How a Billion-Dollar Autonomous Vehicle Startup Lost Its Way
Quanergy Systems Inc. found itself in the center of a sudden frenzy over self-driving cars in 2014. It makes lidar, which bounces lasers off objects to help autonomous cars know what’s nearby.
That September, the fledgling company announced a partnership with Mercedes-Benz that would put its devices on cars the automaker was using to test autonomous driving features. The deal established an enviable partnership with one of the world’s most prominent auto brands. In January 2015, the two companies showed off a Mercedes E350 sedan outfitted with Quanergy’s lidar devices at the Consumer Electronics Show in Las Vegas.
At the time, the lidar industry was dominated by Velodyne Lidar Inc., which provided the bulky, expensive sensors Google was using on its autonomous cars. Quanergy made the kind of promise Silicon Valley was built on: it’d shrink existing hardware through science, then sell it at a fraction of the price.
Quanergy led the pack, as investors poured money into companies describing new techniques for lidar devices. It has raised $160 million to date at a peak valuation of more than $1.5 billion. Last fall, Quanergy began talking to banks about a potential IPO, setting it up to be one of the first public companies to emerge from the wave of firms making tech for autonomous vehicles.
This July, Daimler AG, the parent company of Mercedes, made another announcement. Daimler said it was running a test program for autonomous vehicles on urban streets in the Bay Area, which included a handful of partners, none of which was Quanergy. For lidar, the robo-taxis would use Velodyne. Daimler declined to comment on its relationship with Quanergy.
Trouble Begins
It was a troubling sign for the lidar industry’s first unicorn—and it wasn’t the only one. Quanergy has struggled to deliver products along the timelines it has set out for itself, and has shipped devices that don’t work as well as advertised. Numerous employees have left over the last 18 months, including several at key positions. But Quanergy’s biggest challenge is that its autonomous car business hasn’t developed the way it thought it would. The company has increasingly focused on other applications for lidar, including a plan to help build a digital border wall along the Mexican border, a project that has left some employees ill at ease.
Quanergy has stopped talking about an IPO and has been pursuing new investments in recent months. It has had talks about finding a buyer, according to people with knowledge of the situation. Quanergy backers Samsung Ventures and Sensata Technologies Holding Plc, an auto sensor maker, have expressed disillusionment with the startup, according to people familiar with those firms. Alexia Taxiarchos, a Sensata spokeswoman, said the company remained excited about Quanergy.
“Developing these lidar sensors involves solving difficult technical issues that take time to overcome,” she added. In an email, a spokeswoman for Samsung’s investment managers said the firm believed Quanergy was ahead of its competitors making lidar for cars, and had shown meaningful results in the security sector. She said Samsung was aware that Quanergy was about to close a new funding round. In an email, a spokeswoman for Quanergy said it “unequivocally denied” that it was seeking a buyer.
In August, Louay Eldada, the company’s co-founder and CEO, invited Bloomberg News to visit his headquarters and assembly line, which he says is capable of shipping a million lidar devices a year. In a sweeping interview, Eldada admitted faults with earlier products that have since been corrected, cast some criticism as broadsides from competitors and insisted that automotive partners remain optimistic about Quanergy.
“People understand we are the real deal,” he said. “We are the veterans.” The company also demonstrated its latest technology to a reporter, although only in controlled conditions that didn’t replicate the needs of automotive companies.
Eldada denied that there were problems with Quanergy’s relationship with its investors or with Daimler, and added that Quanergy was “one of the finalists” to provide the carmaker with lidar going forward. Quanergy has more than 5,000 customers, according to Eldada. He said he couldn’t name them for competitive reasons.
“The hype is falling. ...The closer you get to implementation, the clearer it is how difficult it will be to commercialize.”
A Closer Look
Quanergy is seeking new capital, and Eldada said about a third of the investment would come from China. He declined to name the potential investors. Asked if Samsung and Sensata would participate in a new funding round, he said, they had “grabbed all they intended to grab."
Bloomberg also spoke to a half-dozen former employees, all of whom asked to remain anonymous, most of them citing the fear of retaliation. They said execution was a consistent problem at Quanergy. Several former employees described Eldada as a combustible and intimidating presence, stymying debate about product development and seeing any disagreement as intolerable dissent. When asked about this, Eldada pointed to a framed placard listing the firm’s core values, which include teamwork, transparency, intellectual honesty, and empowerment. “You will find that the level of happiness is high,” he said.
Bloomberg News also spoke to current and former business partners, as well as more than a dozen people in the industry, who also described signs of trouble at the company. Most asked to remain anonymous to speak frankly about sensitive business arrangements.
Quanergy’s critics said the distance between its rhetoric and reality have widened. One former employee said he never saw a single device come off the line at Quanergy that met all of its stated specifications, an allegation the company denies. Morale has been flagging for well over a year, said several former employees who are in contact with current staff members.
In July, Ryan Field, a senior employee who was in charge of Quanergy’s development of a chip designed specifically for lidar, told the company he was leaving. Eldada described Field’s departure as a blow, but said it was amicable. Field declined to comment.
In the meantime, Quanergy is pursuing other markets. Eldada has become set on building sensors for an electronic barrier along the U.S.-Mexican border, which he sees as a humane alternative to the border wall being pushed by President Donald Trump.
“People weren’t fixing bugs. ...They were just shipping out stuff that was busted.”
State of Autonomous Vehicle Industry
The challenges facing Quanergy point to a broader reckoning looming for the autonomous vehicle industry. Investors have poured about $750 million into lidar companies since 2013, peaking last year at $350 million, according to CB Insights, a firm that tracks venture capital activity. Companies working on automotive mapping, software, and other technologies have also raised money from investors determined not to miss a fundamental revolution in transportation. But a full-scale autonomous driving industry still seems years away, making business prospects questionable. Startups that attracted interest based on the promise of future breakthroughs are struggling to solve difficult scientific and commercial problems.
“The hype is falling,” said Mike Ramsey, a transportation and mobility analyst at Gartner. “The closer you get to implementation, the clearer it is how difficult it will be to commercialize.” Ramsey said some self-driving tech companies are lowering their expectations, pivoting from building their own software to consulting, and expects to see significant consolidation among the 50 or so companies currently making lidar. “There are not enough musical chairs out there for everyone,” he said.
Overview of Quanergy
Eldada is an intense, confident man whose preferred wardrobe—a black suit with an open-collared white oxford shirt—is at least one step more formal than typical for dressed-down Silicon Valley. When he arrived at an interview with a Bloomberg News reporter, he wore a pin honoring Quanergy’s “Best of Innovation” award from 2017’s Consumer Electronics Show on his lapel.
Eldada traces the idea for Quanergy back to his doctoral research at Columbia University. After graduating, Eldada went on to work at Honeywell and DuPont Photonics, a manufacturing specialist, then a handful of telecom and energy firms. During this period, Eldada said, he began working with technical experts that would make up Quanergy’s core founding team. “Together we developed unique capabilities, designed tools you cannot buy, designed rules they do not teach you in school,” said Eldada.
Jim Disanto was one of first to give Quanergy money. Disanto had just started his own investment fund when he met Angus Pacala, a Quanergy co-founder, in 2012. Eldada pitched Disanto, and the investor’s ears perked up at his description of a specialized computer chip that would contain the entire lidar system. “There’s a race going on,” Disanto remembered thinking. “We’ve got to get into this lidar stuff.”
Lidar sensors work by shooting lasers into the world, then determining the position of objects by measuring how long each beam takes to bounce back. It is widely seen as the most promising technique for autonomous vehicles to sense the world around them. But it also has its unique challenges. Lasers must fan out in various directions, extending a sensor’s field of view beyond a single beam. Velodyne does this by putting its sensors on motorized turntables, shooting lasers in a 360 arc, a technique known as mechanical lidar. Quanergy and other upstarts promised to develop novel ways to steer the radar beams with fewer moving parts, simultaneously making the devices smaller, more durable and cheaper to make. Devices without any moving parts, like the ones Quanergy was developing, were known as solid-state lidar.
Eldada was a fantastic evangelist for this idea. A person who saw his presentation while working at an auto company in 2013 called it “one of the best pitches I’ve ever heard.” In a pitch deck from the same period viewed by Bloomberg News, Quanergy said it would sell to manufacturers of self-driving cars, to dockyard operators looking to automate, and even military contractors searching caves for terrorists. The company was also planning to construct an automated manufacturing facility and design its own specialized chips. Quanergy projected sales to grow from 100 units in 2013 to over 200,000 by 2017.
At the time, Quanergy was selling spinning mechanical devices that worked much like Velodyne’s. But Eldada said his company would have a solid-state lidar by the beginning of 2016. And he delivered, sort of.
Quanergy introduced the S3, its solid-state lidar product, at CES in 2016. One person who received a demo was Evan Ackerman, a contributing editor for the website of the Institute for Electrical and Electronics Engineers.
“We can’t tell you much about the demo (it’s under NDA), but we can certainly say that the S3 definitely works as a solid-state LIDAR,” Ackerman wrote in an article at the time. “However, we’re obligated to point out that Quanergy has not yet demonstrated a version of the S3 that performs to the specifications that they announced at their press conference.”
Eldada acknowledged this was true. “Back then it didn’t meet spec,” he said. “That’s absolutely correct.” He dismissed it as run-of-the-mill CES puffery. But there were other signs that things weren’t going according to plan. Months before the 2016 release, Pacala suddenly left Quanergy and later started a competitor, Ouster. (The name could be interpreted as a sly reference to Pacala’s departure, but Ouster’s website says it actually refers to a group of characters in a series of sci-fi novels.) Eldada diminished Pacala’s importance to Quanergy. “He’s a mechanical engineer, and that’s all he does and all he knows. He’s never had a hand in the solid-state lidar,” Eldada said—even though Pacala shares credit on a patent entitled “optical phased array lidar system” that describes Quanergy’s approach to solid-state lidar. Pacala declined to comment.
Employees who were at Quanergy at the time said Pacala’s departure shook morale, especially after Eldada began criticizing him and his new company in front of other staff members. They saw Eldada’s continued reproach of Pacala as indicative of the CEO’s hunger for personal loyalty. This made it hard to fix technical issues, said one person who held a senior position at the company.
“You expect a certain number of failures when you’re building a business, because it’s new stuff, and nothing is perfect. But when it goes on for a while, you think that is a problem,” this person said. “And when you combine that with an environment where passionate debate is not tolerated, it’s difficult for you to step in and say, ‘Why are we having this problem?’”
Quanergy’s own public statements about its technology hint at technical frustrations. It first described the potential of its mechanical lidar device, the M8, in a December 2014 press release, when it said it had a range of 300 meters.
By January 2017, the company said the device had a 200-meter range. Six months later, it revised its claim again, saying it had a “maximum range exceeding 150 meters.” By November 2017, it issued a press release describing its range simply as “long.”
In 2016, researchers at PSL Research University in Paris tested an M8 device themselves and found the error rates Quanergy said its device would experience at 50 meters actually happened at 11 meters when tested outside. They also found it performed far worse outdoors than indoors, a red flag for car makers.
When asked about the study, former Quanergy employees said it was common knowledge within the company that performance varied drastically for each device it shipped, a symptom, they said, of the lack of firm production standards. According to two former employees, customers returned M8 devices at alarming rates. “People weren’t fixing bugs,” one said. “They were just shipping out stuff that was busted.” In an email, a spokeswoman denied this. “Quanergy has never knowingly shipped product with defects,” she said. She added that no clients have returned the current version of the M8, released in February.
Eldada said the stated specs in press releases vary because they refer to different versions of the product. He didn’t dispute the PSL study but said it was out of date. “I’m sure that’s what they saw,” he said. “We’re actually going back to the customers who tried our product three years ago and saying, ‘Forget about it. It’s a totally different product,” he said. Eldada said he created three different versions of the M8 this year and that 94 percent of the sensors now have 200-meter range. In any case, the future of the company, in Eldada’s eyes, has always been the S3.
For now, the officially stated specifications of Quanergy’s S3 sensors fall short of the performance needed for general-use autonomous driving. A commonly cited benchmark for the needs of highway driving is a 200-meter range, which would allow a car driving at 70 miles per hour just over 6 seconds to adjust to an obstacle.
A current spec sheet viewed by Bloomberg News shows a range of 150 meters. Quanergy also measured its range on highly reflective objects, which are easier for lidar to see at long distances but aren't usually the type of things autonomous cars need to spot. This elides how well the S3 might sense many of the objects autonomous cars would seek to avoid.
There’s a consensus within the industry that no one has yet figured out the perfect formula. “There’s been some delay, the technology, in general, is difficult,” said Eugene Zhang, a partner at TSVC, another Quanergy investor. “I believe in the team. They have a good shot at it.”
Disanto, the early investor, said that the company’s new devices remain a work in progress, but that he believes the company is ahead of the rest of the industry. “I’ve been to the company. I’ve seen the new samples,” he said. “We’re really close.”
One auto company that has expressed interest in the S3 is Japan’s Koito Manufacturing Co. In 2017, Quanergy announced a collaboration with the firm to make headlights with built-in lidar sensors. But Daisuke Sato, a Koito spokesman, said this month that the deal wasn’t final. “We still haven’t decided which suppliers we should buy parts from,” he said.
Eldada expressed confidence that he could win Koito over. He said Quanergy’s devices could outperform their stated specs in certain conditions such as highway driving when sensors need to see at longer ranges. He said Quanergy’s device was on par with competing products. In a demo conducted for Bloomberg News, Eldada showed an S3 operating in a conference room that was about 12 meters long. When asked to see the device work outdoors he declined, citing a firmware update.
Quanergy has consistently said its tech would be important for more than just cars. In 2016, the company floated the idea of using lidar to secure the perimeters of prisons, and later engaged with oil companies, on plans to use its sensors to detect intruders.
People throughout the industry have noticed a distinct shift toward these kinds of applications over the last 18 months. The most notable project is Quanergy’s attempt to build technology for a digital border wall. In Eldada’s vision, lidar sensors could be deployed along the border, monitoring remote regions for movement, then determining whether there were people attempting unauthorized crossings. Two former employees said many workers found the idea repellent.
Eldada acknowledged that a contract for a virtual wall would be controversial, but he described it as a kind of protest against Trump’s version of border security. “I hate the word ‘wall’. We are anti-wall. We have a technology solution,” he said.
A digital border project could be lucrative, but could also help open up other markets, like selling technology to cities or airports, said Eldada. It would also require addressing challenges that don’t arise with cars, like operating in extreme heat without consistent access to power or data networks. Quanergy sells sensors to Cisco for urban planning, but Quanergy declined to elaborate on the deal.
In an email, a spokeswoman for Quanergy denied that the company is primarily focused on the security market. But none of the deals that the company has announced this year are with auto companies.
“We don’t want to put all of our eggs in one basket, and be subject to delays that no one can control,” said Eldada. Not that he’s giving up. “Ultimately, when it takes off in a big way, it will dwarf everything else,” he said.
By Joshua Brustein and Mark Bergen
