese Auto25 and a Japanese investee and the amount of this deal is unknown. It is a 2019 early VC investment of Volkswagen in Takamtsu, a Japanese pharmaceutical company. 30 The significant Japanese presence in the ROW funding is due to the massive investments of Toyota (mainly) and Honda (to a lower extent) in the Singapore based mobility and logistics & delivery company Grab (South-East Asia’s UBER), totalling EUR1.6 bn (44% of the total investments in the ROW region). 31 Based on Pitchbook data – i.e. total VC investment in the US over the years 2010-2023 was 6.27 times bigger than that for EU27 - €1870 billion [US]; €298.2 billion [EU27] (consulted on-line Sept 2024) 20 3.6 Focus on the startups There are 827 startups in our sample. Most of these companies are operational, only 21 companies from the sample are either closed (12 firms) or classified by Dealroom as of low-activity (9 firms). The companies are overwhelmingly not-exited (private) companies: 688 companies (83% of the total sample) have not yet been subject of an exited round such as a merger, an acquisition, an IPO, etc. 32 The preferred exit strategy is a merger or acquisition (M&A) deal. A bit more than three quarter (76%) of the 139 exited companies were subject to such a deal (102 acquisitions, 4 mergers). Only about one quarter (33 companies, 24% of the total) of the startups included in the sample have gone public via an initial public offering (IPO), Figure 8, left. Figure 8 Structure of the number of startups funded by Auto25 related CVC investors in 20102023, by exit strategy adopted (left) and structure of the full sample of the 827 startups funded by Auto25 related CVC investors in 2010-2023 (). Source: JRC elaboration, data source: Dealroom In terms of number of companies financed, Auto25 investors preferred to provide CVC funding mainly for companies created after 2008-2009 (Figure 9, left), corresponding to the aftermath of the 2008-2009 financial crisis33. However, more significant amounts were disbursed to companies launched between 2009 and 2016, peaking in 2016, although this year may be somewhat biased by the Argo AI deal for a total amount of about EUR3.25bn. However, even without this deal, 2016 as launch year is strong in terms of financing received, significantly stronger than later launch years. In the meantime, Auto25 companies were not keen on providing significant financing to the very youngest firms, especially those launched after 2021. They were less keen on startups created before the 2008-2009 economic crises, despite the huge liquidities existing on the global financial markets in the running-up to the crisis. In other words, companies launched before the period under scrutiny (i.e 2010-2023) never became really interesting for Auto25 investors (Figure 9, right). This is because auto firms mostly go for later stage VC investments (i.e. early +late VC), as we have seen this at Figure 1. The relative paucity of seed CVC deals compared to early and late stage VC deals can be observed also irrespective of the sector of activity as it can be seen on a data extract from Pitchbook (Figure A2, Annex). We can conclude that the age of the startups do matter for CVC investment decisions. 32 We consider the first exit round. Note that some companies may then suffer a change afterwards, such as merger, acquisition, going private again, etc. For example, the startup Velodyne Lidar was first floated on the stock market via SPAC IPO in September 2020 (for a value of $bn1.8) and afterwards was acquired by Ouster in November 2022, https://s27.q4cdn.com/377532724/files/doc_presentation/2023/closing-update-on-merger-of-equals-between-ouster-and-velodyne.pdf 33 Further research is needed to decide whether or not this is only a coincidence. # startups share ACQUISITION 102 12% IPO 33 4% MERGER 4 0% Private (not yet exited) 688 83% Total 827 100% 21 Figure 9 Histogram of the number of startup companies by their launch year (left) and of the amounts of CVC investments received by them in 2010-2023 from Auto 25 companies (right) Source: JRC elaboration, data source: Dealroom 22 Main messages Corporate venture capital by leading EU automotive firms is on a par with competitors and is being put into the technological innovation that is transforming the sector: autonomous driving, sensor technologies, etc. What is worrying, however, is that most CVC investment by EU automotive leaders goes to US-based startups. In contrast, CVC from leading Chinese automotive firms, for example, is invested domestically. #1 Corporate venture capital is an important tool for automotive firms to tap into high-potential, startup-driven innovation In addition to traditional approaches to expanding knowledge-based assets (in-house and collaborative R&D, IP management, innovation procurement, joint ventures, mergers and acquisitions), automotive firms also target new technologies through structured ‘Open Innovation’ (OI) external collaboration with startups, clients, suppliers, and academic and public research organisations. One prominent form of OI is corporate venture capital (CVC) in which automotive firms acquire equity in innovative startups. We have analysed all CVC funds associated with the sector’s 25 main corporates, taking the top five per region (Europe, US, China, Japan, Rest-of-the-World) – which, for the sake of simplicity, we refer to as ’Auto25’. While aggregate automotive CVC data show a considerable increase over the past decade with rapid investment growth recorded from 2014 to 2021, CVC investment levels vary considerably from firm to firm with a handful of incumbent automotive companies dominating. While automotive CVC investment is substantial, has increased over the years and has become one of the backbones of corporate’s open innovation strategy, the overall level remains – on average – at least an order of magnitude lower than internal R&D34. Most Auto25 CVC investment from 2010 to 2023 – about 56% - went to startups active in areas directly or indirectly related to automobiles. As in other industrial sectors, a diversification pattern can also be observed with significant amounts also invested in startups active in other fields such as energy (9%) or ICTs (7%). CVC investment directly related to automobiles amounted to €13.5 billion, from 412 deal participations in startups active in six different sub areas distributed As follows: 64% in autonomous driving & sensor technology startups; 23% in vehicle production startups; only 5% in EV charging & related infrastructure startups, with the remainder going to startups active in the navigation & mapping, maintenance or sell-buyrent segments. However, while the International Energy Agency expects the public EV charging segment to undergo a six-fold increase, private charging will continue to dominate. By HQ location, Japanese EU and US firms invested 90%, 66% and 60% respectively in autonomous driving & sensor technology. Chinese firms however have been investing in the period considered a relatively high proportion of CVC in navigation and mapping and a relatively low proportion in EV charging & related infrastructure. #2 Most CVC investment by EU automotive firms goes to the US – indicative of the less-developed EU VC market for scale-up financing Automotive CVC activity is typically handled by offices close to the headquarters of the parent firm (e.g. Stuttgart, Germany – home to Mercedes-Benz and Porsche; Turin, Italy – Fiat Chrysler Automobiles; or Tokyo/Nagoya – Toyota). Most also have CVC offices in locations around the world close to talent and venture opportunities. The analysis shows that US-based startups are the main beneficiaries of global automotive CVC investment with EU, Japanese and ROW Auto25 firms investing more in US based startups than in domestic ones. Chinese and US Auto25 investors invest mainly at home. On the other hand, startups located in the EU and especially in Japan get CVC funds mainly from domestic (by HQ) Auto25 firms. Most (78.5%) of the CVC deals in this sample involve two or more investors. Sometimes these other investors are other automotive firms but often they are private VCs and other investors not active in the auto sector. Single investor deals probably involve cases where the corporate investor expects exclusive or priority access to what the startup investees are developing. However, the preponderance of multi-investor deals is indicative of a cooperative approach by corporates to CVC investments, possibly because either the technologies are high-risk or it makes good business sense to jointly support the development by investees of shared technology standards. 34 See also section 1.4.1 Corporate Venture Capital in The 2021 EU Industrial R&D Investment Scoreboard