How Silicon Valley is inventing the future of cars

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For more than a century, the U.S. automotive industry has connoted gasoline and combustion engines, grease-covered mechanics in goggles, supervisors barking out orders in a manufacturing plant, assembly lines pumping out vehicles and the sounds of automobiles starting up for the first time.

The center of that industry, the one that produced the old Ford truck your dad still owns, has been firmly rooted in Detroit.

But when it comes to the automotive industry of today, you have to turn to the “new” Motor City: Silicon Valley. Instead of mechanics with their sleeves rolled up, there are engineers at companies like Google who are dictating where the trillion-dollar industry — which notched a record 17.55 million vehicles sold in 2016 — turns next. That’s because, instead of designing the next iteration of pickup trucks, these engineers are light years ahead, building vehicles that don’t even need drivers.

The pursuit of self-driving cars has changed the game in the auto industry, with the focus shifting from the physical development of vehicles to the development of technology that guides how they operate and, yes, even think. For this, the Valley has taken the reins. Here, in the hotbed of innovation, people and ideas spread from Tesla to Apple to Uber like wildfire. Here is where companies welcome competition and where startup after startup seeks to grab a small piece of the self-driving pie.

Here is where the next automobile is being crafted: It’s not taking place in the factories of smoggy Detroit but rather in the shiny offices of tech companies in sunny Silicon Valley.

A who’s who of automakers

From the outside, BMW’s Technology Office in Mountain View doesn’t stand out. Located adjacent to U.S. Highway 101 and Google’s sleek, glassy headquarters, the plain, two-story building hardly divulges the state-of-the-art ideas and technology inside that could soon redefine the auto industry.

Here, you won’t find people working on tires, seat covers and paint jobs. Instead, the office is chock-full of software engineers who could be employed at Apple. The company’s job listings include a software engineer focusing on Big Data analytics, a senior advanced technology engineer focusing on simulation and a JavaScript developer.

“The core focus of our activity here is not the integration of the vehicle that is done (at the headquarters) in Munich, but our core focus is machine learning, sensor evaluation and sensor fusion,” said Simon Euringer, the head of the BMW tech office.

In lay terms, sensor fusion is the stitching together of various sensors — radar, lidar or ultrasonic, for example — that capture raw images and allow a car to come up with an environmental model, a 360-degree, real-time presentation of its surroundings. This technology is critical to developing artificial intelligence for self-driving cars, a product that auto companies are betting will be a game-changer in the industry.

The BMW Silicon Valley branch has been around since 1998, founded, according to Euringer, for scouting purposes: finding partners, speaking to other companies, going to conferences and visiting nearby universities. Euringer said BMW was ahead of the game in this respect: It arrived almost 10 years before the launch of the iPhone.

“Back then, it was clear to BMW that this area comes up with a way to look at technology that is interesting to us,” Euringer said. “The early motivation was access to technology, access to trends. It was all based on the shared understanding that the Bay Area is an important, influential factor when it comes to mobility and digitalization.”

BMW’s goal is to have a Level 5 self-driving car — a car with full autonomy — by 2021. It’s an ambitious target: So far, major automakers have only gone as far as developing Level 2 self-driving cars that require driver interaction. But the German automaker is not the only company pursuing automation, and it’s no longer one of the few automakers with research offices here.

Up and down the Valley, one can find a who’s who of brand-name automakers and suppliers setting up research offices. General Motors, Ford, Tesla and Bosch are in Palo Alto. Toyota is up the road from BMW in Los Altos. Hyundai, Mercedes-Benz and Nissan are in the area as well. Most are here to research artificial intelligence and to enhance the digital side of their brands.

Even Stanford University has gotten into the game with its Center for Automotive Research at Stanford (CARS). The center, which looks like a garage from the inside and outside, researches many of the same topics that auto manufacturers are looking into. It houses the Volkswagen Automotive Innovation Lab, which explores the latest in the mobility field, and the educational Revs Program.

Launched in 2008, the center is a reflection of the developing auto industry in Silicon Valley. As more and more companies have moved into the area, the center has convened researchers, students, industry, government and the community into one space to foster ideas and dialogue on the future of the automobile.

“One of the reason the CARS organization has been so successful is because automakers have really wanted to keep in touch with what’s happening in Silicon Valley,” said Stephen Zoepf, the center’s executive director, who himself worked for BMW from 2004 to 2009.

It’s all about electronics

For most of its history, the automotive industry has been slow to change. Since Henry Ford’s Model T came out in 1908, turning the automobile from a luxury item to an accessory for the masses, it would be hard to argue that the industry has undergone any sort of radical shift. The invention of the seat belt, the introduction of four-wheel drive and placing airbags in every car have undoubtedly upgraded automobiles from a century ago, and cars today are more efficient and comfortable than ever before. But for a telltale sign of carmakers’ adherence to the status quo, look at what still fuels a majority of cars in 2017: gasoline.

Within the last 20 years, however, automakers with a new vision for the mode of transportation have been busy pushing the boundaries, with developments like Bluetooth integration, much-improved fuel efficiency, hybrid vehicles such as the Toyota Prius, all-electric cars and prototype self-driving autos.

“Car companies have become far more focused on the electronic content and the software content than necessarily the mechanical content,” Zoepf said.

Zoepf pointed out two reasons for the initial shift: the development of human-machine interfaces in vehicles and the realization that the product-development cycles of consumer electronics are generally shorter than for cars.

For instance, in 2001, when BMW released the E65 as part of a new generation of the 7 Series, the car came equipped with a cell phone — a flip phone that was slotted in a pocket in the center console with a keypad. But by 2007, the year the iPhone came out, consumers didn’t react positively to the built-in phone. They had their own phones, and they wanted a way to connect theirs with the vehicle.

Zoepf, who worked as an accessory-development manager for BMW, was tasked with developing a Bluetooth universal module that could connect any phone with the car, a product that the company mostly gave away to customers.

“From 2001 to 2007, the industry had changed from a world where people bought a car and used the phone that came with the car, to a world where people bought a phone and expected that their car worked with the phone,” Zoepf said.

A decade later, the concept of the automobile appears to be on the verge of a more fundamental change, one that goes well beyond accessories. With the rise of self-driving cars, some companies are tossing out the long-held assumption of car ownership, predicting a future in which a car isn’t so much a possession as a service.

Ask Toyota, which in 2016 launched the Toyota Research Institute, a $1 billion investment over five years, with branches in Los Altos, Ann Arbor and Cambridge.

One of Toyota’s goals is “mobility as a service,” replacing the old model of a personal car — which is parked and not running 95 percent of the time — with the ability to hail or ride-share a self-driving car, said John Hanson, the director of communications and public affairs at Toyota’s Los Altos branch.

As an initial step, last October, the company established a partnership with Getaround to explore car sharing in San Francisco. Launched in January, it features Toyota’s “Mobility Services Platform” and “Smart Key Box,” which allows users to lock and unlock doors and start the engine with a smartphone. This is a shift from traditional car-sharing services, in which the consumers physically share keys.

Hanson said: “It’s not just about building cars for people to drive. It’s about how we’re going to move around as a society.”

Legacy auto companies are wise to chase the “new mobility” so as not to be left behind.

According to Zoepf, there are “literally hundreds of startups out there making advancements in the mobility space.” Uber and Lyft, which were non-existent a decade ago, have blossomed into billion dollar companies based in the Bay Area. Smaller startups such as San Francisco-based Starsky Robotics, which focuses on driverless trucks, also have entered the industry. Aiming to move truck drivers from the vehicle to the office — where they can control trucks remotely — the company has raised $3.75 million as of February.

And Drive.AI, a startup founded in Stanford’s Artificial Intelligence lab, was dubbed the “hottest self-driving car startup you’ve never heard of” by CNN and raised $50 million from a venture capital firm to manufacture the brain of self-driving cars. It also brought in Andrew Ng, the former chief scientist at Chinese Internet giant Baidu and founder of Google Brain, Google’s artificial intelligence branch.

Local startups are already attracting the attention of bigger competition, too. Otto, which is also in the self-driving truck business, and Cruise Automation, which develops software for autonomous vehicles, were both started in San Francisco and found takers: Otto was acquired by Uber for $680 million last August and Cruise Automation by GM for $581 million last March.

Toyota is taking investment in startups a step further. Last week, the company announced a $100 million fund toward Toyota AI Ventures, which will provide cash, mentoring and engineering support to tech startups. One of their first investments was in Palo Alto-based Nauto, which focuses on designing cameras and sensors for self-driving cars.

In a press release, Jim Adler, the vice president of data and business development at TRI, admitted that Toyota employees “don’t have all of the answers.”

“A lot of disruptive technologies come from startups, and we want to help them be successful,” he added.

There are countless other innovative companies — too many to name — showcasing just how central Silicon Valley has become to the industry.

The biggest name among the new auto manufacturers is, of course, Palo Alto-based Tesla, which in 2008 released the Tesla Roadster, the world’s first electric sports car. Four years later, it debuted the Model S, an electric luxury sedan that took consumers by storm.

If legacy automakers hadn’t been paying attention, they suddenly found themselves one-upped by an upstart, off-brand company infiltrating the market.

But that’s not necessarily been bad, Euringer said. In fact, Tesla is “one of the best things that could happen to electromobility as a whole.”

“Tesla has paved the way for premium electric cars,” he said. “Obviously, Tesla is a competitor. But we are happy that we have a competitor like that, because in general, electromobility would be a different game if Tesla wasn’t there.”

According to Euringer, Tesla shares a similar vision as BMW of electric vehicles, and it comes to market with products that have the same focus or audience in mind. In the end, Euringer said, automakers are in this together.

For instance, as a direct response to Tesla’s Autopilot — driver-assist technology introduced in 2014 that made its cars semi-autonomous — GM is releasing a hands-free driving technology called “Super Cruise” this fall in its Cadillac CT6 models. Though it only engages while on the highway, Super Cruise adds a camera on the steering wheel that alerts drivers if they don’t keep their eyes on the road.

Later this fall, Tesla will release “Enhanced Autopilot,” which will give the car the ability to match its speed to traffic conditions, change lanes, self-park and be summoned to and from a garage, according to the company’s website.

Just because Tesla’s been first however, doesn’t mean it has been smooth sailing. A few weeks ago, Tesla began selling its lower-cost Model 3. But it saw its shares drop by more than 5 percent a day before the unveiling due to a slow timetable and manufacturing issues for its current models, the Model S and Model X, and Tesla lost the top spot as the industry’s most valuable automaker to GM.

Regardless, the ability to compete with brand name automakers serves as an example of how a company such as Tesla can push the pace of development and compel competitors to step up their game.

The same week Tesla was set to begin producing on the Model 3, Volvo announced it would shift from cars fueled by internal combustion engines, instead turning full-throttle to launching hybrid or battery-powered models as of 2019 — the first legacy automaker to take this step.

It’s all in the spirit of competition, risk-taking and getting ahead, according to Euringer.

“If it comes to turning electromobility into a mass market, no car brand can do this alone,” Euringer said. “We need different brands and different flavors to populate the market in order for the whole electromobility market to take off. So when it comes to competition, we welcome it.”

The fine line between competition and collaboration

They say that it’s wise to keep your friends close and your enemies closer. So it can’t be a coincidence that some of the biggest rivals in tech are in close proximity to one another in the Bay Area: Facebook and Twitter, Uber and Lyft. Proximity spurs competition. It ignites action, networking, connections and influence that can’t be generated long-distance.

“What we’ve learned is you can talk a lot about Silicon Valley,” said Mike Mansuetti, president of North America for Bosch, an auto-supply company that has been in the area for nearly as long as BMW. “Unless you’re a part of the network, you don’t know how it really works.”

Though Bosch is involved in multiple sectors, $9.2 billion of its $13.7 billion in consolidated sales last year came from mobility solutions. It, too, is focused on robotics and autonomous driving, in batteries and sensors to help innovate vehicles. And Silicon Valley serves as a key cog in the engine of change.

Bosch set up a research office in Palo Alto in 1999, and, like BMW, used it primarily for scouting purposes. Research is especially important to Bosch, which has 390,000 associates but is not publicly traded. Thus, it often takes the long view, placing more significance on research and development of ideas, a Bosch spokesperson said.

To do so, Bosch employs more than 300 associates and interns in the Silicon Valley office who conduct advanced research and test and validate technologies that will influence the future of mobility. The company’s job listings seek employees with knowledge in areas such as artificial intelligence, battery life and wireless solutions. It has a multitude of partnerships — not just with other companies but also with universities such as Stanford, just up the road from its office on Miranda Avenue.

“We have a long relationship with Stanford, working collaboratively on projects,” Mansuetti said. “We’ve used them for interns and co-ops, to bring people into the pipeline. Just being known — we need that for our network.”

BMW has been especially proactive in taking advantage of the neighboring tech ecosystem. It has partnered with Intel and Mobileye for its automated driving team. It hires people who have recently earned a “nanodegree” in highly automated driving from Udacity, an online educational program born out of a Stanford experiment.

And it also hires from its competitors.

“Companies are hiring employees away from each other,” Zoepf said. “There’s a lot of employees I know of who have gone back and forth between tech companies and traditional automakers.”

Euringer has seen employees come and go to companies such as Tesla, Ford and Apple. He said that, with a young workforce, moving around is part of the game.

But surprisingly, Euringer said he is fine with losing workers to competition because it speeds up development in the Valley. What makes Silicon Valley great, he said, is constant fluctuation, and ideas and talent being spread around from place to place is just the nature of it.

Sometimes, though, it can go a bit too far. Uber and Google are currently locked in a legal battle over whether Anthony Levandowski, a former top engineer at Google, brought over intellectual property from the company when he left in January 2016 to found the aforementioned Otto, which Uber eventually purchased, putting Levandowski in charge of its autonomous vehicle program. An internal company email from January 2016 unsealed in court this summer claimed that hiring Levandowski could potentially save Uber “at least a year” in the self-driving car race.

The alleged theft is an obvious risk of employees roaming from company to company. But overall, experts believe collaboration and competition are forces for good.

“That is why we are here,” Euringer said. “It wouldn’t make sense to say, ‘We are here because of the general velocity, but we don’t see ourselves as a part of it.’ That wouldn’t work. A part of that velocity is also the permeability of talent to move from one step to another.”

Zoepf agreed: “Just being here physically is one of the things you need to do in order to stay on top of all the things that are happening.”

He added that in the past, as an academic, keeping up with the research base in the industry required reading “a handful of journals,” going to conferences, talking to people informally and checking on Google Scholar pages.

Now, with the automotive and mobility industries changing so rapidly and becoming more intertwined — with topics branching out to the likes of economics, science and business — being in the area is more important than ever.

“It’s hard to actually stay current anymore because the sheer volume of publications has increased,” Zoepf admitted. “One of the reasons why there’s a need to be in Silicon Valley is because simply being here and meeting people at conferences and having conversations over coffee is one of the ways you can keep up.”

Here to stay

When Zoepf received his bachelor’s degree in electrical engineering and computer science at the Massachusetts Institute of Technology in 2001, he considered the automotive industry to be a safe place to work, from the standpoint of job security, but not very exciting.

“Now, the situation is reversed,” he said. “The auto industry is very exciting but not a very safe space to be.”

Zoepf thinks the auto industry in Silicon Valley is undergoing a “boom cycle” and that there will be a lot of consolidation over the next five years, with funding drying out for newer companies that have emerged because of the boom.

He also noted an unavoidable burden of making wholesale changes to cars, which are not the same as phones.

“You’re probably not going to kill anyone with a cell phone,” Zoepf said. “There are inherent dangers in making drastic changes to a product that weighs a couple of tons. It can go over a hundred miles an hour, and it’s ubiquitous. While I think it’s a very, very good thing that the automotive industry is changing faster now, I think it also comes with its risks.”

Euringer disputes that the industry is unstable, citing his confidence in BMW. He doesn’t think it’s just a boom either, pointing to a foundation of talent, regulation and universities in the region. He has a small staff of 45 employees, though it will increase to 80 in the next three years. BMW seeks local talent — all of its workforce for machine learning has roots in the Bay Area.

“Talent that wants to stay here in the Bay Area needs a place to live and work,” Euringer said. “We provide interesting work areas, work topics here locally. You don’t have to go to Munich. You can stay here.”

He continued: “The definition of this office is not to be an external site filled with German engineers, but the definition of this site is to be a local site that comes up with talent that is available here.”

And the talent available here is, generally, highly educated and specializing in exactly what companies need. According to Zoepf, in years’ past, a bachelor’s degree would be all that was needed to land a job as an engineer at an automaker, and companies would recruit “journeyman” engineers from around the country.

Not anymore.

“As automakers moved into automated driving, data analytics and development of advanced sensors, their need for Ph.D.-level engineers has really grown,” he said. “Many companies are needing to adapt their policies to recruit these level of engineers.”

Most of these engineers want to stay in the Bay Area, and many come out of Stanford and the University of California, Berkeley.

“We’re here because the talent is here,” said Hanson of Toyota. “We are looking for the best and the brightest and to have them stay. It’s very competitive. If you’re going to be in business, you’re going to need a location here.”

While declining to give a specific number, Euringer said that BMW’s budget toward the research office is a sufficient amount, and the office is held with high influence in the headquarters in Munich.

One issue that Euringer finds concerning, however, is lack of cooperation from the government with automakers’ efforts. President Donald Trump has sought to repeal environmental standards, pulling the United States out of the Paris Climate Agreement earlier this summer and in March ordering a review of strict fuel-efficiency standards that was put in place under the Obama administration.

“The assault on the American auto industry is over,” Trump said at a rally in Detroit.

But these actions could lower the price of oil, reducing gas prices and potentially keeping consumers from embracing electric or autonomous vehicles.

Zoepf, too, has concerns that the Trump administration could cause harm.

“It’s enormously shortsighted,” he said. “Companies have made large investments in electrification, alternative fuels and carbon fiber manufacturing. They’ve developed technology that is used to support goals of reduced energy consumption. For the administration to suddenly back off climate goals or energy goals effectively undermines the investments that many of the companies have made.”

The Trump administration is set to unveil regulations on self-driving cars in the next few months. Transportation Secretary Elaine Chao has taken a middle stance, reviewing Obama-era regulations that automakers have complained about, but at the same urging automakers to convince the public that autonomous vehicles are a viable option for the future.

Zoepf also worries about Trump’s efforts to curtail immigration. The revised travel ban on six countries is still winding its way through the courts, but regardless, Zoepf believes the administration’s posture on the subject has made it less attractive for people to come to the United States, which could impact companies in Silicon Valley that bring in talent from around the world.

“It’s really a chilling effect,” he said.

But for an area that has made a name for being disruptive, for developing the best products and people in the technology field, there’s no reason to doubt that Silicon Valley will continue to be at the center of the automotive industry’s latest developments. In fact, a recent survey of 1,000 drivers found that 41 percent trust a Silicon Valley company most on autonomous vehicles, while just 16 percent would trust a manufacturer from Detroit, according to USA Today.

“I think Silicon Valley will continue to play a major role in mobility, as we shape the future of it,” Mansuetti said.

Euringer agreed. Automakers in Silicon Valley have launched a shift that will continue to alter the industry, he predicted.

“The changes we are working on in the automotive industry are bigger than the changes that happened in the last 100 years,” he said. “The changes that are about to happen are massive.”

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