Investors & Automotive Innovators Join Forces in the Valley

Market Insights
July 26, 2016

Keith DeCoster

Keith DeCoster

Director of U.S. Real Estate Analytics

Some startups in the Valley are having to delay expansion plans or trim their payroll due to challenging funding conditions and soaring business costs. Meanwhile, the Valley’s tech heavyweights, still flush with cash, remain in expansion mode. These large players are enjoying more resources to deploy after forming powerful compacts with foreign investors, auto manufacturers and the top players in the “mobility services” and “autonomous vehicles” sectors.

Investors have placed more than $9 billion into ridesharing apps this year, nearly double the $5 billion that food-related tech apps captured during 2015. In particular, Uber has fared well this year--more than one-third of that $9 billion total comes from a $3.5 billion investment by Saudi Arabia’s sovereign wealth fund in the rapidly expanding startup.

Uber and Lyft have become much more than taxi-hailing apps. They are increasingly seen as a path to the more widespread acceptance of autonomous vehicles. The Valley has already pushed Detroit’s top automakers to change how they think. When Detroit’s Big Three and other top automakers started buying mobility services/autonomous vehicle development companies a year or so ago, some suspected they were stealing a page from tech firms in the Valley and pursuing “shoot-out acquisitions,” purchases of a potential competitor primarily to snuff out the development of a competing product.

It has become clear that these manufacturers have committed themselves to the mobility services bandwagon, embracing the inevitability of autonomous vehicles and investing billions of dollars in collaborative initiatives. Earlier this year, GM formed Maven. This new division of GM, composed largely of a team it acquired from Uber competitor Sidecar, will manage its mobility initiatives. In January GM invested $500 million in Lyft’s ridesharing service. The two will team up to design and construct a fleet of driverless taxis. In one of the more interesting features of the car-sharing service, passengers will be able to bring preferences such as music with them as they jump into connected cars. In March, GM spent nearly $1 billion to acquire San Francisco-based startup Cruise Automation. The startup makes aftermarket kits that can refit cars into autonomous vehicles. More recently, Fiat Chrysler announced it will partner with Google to develop driverless cars.

Smaller startups are getting in the race as well. In late May, Bay Area autonomous driving startup Zoox disclosed a $20 million investment by Hong-Kong based AID Partners Capital Holdings. Zoox, like the GM and Lyft team partnership, hopes to deploy driverless-cars for firms such as Uber. Zoox is currently one out of about a dozen companies with a license from the California Department of Motor Vehicles to test self-driving cars on the state's roads. Other tech firms are focusing on the operating system that will be required to make autonomous and connected vehicles safe and entertaining for its riders. Finland’s Elektrobit Automotive opened an Innovation Lab in Silicon Valley that will focus on developing software solutions for driverless cars. San Francisco-grown Uber leased 140,000 SF in Palo Alto at the close of the quarter, moving closer to the emerging hub of autonomous automotive development. Tesla, Apple, Google, and Uber are now surrounded by many of the largest automotive manufacturers, all of which consider a research location in the Valley critical to tap into the talent base.

Some analysts are saying that Americans will never abandon their love of the automobile. Even if only a portion of drivers globally opt out of car ownership, there is a very big pie for everyone to fight for. Morgan Stanley is projecting that by 2030 roughly 15% of cars globally will be shared - still a big market share to go after. These projections may be overly optimistic, but if there is one place where early adoption is a habit it is Silicon Valley. Its consumers are avid early adopters – and often shareholders- of new technology. There was a time when owning a computer adorned with the Apple icon rather than the Microsoft logo was not just a status symbol but also a personal statement. The same is already true of Uber and Lyft.





Keith DeCoster

Keith DeCoster

Keith oversees the production of local and national market materials. Keith also collaborates with his colleagues across the U.S. and Europe, specializing in reports and insights that highlight the impact of economic trends and market fundamentals on tenants.