Lengthy development and production cycles in the automotive industry have long prevented automakers and startups from working together. That’s changed a bit as digital technologies gained in importance, but many young companies still find it difficult to work with OEMs.
Customer demand for consumer technologies has prompted the two sides to work to close the gaps that have kept them apart. Automotive companies long eschewed startups because they couldn’t be sure that young companies could wait years before automotive designs began producing revenues.
Entrepreneurs often ignored the industry because automakers struggled to adopt technology that changed rapidly.The push to merge short consumer cycles with longer automotive timetables is breaking down barriers.
“If OEMs want to be at the forefront of innovation, there will be risk,” said Gerhard Boiciuc, Vice President of Business Development at Parknav. “They’ll have to work with innovative companies, regardless of their size.”
Parknav provides an app that helps drivers find on-street parking. It has leveraged a strategy that’s becoming popular, partnering with Tier 1s and 2s. The Chicago-based company works closely with Inrix, a decade-old company that provides traffic information to a number of OEMs.
However, Parknav and many other young companies are keen to eliminate any middlemen. Some of them employ consultants to help companies with disparate needs work together.
“We serve as a layer between 100-year-old companies and startups,” said Joe Renz of Renz Ventures. “Many OEMs do not want to deal with startups that may not be around in a few years, so they often pass them off to the Tier 1s. There’s a cultural gap—if a guy in Detroit accepts software 10 minutes before production and it doesn’t work, he gets fired.”
In recent years, startups earned a few successes as automakers adopted more consumer technologies. Some OEMs have forged arrangements with startups, providing funding to help them survive through long development cycles.
However, that typically ties a startup to one automaker. Not all entrepreneurs want to be limited to a single partner, so they’re struggling to create strategies to survive during multi-year automotive design cycles.
“Startups have to go through hoops,” said Josh Hartung, CEO at PolySync, a middleware supplier focused on autonomous vehicles. “We could have taken money and become a strategic partner to an OEM, but we’ve stuck with venture capital. We want to provide products for all companies, not just one company.”
New companies often create technologies that can help draw consumer attention and differentiate suppliers. Global competition is seen as one of many factors that will force young and established companies work together.
“There’s a big threat coming out of China; the established guys have a lot to lose,” Renz said. “Last year was a good year for OEMs, but a bad year for automotive startups. Generally, changes come more often when companies are stressed.”
Entrepreneurs note that some OEMs try to help young companies by treating them more as contract designers than as companies offering new technology. While that can be profitable, it’s not always the pathway to long-term profitability.
“Startups often end up having to do a lot of custom service work,” Hartung said. “That’s good in the short term, but you can’t scale it.”