Rising costs, concerns over cyber security, and emerging innovation hubs may eventually limit how much automotive companies grow and invest in northern California.

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(Image: Shutterstock)

Some estimates value Silicon Valley’s technology ‘ecosystem’ – the businesses, venture capitalism and education institutions that power its growth – at nearly $3 trillion. With the direction of mobility and manufacturing heading towards greater connectivity, convergence with the automotive sector looks set to rise further.

But this growth brings complications. In recent months, tech giants have been under fire over safety, security and data privacy. There is a growing debate over how such sectors should be controlled and regulated, which could lead to eventual changes in Silicon Valley’s dominance in many digital services.

Long before incidents at Uber or Facebook, however, automotive and IT companies have been concerned with cyber and data security in vehicles and the automotive supply chain. The prevalence towards open source, open innovation models in Silicon Valley raises questions for carmakers. Automotive and IT firms like Cisco and Oracle are looking carefully at cyber security across automotive supply chains as well as vehicles, through more secure networks and vehicle connections, using in innovations like AI and blockchain. Caution is also needed in the race to ‘open’ everything.

Security first

John Moon, who leads the Honda Developer Studio, says the carmaker puts the security of users and their data first when working with app developers. In this area, at least, that may exclude working with some startups, at least initially. “We build with security in mind when it comes to products and services,” he says. “That means that a startup might not always be the right avenue for us. It is not that larger players don’t get hacked, but there are a lot of things we can do to protect from that. It is not ‘open source’ for everything’.”

Hyundai Cradle vice-president John Suh predicts that cyber security will join AI among the hottest topics for research and corporate venturing over the next year or two in Silicon Valley. “It is becoming increasingly clear that this is not only a problem for elections or foreign entities, but is a big issue in how we handle data for consumers and across an enterprise,” he says.

Porsche Digital’s managing director, Thilo Koslowski, thinks that the industry has come to a convergence point where fears over AI, hacking and data security have become part of much wider debates. He sees an opportunity to prove that carmakers like Porsche are doing all they can to protect customers from both physical and data harm.

“It is naïve to think that we can think ahead and always be safe from all these problems. But we have to become a data steward on behalf of customers,” he says. “We can’t guarantee everything, but we have to show that we are the safeguards.”

Keeping up with the hype

No region is a monolith of talent or technology; the tech and software hubs in Silicon Valley are strong because they draw on global talent, resources and capital. Most carmakers and suppliers are deepening their roots in the Valley at the same time as they expand in other innovation centers, whether in Berlin, Shanghai, Tel Aviv or Atlanta.

In a fast-moving investment culture, others say that the mobility and automotive ‘hype-cycle’ in Silicon Valley will eventually wane. Hyundai’s Suh, a tech veteran, thinks the automotive sector may be approaching a peak in investor and technology interest, both for new entrants and incumbents. “There is a lot of attraction but it won’t stay that way because at some point there will be another area that will draw more attention, at least here in Silicon Valley,” he says.

It is also inevitable that more startup companies and carmakers in Silicon Valley will fail. Regulations will eventually reshape the sector, too, from data privacy to autonomous driving. Salaries, housing costs and valuations cannot rise continuously, meanwhile, without pushing investment elsewhere.

In some cases, automotive-related work from Silicon Valley is already being transplanted. Mercedes-Benz has established a cloud computing office in Seattle, Washington, which will build technology to be deployed in the cloud for users in the US, Europe, and Asia. The company is looking to tap into a developed marketplace for cloud computing; a team of 30 people is expected to grow to 150 by next year, according to the company.

Mercedes also announced that its IT innovation and incubation group – renamed Lab1886 – has established a new office in Atlanta, Georgia, near to the carmaker’s US headquarters. Some IT experts are moving there from Sunnyvale and other locations, as Mercedes-Benz taps into a growing hub for IT, software and mobility services in the Atlanta area.

And yet it would be premature to call time on Silicon Valley’s rising influence on the automotive and mobility sector. Many of the technological and cultural ingredients for new mobility remain indigenous here, from artificial intelligence to augmented reality to over-the-air updates. Thilo Koslowski at Porsche Digital calls the current confluence of technology the “big bang for the automotive industry” – and Silicon Valley remains the centrifugal point.

“There is no spot anywhere else like it in the world, and probably never will be,” he says.