Car manufacturers eye Silicon Valley as route to progress

Carmakers take on tech firms led by Google that are shaking up the motor industry

They are often cast as the dinosaurs, outdated companies left behind by the great disruption playing out across the worldwide motor industry.

But established car manufacturers are trying to turn the tables on the United States technology companies shaking up the automobile world by tapping talent in their own backyard of Silicon Valley.

Ever since Daimler established its research centre in the San Francisco Bay area two decades ago, the big carmakers have been gravitating towards northern California to harness some of the expertise that has propelled the region to its status as a hotbed of the latest technologies.

However, the need to exploit this knowledge has become urgent with the advent of the internet-connected car and the rapid steps being taken towards driverless vehicles – where sophisticated software acts as the brain of the automobile.

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Furthermore, having a presence in Silicon Valley may help ensure the established carmakers do not cede leadership of their industry to new entrants, led by Google – which last year revealed a prototype self-driving car – and Tesla, the electric-vehicle manufacturer. Stuttgart-based Daimler underlined its determination to stay at the forefront of innovation by launching its F 015 driverless-car concept at last month's Consumer Electronics Show in Las Vegas.

"No automaker can afford not being in the valley any more – even in times of an economic or market downturn – because IT and technology innovations will become part of the DNA of the future automobile," says Thilo Koslowski of Gartner, the research and consulting firm.

A Silicon Valley research laboratory is therefore now a must-have for carmakers. Ford was seen as late on the scene when it set up an eight-person office in the San Francisco Bay area in 2012.

Last month the manufacturer based in Dearborn outside Detroit strengthened its presence by cutting the ribbon on a new research centre in Palo Alto.

"What I'm so struck by is the valley here is a marketplace of ideas, and it's really important to be here and be part of that," says Mark Fields, Ford's chief executive.

In all, more than a dozen carmakers and suppliers have set up in Silicon Valley, the 65km stretch from San Francisco to San Jose that has become synonymous with computing and the internet thanks to the likes of Apple in Cupertino, Facebook in Menlo Park and Google in Mountain View.

As part of the latest moves in the area by carmakers, Honda opened a new studio in November – little more than a garage that will allow software developers to work with Honda engineers on apps – to supplement its existing lab in Mountain View.

Ford's site, on the campus of Stanford University, is expected to employ only about 125 people by the end of the year, compared with the 6,000 employed at the company's River Rouge factory in Dearborn.

It declines to put a figure on the investment it has made in Palo Alto, and some analysts question the value of the carmakers’ Silicon Valley research hubs, dismissing them as window dressing to show how they are supposedly in touch with innovation.

But the carmakers strongly reject this contention. For them, one of the real draws is being close to a new wave of unlikely suppliers such as Nest, the internet-connected home devices company owned by Google.

Ford says it will work with Nest on ways of getting a car to talk to a smart thermostat inside the home to make sure the heating is turned down when a driver leaves and back up when he or she returns.

Moreover, some of the value for the carmakers of having a lab in Silicon Valley is the fact that it is far away from the culture and thinking of the parent companies in Detroit, Stuttgart or Tokyo. New ideas can flow without the red tape of corporate headquarters.

"A lot of what's holding Europe back is discussion around data and privacy," says Uwe Higgen, head of BMW's technology office in Mountain View. In Silicon Valley, by contrast, people are less concerned about privacy, and more interested in how technology can make things more convenient, he adds.

Perhaps the biggest risk for the carmakers, as they increasingly focus on electronics and software, is that they lose sight of what consumers want and are willing to pay for. Will BMW’s ambitious plans for drivers to have augmented reality glasses – so that they can, among other things, see through the side of their cars when parking – work and prove popular?

“The auto industry must be careful not to overhype the importance of some of these innovations and lose focus on what matters to consumers most,” says Koslowski.

Copyright The Financial Times Limited 2015