Israel’s emergence as a centre for automotive technology got a vote of confidence on Monday when Intel said it would pay US$15bn for Mobileye, a Jerusalem-based maker of chips and software for driverless cars. It will be the largest takeover of an Israeli tech firm and follows a series of deals and partnerships inked in recent years by major tech and auto companies.
“The deal proves in a dramatic manner that our vision is coming true. Israel is becoming a global technology centre, not only in cyber, but also in the automotive area,” Prime Minister Benjamin Netanyahu said in a text message. Israel had already singled out the automotive technology sector as a possible economic boon, allotting it 250m shekels (R900) for the next five years.
At least five major car manufacturers have made investments in Israel. Ford bought computer vision and machine learning company SAIPS in August and BMW invested in transit app Moovit in 2015. Daimler and General Motors have also opened research and development centers in the country.
The Mobileye deal went far beyond the US$4,7bn sale of fibre-optic company Chromatis Networks to Lucent Technologies in 2000, which was the country’s biggest tech deal before Mobileye. Founders Ziv Aviram, who is also the CEO, and chairman Amnon Shashua, will share just under $1bn from the sale, according to data compiled by Bloomberg as of 31 December. Shmuel Harlap, the largest shareholder, will make $1bn, according to Bloomberg data as of 1 April 2016.
Netanyahu’s director-general Eli Groner said the autonomous tech sector could potentially boost economic growth by 50%.
Israel is not renowned for its car-making industry, once turning out fibreglass-shelled cars that were briefly popular in Israel in the 1960s and 1970s. However, the country is now benefiting from the car industry’s increasing focus on software rather than hardware.
In Israel, the automotive technology sector currently counts about 350 start-ups, according to industry monitor IVC Research Centre, with the potential, according to Gruner, to grow bigger than the cybersecurity industry, which drew 15% of global capital raised by the sector in 2016, according to Start-Up Nation Central, a group that promotes Israel start-ups.
Argus Cyber Security, based in Tel Aviv, in January announced a partnership with Qualcomm Technologies to protect cars from hackers. Otonomo Technologies, a data platform that tells users when to stop driving due to a malfunction and can call emergency services when there is an accident, is working with nine car manufacturers, including Daimler. Aquarius Engines, which has designed and developed an engine to generate electric power, is working with Peugeot SA and three other automobile companies.
Gal Fridman, chairman and chief marketing officer of Aquarius Engines, said the deal “definitely makes our lives easier”.
“It validates Israel’s ability in technology in the automotive industry, traditionally American and German and not at all Israeli,” Fridman said. “Mobileye has dramatically helped us open the door wider into this industry.”
Growing pains
The autonomous sector is expanding even as Israel’s tech sector suffers from growing pains. Although the country’s tech industry grew faster than GDP nearly every year between 1998 to 2009, in the five years following it surpassed national growth only once, in 2012. The finance ministry acknowledged in a report last year that the industry that fueled Israel’s economy for the past two decades was stagnating.
Mobileye has also had its issues. Last year, Elon Musk’s electric car maker Tesla stopped using Mobileye’s systems and the two companies argued publicly about the break-up.
After the Mobileye acquisition was announced, Netanyahu and finance minister Moshe Kahlon, who have been reducing corporate taxes, announced they would consider further cuts.
“We view this deal as an indication that the more attractive Israel is for foreign investors, the more tax revenue we will generate,” Groner said in a phone interview.
Tax breaks are already part of the government’s programme to encourage global technology companies to do more research and development in Israel as other countries vie for companies like Intel to put down roots on their soil.
“The deal will increase the attention and funding for the already burgeoning Israeli cohort of next-generation autonomous driving technology start-ups,” said Jon Medved, founder of OurCrowd, an equity crowdfunding platform based in Jerusalem. — (c) 2017 Bloomberg LP