Israeli auto technology firms' wartime strategy: Deal with it

With Israel embroiled in its biggest war in 50 years, the country's automotive technology community is dealing with thousands of employees called into military service and managing business timelines and commitments.

Executives have shifted personnel and pushed through fundraising even as they chant the Jewish mourner's kaddish for the nation's dead and pray for the safe return of hostages. Public companies are seeing stock price volatility as investors grapple with the complexities inherent in retaliatory Israeli airstrikes. But automotive tech startups are largely committed to business as usual.

"With everything that Hamas has done here, I'm not willing to give them any victory," said Daniel Barel, CEO of Ree Automotive. "Of course, not on the battlefield, but not also here, not as a business, not with our people."

Company operations have been impacted by the war between Israel and Hamas, the group governing the Gaza Strip that attacked communities in southern Israel on Oct. 7. The conflict has killed more than 1,400 people in Israel, according to the Associated Press, and more than 5,000 Palestinians, according to the health ministry in Gaza.

It has also forced Israeli companies to reprioritize and remain nimble at a pivotal industry moment for developing electric drivetrains, vehicle connectivity and automation. Funding from the U.S. Inflation Reduction Act and the push for autonomous vehicles have created a critical — and relatively small — window of opportunity as automakers and other partners look to write hefty checks and line up the next big feature.

Israel's automotive tech sector is important to the broader national economy. The overall Israeli tech industry generates 18 percent of the country's gross domestic product, compared with 10 percent for the U.S. tech sector, according to the Israel Innovation Authority's "State of the High-Tech Industry" report for 2023. About 14 percent of Israeli employees work in technology. More than 700 startups comprise EcoMotion, a mobility organization in Israel.

Industry leaders describe an acute sense of responsibility to keep the economy going, keep their workers active and keep promises to customers. On phone calls and over video chats with Automotive News they appeared weary but determined.

"The resilience factor is huge" for Israeli startups, said Jennifer Schwarz, the executive director at EcoMotion. "People need a job. They want the economy to continue. They want to see their lives continue. They want to start rebuilding as they mourn."

At the same time, Schwarz estimated that between 15 and 20 percent of the work force in high-tech companies in Israel has been called up to the reserves.

Israel has compulsory military service.

When Israelis turn 18, men must serve 32 months in the armed forces and women must serve 24. After that, Israelis can be called up to the reserves for routine training or in emergencies such as the ongoing conflict until they reach the age of exemption, typically in their late 30s or 40s depending on gender, rank and duties.

After the terror attack two weeks ago, Israel called up 360,000 reservists, the largest such assembly since 1973.

Alon Podhurst, CEO of DriveU.auto, a connectivity platform for robots and autonomous vehicles, declined to provide the exact number of employees called up to the reserves, but said the company has fewer than 20 employees so "any person that is busy elsewhere obviously has an impact."

At the same time, Podhurst said he has not had to delay timelines or deliverables "through prioritization and having this kind of a brutal, almost battlefield triage sense of what's important now and what we'll have to postpone for later."

The military has called up about half of the R&D employees at battery and internal thermal management system developer Carrar to the reserves, said Eitam Friedman, the company's vice president of research and development. For imminent deadlines, Carrar has managed to stay on track, including delivering modules scheduled for next month. But with so much staff out of commission, longer projects might see what leaders characterized as minor delays.

"Of course, we will have some pullbacks and delays in our projects in the long term, but we are trying to move the employees in a way that the critical milestones won't get delayed so much," said Carrar CEO Avinoam Rubinstain.

Other company leaders stressed that long automotive development timelines make it unlikely that customers will feel the war's impact. Israel's past wars have lasted weeks or months, and executives said lengthy personnel shortages are unlikely.

Managing the tremendous uncertainty around staffing has forced Israeli auto tech company workers to create new systems and take on new roles.

Fullpath, a dealership marketing platform, has created a Slack channel that addresses who will fill in for executives and employees called up to serve. As part of this process, Fullpath each day assesses draft-related staffing changes, if any, plus government security and safety announcements that could affect the Israel team and the company.

Fullpath has cut nonessential activities, such as a quarterly product launch event, in favor of using its financial resources for "pure product development and customer support," said Aharon Horwitz, Fullpath's CEO.

Ree Automotive has allowed employees to return to the office with children in tow, as not all schools are open. Last week, employees and their children used Ree's cafeteria to make baked goods and write letters to families evacuated from their homes.

Israeli auto tech companies said war is taking place against a backdrop of an already gloomy macro environment. Raising funding was already difficult, but the war has not had an added impact.

Investment isn't running at what you would see "back in '21 when you'd see two people, a dog in a garage and an idea and they'd say, 'Oh, great idea, here's $5 million pre-seed,' " said DriveU's Podhurst. Plus, he said, investors looking at Israeli firms were well aware of geopolitical risks and factored in the possibility of conflicts.

Carrar is in a fundraising round and Rubinstain said that investors have not reneged on their commitments.

While some industry leaders told Automotive News they expect deal negotiations would pause during the conflict, some companies said they are still moving forward with blockbuster partnerships.

UVeye, maker of automated vehicle inspection systems used on dealership service drives, said its capital situation is secure, and it announced last week a partnership with Amazon to automate vehicle inspections for the retailer's fleet of more than 100,000 vehicles.

Companies generally said they did not fear a larger effort to divest from Israeli tech companies as pro-Palestinian protests have cropped up in cities around the world. Ree's Barel did say he has seen "some attempts" to "hurt Israeli companies on the public markets."

The Tel Aviv 125 stock index has dropped nearly 13 percent over the last month, though it's not clear whether those price declines are the result of investor anxiety or an effort to punish Israeli companies.

Like staffing shortages, development pivots, fundraising and the sirens wailing overhead, stock price volatility is just another challenge to overcome.

"It is what it is," Barel said. "We have to figure out a way to fight that as well."