Trump, China and Why We Invested in Cognata

For decades, we’ve looked to Silicon Valley for the latest technology. It has been the reliable (and remarkably lucrative) testing ground for all that is new, cool, and convenient.

But when it comes to new thinking (and action!) about 21st Century transportation, China is quickly becoming Ground Zero for innovation. For all of its substantial issues with air pollution, China is also poised to make history when it comes to “Green” transportation — from electric vehicles to driverless cars to substantive discussion about changing public transportation. Among the most recent political developments: After Donald Trump’s recent announcement that the US will pull out of the Paris agreement, China and the EU announced an alliance to take leading roles in tackling climate change. Each party will validate former commitments with respect to the reduction of emissions, including transportation related emissions.

Today, China accounts for 28% (and growing rapidly) of the global automotive market and more than a third of global sales for major auto companies, including Audi, Ford and GM. Moreover, China’s tighter emission standards may soon become the new global standard, forcing auto manufacturers including from the US to strive to the highest standard in order to make sure they stay relevant in the most significant market.

As a means of achieving its “Green” aspirations, China is promoting reforms in its transportation system, by shifting to electric cars and enabling better access to public and shared transportation.

The vision of self-driving cars

More broadly, China truly needs the early adoption of autonomous driving technology. It’s the world’s largest auto market and it is choked by air pollution, traffic jams and erratic driving experience. Over 200,000 people die in China every year in traffic accidents.

Culturally, the Chinese population will not need another “Great Leap Forward” to accept new modes of transportation. Usage of public and shared transportation is much higher than in the West and everyday citizens are less inclined to own cars. By 2025 the usage of e-hailing and shared transportation is expected to increase thirteenfold. About 75% of the population of China say that they would likely ride in a self-driving car, versus only half of Americans. As enthusiastic tech adopters, the Chinese are also more willing to pay for driverless car technologies in their vehicles.

In the race to develop self-driving cars, the US and Europe may still lead in technology, but China is coming up fast with a regulatory structure that could put it far ahead.

A roadmap recently published by China’s Ministry of Industry and IT, charts a course for China to achieve extensive autonomous highway driving by 2020 and fully autonomous urban driving by 2025. According to the Chinese roadmap, 66% of cars sold in China in 2025 will be installed with autonomous driving applications, while fully self-driving cars are expected to be 10% of total sales by 2030.

The private sector is aligning its focus in order to realize this potential as well. Time to market is crucial. Chinese players like Baidu, Didi, Tencent and others, are in hot pursuit of companies like Google and Tesla. These large corporates are developing solutions and acquiring talent in order to reduce time to market and compete. Some of these players also operate R&D centers in the US and compete for the same engineers, technology and investments as their American and European counterparts.

Search giant Baidu, for example, disclosed a five-year goal for the mass production of driver-less vehicles. Baidu has taken several aggressive steps in this direction, including opening a Silicon Valley AI research lab, teaming up with Nvidia to use AI for building a platform for self-driving cars. Ride-hailing giant Didi is now following its US counterpart into self-driving research. In March 2017, Didi opened its own AI lab in the heart of Silicon Valley, creating a distinct unit to drive its R&D for intelligent driving system.

Chinese startups are also there to have a bite at this future. More than $2 billion USD has been invested in numerous domestic companies and startups developing electric, connected and self-driving cars. Companies such as Nio, Lucid Motors, Faraday Future, WM Motor, Singulato and others have taken on the challenge of becoming the Tesla of China.

The government and business sector are also creating testing grounds that will assist with early adoption. This can be seen in extensive projects such as the aim to build the first driverless city in Wuhu and the ambitious building of the city of Xiongan, which as declared by President Xi, will be based on technology implementation including smart mobility.

Chinese players are utilizing top-down government policy to compete head to head with global companies. They will continue to develop their own solutions but will also partner with global leaders, which may ultimately lead to large investments and acquisitions in order to dominate this market. The obvious upshot: China is becoming very relevant for startups developing solutions for global challenges.

That’s why we invested in Cognata.

Cognata opens the fast lane to self-driving cars with its testing and evaluation solution. It uses deep learning to create a strikingly realistic simulation platform where virtual cars travel virtual roads in virtual cities, all remarkably true to real-world conditions. Cognata’s innovation solves one of the largest obstacles of developing self-driving cars, which is the amount of data and required miles to be driven.

Cognata’s simulated environment, rich data power algorithms and edge test cases speed up this process by several years. The simulated testing and evaluation environment generate fast, highly accurate results and eliminates the safety concerns, high costs, and limited scalability of road-testing in the physical world. It is therefore a critical advantage in meeting time-to-market goals for companies developing self-driving cars.

We are excited to lead this round and join Danny and the team. We’re working together to revolutionise this industry — as well as the transportation future of China. We are leveraging our network of Chinese founders and investors to provide Cognata with the means to promote their solution in this market.