Firm formerly known as Wheego again looks to China for funds

I read recently that Evatran Group Inc., a wireless charging company based in Richmond, VA, (and which I blogged about in 2015 and 2016) would no longer pursue being acquired by Zhejiang VIE Science & Technology Co, a Chinese firm that was already an Evatran investor. According to a story in the Richmond Times-Dispatch, the acquisition is “currently off the table primarily due to the Chinese government regulatory approval environment.”

That vague statement by Evatran board chairman Bob Mooney can be read several ways. It may refer to Beijing’s more restrictive attitude towards Chinese firms investing abroad.   It may also refer to the current U.S. administration’s much more restrictive approach to Chinese investment approval.  In any case, Chinese investment in the U.S. dropped by 36 percent in 2017 compared to the previous year, according to The Rhodium Group.

Either way, it could be an ominous sign for automotive startups here in the U.S. as Chinese money has been an important building block for many of them. This week, I talked with one such firm, Autonomous Fusion Inc. If that name isn’t familiar, I am not surprised. Until just a few days ago, Autonomous Fusion was known as Wheego Technologies, Inc.

It is the second name change for the company. In October of 2015, Atlanta-based Autonomous Fusion changed its name from Wheego Electric Cars to Wheego Technologies. At that time, CEO Mike McQuary told me “We are a technology company whose primary focus is on electric vehicles and autonomous driving systems.”

Mike McQuary says his firm is now purely a technology firm, offering software as service (SAS).

Now it is all-in for autonomous driving software.

To quote McQuary, now CEO of Autonomous Fusion:

“About three years ago we realized that if we were going to continue making EVs we were going to have to raise an enormous amount of capital, around half a billion dollars.  I struggled to find a business model that would work.  We had established a group to look at automotive future tech, a skunkworks group. I talked to some folks at Georgia Tech (and) they had figured out Autonomous Driving was going to be one of the corner stones of the industry.  Artificial Intelligence and Machine Learning were the way it would succeed.”

His team at Wheego was already working in that space, so it pivoted to a software as service company whose first product is a “full stack” autonomous driving software solution based on Artificial Intelligence and Machine Learning, says McQuary.

“That is what ADAS (Advanced Driver Assistance Systems) is going to be,” he says, “Particularly Level 3 and Level 4, because of the dynamic nature of the driving environment. Using machine learning as a platform for an ADAS product, you will need constant updates.”

That doesn’t mean EVs are a thing of the past for McQuary. “The software is not specific to EV’s, “he says. “It works great in ICE cars; but the automakers who are making EV’s know that their consumers will want the most advanced technology in their vehicles and so are being more aggressive in pursuing L3 ADAS.”

Autonomous Fusion is in preliminary talks with several automakers to use its software, says McQuary, and now we get to the China part of this story. Most of those automakers are Chinese.   There is a lot of interest in China, he says.

Due to government, industry, and investment community support, “China will be a lot more aggressive it their employment of ADAS and EVs,” says McQuary.  Indeed, a new policy from China’s central government calls for 50 percent of all vehicles to have full or partial autonomous function by 2020.  That same year, China aims to have five million new energy vehicles — which includes battery electric, plug-in hybrid electric, and fuel cell vehicles — on the road.

That goal is backed by a dual-credit scheme combining standards similar to California’s ZEV policy and increasingly strict vehicle emissions standards. Automakers will have to earn enough credits by producing NEVs or pay fines.

That has created an opening in the China market for foreign firms such as Autonomous Fusion. Chinese technology in the ADAS area is still developing. And, Chinese automakers are now more willing to pay for good technology than in the past, when low cost was the highest priority, says McQuary.

But the ADAS software space is getting pretty crowded, I mention. How will Autonomous Fusion stand out? Guanxi was pretty much his answer.

“It helps that we have in our DNA over ten years where we have built relationships over here,” he says. “Our relationships are deep-standing, not just on the auto side, but also in China’s evolution in technology” from copying to developing its own.

And here is where the matter of Chinese investment comes in. Wheego relied on Chinese investment to keep going. In 2013, Wheego needed funding and wasn’t having any luck finding investors in the U.S.

McQuary was visiting suppliers in China, and made an appointment to meet with GSR Ventures, a Beijing-based venture capital firm. GSR was happy to invest in Wheego so long as it turned its focus to producing EVs in China for the China market – mainly local governments, McQuary told me in 2016.

But that small EV sector is a pretty crowded market in China, so now we are back to where McQuary decided to “pivot” to the software as service business model.

Autonomous Fusion is at a familiar spot. Automakers – mostly Chinese – are interested in its software.  It is ready to go into production of a Level 3 autonomous vehicle, says McQuary. Until it finds more funding, however, it can probably only take on one new customer, he adds.

“We are sort of walking a fine line between commitments and the ability to take on full commercial customers,” says McQuary.

China once again seems like the best bet for funding. Besides Chinese VC firms, many local governments are investing in ADAS and EV startups, he says.

Like his vehicle-agnostic software, McQuary is funding-source agnostic.

“I am out in venture markets,” he says. “I am looking in China and the U.S. for money. We have gotten interest.”