Automakers Tap Brakes On Startup Deals

After a fast and furious investment spree last year, automakers are tapping the brakes on startup funding.

In the first two-thirds of this year, the largest global automakers have led just 13 funding rounds,  per Crunchbase data. That’s a sharp drop from 2021, when they led at least 32 known financings.

Funding totals are also way down. So far this year, the value of automaker-led rounds was $2.4 billion—on track to come in 60% below year’s levels. For perspective, we chart out investments for the past five years below:

Market downturn dented late-stage dealmaking

What’s going on? Well, first off, this isn’t an auto industry-specific phenomenon. Funding to most sectors is down this year from record-setting levels set in 2021.

Unsurprisingly, funding has dropped off most dramatically at the late stage and pre-IPO stage. Given that the IPO window has shuttered and SPAC deals are no longer a hot thing, no one is bulking up to tap public markets.

This is in sharp contrast to last year. If you recall, back in November, VC-funded electric-vehicle maker Rivian not only went public, but also briefly secured a valuation of $127 billion—more than Ford and GM combined. Other big offerings came through SPAC deals, including Lucid Motors, EV battery-maker QuantumScape, and self-driving truck developer Embark, which went public in late 2020. All are trading at a fraction of their former highs, dragging down broader valuations with them.

Early- and mid-stage investment, however, is holding up better. Among the largest automaker-led rounds this year is a $400 million Series C led by Porsche for Group14 Technologies, a Woodinville, Washington-based supplier of silicon-carbon technology for lithium-silicon batteries.

Another big investment, though not a standard startup round, came in August, when Hyundai and Boston Dynamics announced a $400 million investment to launch the Boston Dynamics AI Institute. The institute will focus on advancing artificial intelligence, robotics and intelligent machines. For a broader picture, we list all automaker-led rounds this year below:

These automakers are doing the most startup deals

Some major automakers are pretty active startup investors, while others do few, if any, deals. To get a sense where they rank, we used Crunchbase data to identify rounds with backing from auto companies or their investment arms.

The findings?

Toyota topped the list by round count, backing at least 16 startups this year, mostly through its Toyota Ventures arm. The largest round in which it participated was a $126 million Series B for Revel, a shared electric vehicle service, followed by a $111 million round for autonomous driving company May Mobility that also included BMW.

Next up was Volkswagen, which often invests most heavily in startups through its Porsche Ventures arm. Sizable investments include a $450 million round for Electrify America, an EV-charging network, along with the aforementioned Group14 Technologies.

BMW was also particularly active through its BMW i Ventures arm, with a dozen startup investments so far this year. Hyundai and General Motors, meanwhile, took part in four and three private company financings, respectively. GM also put more money into its self-driving vehicle operation, Cruise.

Others were less active. Ford, Daimler, Honda, Stellantis and Tesla each had between two and zero deals apiece.

Overall, automakers appear to be putting smaller sums to work in startups and investing in fewer deals in 2022 compared to last year. However, looking across the past few years, current investment levels still look pretty robust, as illustrated in the chart below:

Mixed outlook

This year’s startup investments come as automakers face an unusual combination of supply chain challenges, pent-up demand and pressure to ramp up electric vehicle production.

Production in the past couple years has been hampered by supply chain scarcities, including a semiconductor shortage that research firm AlixPartners forecasts will persist through 2024. Due in part to shortages, new car prices have also trended higher, lifting automaker profits.

But while this demand-over-supply leverage in the marketplace is driving near-term profitability, AlixPartners predicts, “it is not sustainable in the long term.”

Going forward, automakers will be adjusting to a new normal, in particular meeting rising demand for electric vehicles as well as upgraded safety and autonomy features. This is reflected in predominant startup investment themes, especially the high volume of deals focused on some element of the shift to electrification.

On the startup investment front, it’s also noteworthy that deals continue to close at a slowed but still steady pace, even as the exit environment has deteriorated. One gets the impression automakers are in the startup game for the long haul.

Illustration: Dom Guzman

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