ali tabibian, managing partner, GTK Partners
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An unedited transcript is below.
Welcome, Welcome, Welcome everyone to this episode of Tech. Cars. Machines., CES edition. CES, formerly known as the Consumer Electronics Show and now also an important auto show, celebrated its 100th anniversary this year. I am very happy that, once again, CES hosted us with studio space on the convention floor. Thank you.
It was a huge year. 135,000 people attended, up about 20% from last year. Chinese citizens can finally travel post-COVID, and I was happy to see great representation from that country. Germany, France, Italy, South Korea, Switzerland, and other countries had dedicated spaces for attracting new business and promoting existing ones. So did the State of Indiana, which has a consistent, sophisticated presence at many tech functions. The entirety of LVCC and the convention centers of several hotels were consumed by CES, with spectacular, expensive floor displays from the major consumer electronics, automobile, industrial and divers other players. The conference floors and all of Las Vegas had a tremendous buzz, a constant hum of activity, motion, and excitement, some of which you can hear in the background of this recording. You couldn’t walk “at the speed limit”, so to speak. It was that crowded. If you’re looking for evidence of a recession, the decoupling of China from the West and its allies, or geopolitical woes, CES was not the right place for you to be.
A great friend and occasional client with whom I walked the floors for a couple of hours one day said it best: CES is how the world should be. A beehive of entrepreneurship, a fantastic melting pot of humanity from every corner of the world, all exuding optimism. When I visited a booth with a strange offering, to me, it meant optimism. What I saw was a group of people, with some backers presumably, taking a contrarian, throw-caution-to-the-wind path. You could call it foolishness, but so was the idea of selling books on something called the internet or making an electric car. So I choose to see it from an optimistic lens.
So, what were the insiders talking about? I will give you an overview of their M&A and financing thoughts, and then I’ll tell you what trends you’re likely to miss if you weren’t at CES and with the right crowd. As always, what follows is not investment advice. Then, I’ll provide you with some inside scoop on industry verticals. We’ll spend some time on AI, and a lot of time on autos, a bit on IoT, and a dash of accessibility technologies.
First, let’s get AI out of the way, and boy am I tempted to put that acronym in quotes every time I use it, because it really is more of trope than a concrete concept at this point. Search for the word “AI” in the CES app, and you might as well have to searched for the words “the,” “and,” or just a space. Everything and every exhibitor’s name pulls up. For heavens sake, L’Oreal, the beauty products company, which was an exhibitor, had a generative AI angle. “We already own 10 petabytes of data supporting all types of AI models, including the latest LLMs” which they helpfully spell out as Large Language Models.” They throw in “Web 3.0, cloud, IoT and AI” elsewhere for good measure. Not exactly typical lipstick ingredients. Now, I’ve presented what they said in a humorous way, but there’s something revealing about what L’Oreal is saying. And that is that, AI, and in fact technology itself, is a horizontal, not a vertical. Can you think of an industry segment that hasn’t already, or doesn’t need to, adopt or react to the types of things on display at CES? Web 3.0, cloud, IoT, AI, these are table stakes, everywhere, as much as phones and internet access are. And, I applaud L’Oreal’s announcement for reflecting this reality and for being pretty specific about it. The presenters and insiders at CES know all this, and the buzzword pronouncements are for street cred. And by Street, I’m talking both Wall Street and the person on the street. In contrast, I don’t remember a single instance over three days where any presenter, after recognizing I have a technical background, tried to sell me on their “AI.” The conversation was always about the usual business fundamentals: markets, products and differentiators such as price or performance, customers, etc.
Now, let’s talk deals. Mergers and acquisitions forecasts at CES are a tale of two cities. For large deals, the expectation is for a hum-drum 2024, probably pretty much the same as 2023, and perhaps a pick-up in 2025. Three reasons: first, and unusually compared to the preceding couple of decades, regulatory risk to deal consummation is showstopper to the consideration of many transactions. The U.S. and EU antitrust authorities are increasingly interventionist, and a certain tit-for-tat of deal denial between the West and China is also a complication. Since anti-trust stances are a function of particular administrations, we get the second factor depressing 2024 big-deal prospects: elections. In fact, 2024 is reportedly the year in history when the largest number of humans will vote in an election. The most important is the U.S. presidential election, which appears closely contested. So naturally, transactors want to see whose administration they’ll be dealing with, Sleepy Joe’s or the "other guy”, as Sleepy Joe refers to the other guy, the one who calls him Sleepy Joe. Very classy all around.
Third and last, high interest rates are a damper for the larger deals, where finances tend to get stretched, and there’s some perhaps wishful thinking that rates will go down over the year. This was all for large, prominent transitions. For deal sizes below the radar of regulators and sharp-penciled CFOs, there are across-the-board reports of increased desire for activity but no sense that an uptick in announcements is imminent. I expect a good year for private equity technology acquirers since, in the mid-market category, the strategies are tilting toward pruning rather than tuck-ins.
For startup financings, except for very few segments (e.g. AI, or fusion energy), success depends on providing detailed support for revenue projections. Valuations per stage haven’t changed much over the last 18 months. Series A’s bounce around $30-40MM pre-money valuations, Series B $75-$150, and C’s around $500MM. Few people want to talk to companies without at least 9 months or a year of runway because taking nine months to raise a round is not that unusual anymore. Large rounds are still happening, but international participation is a big deal, especially in the Middle East and SE Asia, and in the auto and industrial sector frequently include strategics. Foretelix, which is a software platform to validate and verify automobile automated safety systems, they announced an $85MM Series C round lead by new investors that include Temasek, a financial investor out of Singapore, Isuzu the Japanese vehicle company and NVidia.
OK, let’s move over to sector-based insights. CES is the US’s most important auto show. The crucial insider buzz was the potential for extreme disruption to major auto manufacturers from the emergence of Chinese auto manufacturers. Chinese-produced vehicles, especially electric ones, are becoming globally competitive in quality while generally costing about 1/2 as much as similar US and Europe-built vehicles. VW was mentioned most frequently as the most vulnerable in the near term. A surprising development is that consumers in Europe, who for whatever reason were not receptive to Korean vehicles, have few hesitations about buying Chinese vehicles. And I don’t think the emerging competition is limited to China, either. Turkish auto manufacturer Togg showed its T10F elected sedan, and to my eyes, the vehicle's styling, fit, and finish were very competitive with that of better-known brands. It reminded me of Kia’s EVs, in fact. At a more detailed level, the auto manufacturers focused on one-upping each other on the size of dashboard screens (think Hoover Dam). In-vehicle tchotchke was heavily promoted too. Two examples. First, from Mercedes, which introduced an in-car app to “showcase NFTs like the limited-edition Mercedes-Benz NXT Superdackel collection that pays homage to the activity at last year’s CES.” Second, given the trend toward turning autos into yet another venue for sedentary binge-watching and doom scrolling, forward-thinking Tier 1 auto supplier Magna’s latest driver seats incorporate Epi-pen technology to gently and discreetly inject weight loss medication into your glutes through your clothing. Only the drug Ozempic is available now, but evidently Wegovy cartridges are in the works. Now, I made up one of these two examples. I’m sure you think you know which one, but I bet you are slightly uncomfortable with your lack of certainty. This shows you how surreal things have gotten with in-vehicle amenities. Part of the issue, I think, is that electric vehicles have made quiet, well-handling rides with good acceleration accessible to many more people. Boasting about an extra 50 horsepower (which people used to do a lot of) doesn’t make sense when an EV vehicle can throw in a second motor the size of a basketball for a couple hundred extra horsepower. This a serious point we’ve made before: how do brands maintain differentiation when many of the things that define them (smoothness, quiet, handling, performance) are intrinsic to an electric powertrain that will likely be ubiquitous?
Oddly enough, not much going on at CES on two perennial big subjects: autonomy and powertrains. The headlines are about the loss of interest in autonomy (you’ve heard of the retreats by Ford and GM’s Cruise) and the reduction in interest in EVs. And if we let you have those points as a takeaway, you’d be missing a lot, and then you would wonder why you bother with this podcast. Here’s what you need to know. First, the promises of around-the-corner autonomy in production passenger vehicles have been reduced to incremental advances in driver assistance features (“ADAS”), e.g., sporadic interventions, beeps, and buzzes that make you less accident-prone. I don’t see too much changing for drivers in the next couple of years, but there’s tremendous activity around how to get these features into the car efficiently. But what is very clear to me is that the consolidation survivors and leaders in autonomy have capabilities that, for the first time in years, actually exceed the public’s perceptions. We have two episodes recorded at CES that will prove the point. One with Torc, Daimler Trucks’ autonomy division, the other Indy Autonomous Challenge, an autonomous race car organization. Yes, races cars, as in driverless driving at 190 miles per hour.
Regarding the decline of interest in EVs, insiders are generally not surprised by the slow-down. It was always clear that the early-adopter market would be saturated at some point, and that cost reduction and improved look, feel, build quality and charging convenience were required for greater mass market appeal. Chinese EV manufactures are doing a great job on cost/price reduction, and Tesla is following. It’s unclear whether others can profitability follow suit. By far, the most interesting development on the charging side, at least for the North American market where drivers typically have predictable parking spots, at least at home, is wireless charging. WiTricity, linked in the show notes, has a solution similar to the wireless charging pads for your cell phones. A small module is added to the EV battery, which, when parked over a pad that easily fits within a parking spot, is automatically and wirelessly charged. Moreover, it’s bidirectional, meaning your car battery can be used for electric grid storage. This is a big deal, and you learn a bit about it in our last Episode 35.
Speaking of wireless charging, let’s talk a little about the Internet of Things. As you can imagine, CES was full of exhibitors with various gadgets and systems for home and building automation. Two things have always complicated the adoption of these gadgets. One was connectivity, where good WiFi or LTE coverage is an issue. The other is power availability. You’d need to be connected to power, a problem say for a door lock, or you’d need to replace or recharge batteries constantly, also a problem for a door lock if you don’t get to it in time. Ossia, a company we’ve been watching for some time, has a wireless charging solution that can trickle-charge multiple devices from a distance using a single base station, including when the line of sight is interrupted. This is a big deal, especially in commercial and office environments. More on wireless charging in later episodes.
One last category that caught my eye, then we’ll wrap it up, and that is wearable accessibility technology. There were quite a few exhibitors in the space, with a dedicated category and section. The AARP had a a large footprint aggregating some of the exhibitors. Hear are a couple of award-winning examples. Gyrogear, makes a wearable glove that cancels out hand tremors, enable close to normal function. Xanderglasses transcribe speech in real time and project captions onto the wearers field of view. It was very inspiring. I’ll explore more next year.
Ok folks, it’s a wrap. Definitely consider at least a day-trip to CES next year. I’ve already made my reservations.