Self-driving 'arms race' complicates supplier alliances

Edward Taylor and Paul Lienert

(Repeats for wider distribution)

FRANKFURT/DETROIT, April 13 (Reuters) - The race to develop

and exploit autonomous vehicle technology is reshaping the

hierarchy of the automotive industry, replacing traditional

top-down manufacturing relationships with complex webs of

alliances and acquisitions.

Dealmaking in the automotive and technology industry is

driven by the rapid transition of self-driving vehicles from

research projects to major elements of near-term product plans

at several of the world's biggest automakers.

That shift is behind deals like one announced last week

between Robert Bosch and Daimler AG's

Mercedes. Bosch and Mercedes said they will

collaborate on development of self-driving vehicles, with Bosch

in a broad role as a systems integrator — sort of a copilot with

the automaker in speeding up deployment of self-driving

vehicles. Bosch also expects to sell the jointly developed

systems to other companies.

Separately, Silicon Valley chipmaker Intel Corp

acquired automotive vision technology leader Mobileye NV

, and has a deal to help German luxury car maker BMW AG

develop autonomous vehicles around Intel and Mobileye

systems.

The first fully self-driving cars are expected to go into

production by 2020-2021. Analysts have said self-driving cars

will not be in wide use before 2030.

"Everybody is trying to understand what skill sets are

required to be first in the game (and) if they don’t have it,

they’re going to partner, invest or purchase,” said Xavier

Mosquet, a senior partner at Boston Consulting Group and an

authority on autonomous vehicles.

Major auto companies are rich in engineers schooled in the

physics of combustion and collisions, materials science and

mechanical systems. The development of self-driving cars demands

experts in artificial intelligence, robotics, computer

programming and digital networks who work mainly outside the

auto industry.

Automakers are following different paths to acquire

engineering talent. Some are relying on partnerships like the

Bosch-Mercedes pact. Others such as General Motors Co are

going it alone, buying self-driving vehicle startups and

building technology in-house.

Alphabet Inc’s Waymo and auto supplier Delphi

Automotive Plc are offering turn-key systems to

companies such as Fiat Chrysler Automobiles

that are choosing not to invest in their own autonomous driving

systems.

COPILOT APPROACH

Some of the car companies and large suppliers could wind up

as competitors. BMW has said it wants to sell its self-driving

systems to other manufacturers, as does Delphi, which is

developing a system of its own. Intel and Mobileye are partners

in both ventures.

The Dutch provider of high-definition maps, HERE, has taken

a position at the center for several supplier webs. HERE is

jointly owned by Daimler, BMW, and Volkswagen AG’s

Audi. Intel owns a minority stake in HERE, and rival chipmaker

Nvidia Corp has a partnership deal.

Nvidia itself wants to be a provider of powerful computer

chips and “deep learning” software for self-driving cars to a

broad array of customers, including rivals such as Mercedes and

Tesla Inc, competing mega-suppliers such as Bosch and

ZF Friedrichshafen AG and Chinese tech companies Baidu

Inc and Tencent Holdings Ltd (For a graphic

on self-driving vehicles see: http://tmsnrt.rs/2nYv7gc)

The vehicle manufacturers are divided on how much

self-driving development and integration to farm out to the

parts makers, or whether to keep most of that in-house - as they

have done for decades with much of their core engine technology.

“At the moment, the carmaker is at an advantage since it

knows how the components all fit together," said Mercedes

executive Christoph von Hugo.

BCG’s Mosquet believes the industry may not settle on a

single template for collaboration, given the complexity of

autonomous vehicles and their underlying technology.

"These different approaches will have to pass the test of

time," he said. “In two or three years, we will see who has been

successful with which approach.”

(Reporting by Edward Taylor in Frankfurt and Paul Lienert in

Detroit; Editing by Matthew Lewis)