(Bloomberg) --Israel’s emergence as a center for automotive technology got a vote of confidence on Monday when
“The deal proves in a dramatic manner that our vision is coming true. Israel is becoming a global technology center, 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 250 million shekels ($68 million) for the next five years.
At least five major car manufacturers have made investments in Israel. Ford Motor Co. bought computer vision and machine learning company SAIPS AC in August and Bayerische Motoren Werke AG invested in transit app Moovit in 2015. Daimler AG and General Motors Co. have also opened research and development centers in the country.
The Mobileye deal went far beyond the $4.7 billion sale of fiber-optic company Chromatis Networks Inc. to Lucent Technologies Inc. in 2000, which was the country’s biggest tech deal before Mobileye. Founders Ziv Aviram, who is also the Chief Executive Officer, and Chairman Amnon Shashua, will share just under $1 billion from the sale, according to data compiled by Bloomberg as of Dec. 31. Shmuel Harlap, the largest shareholder, will make $1 billion, according to Bloomberg data as of April 1, 2016.
Netanyahu’s Director General Eli Gruner said the autonomous tech sector could potentially boost economic growth by 50%.
Fast track
Israel is not renowned for its car-making industry, once turning out fiberglass-shelled cars that were briefly popular in Israel in the 1960s and 1970s. However, the country is now benefiting from the automobile industry’s increasing focus on software rather than hardware.
In Israel, the automotive technology sector currently counts about 350 startups, according to industry monitor IVC Research Center, 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 startups.
Argus Cyber Security, based in Tel Aviv, in January announced a partnership with Qualcomm Technologies to protect cars from hackers. Otonomo Technologies Inc., 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 gross domestic product 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 carmaker Tesla Inc. stopped using Mobileye’s systems and the two companies argued publicly about the breakup.
After the Mobileye acquisition was announced, Netanyahu and Finance Minister Moshe Kahlon, who have been reducing corporate taxes, announced they would consider further cuts. Tax breaks are already part of the government’s program 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.
“We view this deal as an indication that the more attractive Israel is for foreign investors, the more tax revenue we will generate,” Gruner said in a phone interview.
