Welcome to the 100th edition of Deep Tech Catalyst, the educational channel from The Scenarionist where science meets venture!
Automotive is in the middle of a long, complex transition. Electric and combustion platforms now coexist in the same showroom, software defines more of the in-vehicle experience, and the path from lab prototype to qualified component runs through some of the most demanding manufacturing and safety standards in industry.
For Deep Tech founders, the question is not just how to build a breakthrough—it is how to make that breakthrough fit into a large company’s programs, economics, and timelines.
How do you approach a major automaker, navigate long integration cycles, and design a business that can eventually be cash-flow positive in a market where price and cost discipline decide who scales?
To unpack these dynamics from the inside, we’re joined by Shobhit Gupta, Investor at GM Ventures!
Key takeaways from the episode (TL;DR)
🚗 Mobility Is About Choice
EVs and combustion engines will coexist for a long time; what matters is giving consumers real options in powertrain and in-vehicle experience.
🏢 Two Doors Into an Automotive Manufacturer
Engagements typically start either from a business unit or from the corporate venture team, then grow from pilots into broader strategic relationships.
🧪 Readiness Before Integration
Automotive timelines are long; OEMs first look for technologies mature enough for pilots, with hardware held to a higher readiness bar than pure software.
💰 Cost Curves, Not Just Prices
Early-stage unit economics don’t need to be perfect, but there must be a credible roadmap to cost competitiveness, often built by leveraging automotive manufacturers’ supply chains and joint ventures.
📉 Margins vs. Cash Flow
Hardware margins are structurally lower than software; the real target is company-level cash flow positivity, achieved by systematically working down costs while scaling deployment.
✨ For more, see Membership | Deep Tech Briefing | Insights | VC Guides
BEYOND THE CONVERSATION — STRATEGIC INSIGHTS FROM THE EPISODE
A New Era for Automotive
Powertrain Diversity as a Response to Consumer Demand
The most visible change in mobility today is not a single breakthrough technology but the expansion of choice. From the perspective of an automaker, the primary responsibility is to offer a portfolio that reflects the range of preferences and use cases across its customer base.
That has translated into a dual commitment: a robust lineup of electric vehicles and, in parallel, a strong portfolio of internal combustion engine products.
Electric models address the growing demand for new powertrain architectures and future-oriented mobility, while combustion vehicles continue to serve large segments of drivers whose needs, habits, or infrastructure constraints still align with conventional platforms.
The point is not to force a single answer, but to make sure that a driver can select a vehicle that genuinely fits how they live and travel.
In-Vehicle Experience as a Core Part of Mobility
For most consumers, mobility is no longer just about the drivetrain. It is about what it feels like to be inside the vehicle every day. As a result, the cockpit has become part of the competitive landscape in its own right.
Materials, design, and overall look and feel now carry as much weight as traditional performance metrics for many buyers. At the same time, the software that runs on the dashboard has moved from being an accessory to being a core part of the experience. Driver information, connectivity, and digital features delivered through in-vehicle displays all shape how people perceive a brand and a model.
When mobility is viewed through that lens, the product is the combination of powertrain, physical environment, and digital layer.
The evolution of the sector is therefore tied not only to the introduction of new vehicle architectures, but to continuous improvement in how the interior space looks, behaves, and supports the driver and passengers.
Infrastructure and the Multi-Actor Nature of Transportation
Behind the individual vehicle, mobility sits within a much larger transportation system. Moving people and goods from point A to point B is an infrastructure-scale challenge that extends far beyond a single automotive player.
In practical terms, that means the sector is shaped by a broad ecosystem of stakeholders: automakers, suppliers, tier-one partners, infrastructure providers, and other entities that contribute to the overall system.
No single company, regardless of size, can unilaterally solve the full spectrum of problems that arise when transportation, mobility, and infrastructure intersect.
The current phase of evolution is therefore stakeholder-driven. Progress depends on coordination across different players who each control a piece of the puzzle.
Capex That Compounds: Turning Industrial Spending into a Growth Engine | The Scenarionist
A deep dive on case-driven strategies and tactics to turn a first-of-a-kind factory into a winning fleet, keeping future dollars as expansion dollars.
Opening the Door: First Interactions Between Startups and Large Corporations
For a startup, the first question is often simply how to enter a large automotive organization in a way that leads to something real.
In practice, there tend to be two primary paths:
The first begins directly with a business unit. A founder might meet an engineering or product leader at a conference, an industry event, or through targeted outreach. That initial contact can lead to informal technical discussions, early evaluations, or a narrowly scoped pilot. The engagement is often modest at the beginning—limited in scope, defined around a specific use case, and owned by a small team inside the business unit.
The second path starts with the corporate venture arm. In that case, the venture team identifies a promising technology and then introduces the startup to the relevant business stakeholders inside the corporation. The first step is to map the startup’s product to the right internal owner: the person, or small group, who is closest to the problem the startup is trying to solve. Once that match is made, the CVC team works up and down the reporting chain to make sure there is alignment, both technically and strategically.
In both paths, technical assessments are left to the engineering and product staff inside the business units, because they understand their problem sets, requirements, and constraints better than anyone else.
What the CVC arm does provide is navigation, coordination, and leverage. It helps ensure that the startup is in front of the right people, and that internal stakeholders understand how a new technology might fit into existing or emerging programs.
B2B → B2C: Turning Technology Partnerships Into Consumer Features
From the startup’s perspective, the interaction with an automotive manufacturer is a B2B relationship. The conversations are with engineering leaders, program managers, procurement, and supply chain teams.
Yet the ultimate test of the collaboration is almost always in the B2C realm: whether the technology ends up in vehicles that consumers can buy and use.
That arc—business-to-business partnership evolving into a consumer-facing capability—is the throughline for many successful automotive startup relationships.
On one side, the automaker and the startup collaborate on technology development, validation, and integration. On the other, the outcome is a concrete option in the showroom that drivers can see, evaluate, and choose.
For founders, understanding this dynamic is essential.
The first meetings may revolve around pilots, specifications, and technical evaluations, but the real end game is always the same: turning a B2B engagement into a durable B2C feature that lives inside vehicles on the road.
The Long Path From Pilot to Scale
From an automotive manufacturer’s perspective, integration into a vehicle is the ultimate goal—but it is never the starting point. The first step is to understand how ready the technology actually is and how well it maps to real needs inside the organization.
Early conversations focus on two questions: what level of development has already been achieved, and which business units could realistically benefit from the product.
In an ideal scenario, more than one internal team sees a clear use case.
That diversification matters because different units move at different speeds, and having several potential sponsors gives a startup more chances to build a successful engagement over time.
At the beginning, integration is not the immediate ask. Automotive development cycles are long. Safety testing, engineering validation, material standards, and regulatory requirements all sit at the high end of industrial complexity.
A product that will eventually go through a manufacturing plant and into vehicles must be fully tested and validated, and that simply cannot be compressed into a short timeframe.
What matters most at the beginning is that the product is far enough along to be evaluated in a pilot setting. That evaluation can start in different ways, for instance:
Sometimes the automotive manufacturer makes a strategic investment and, in parallel, works with a business unit to stand up an internal test or proof of concept.
Other times, the startup has already run pilots with third parties or other customers, and the results from those external deployments become an input to the company’s own assessment.
In either case, the condition for deeper engagement is the same: the technology needs to be at a point where it can be meaningfully tested, not just described in theory.
Software vs Hardware
Readiness is not a single metric. It is shaped by the nature of the product itself, and in automotive, the contrast between software and hardware is particularly sharp.
Pure software offerings can often be engaged earlier. If a software solution is critical for a business unit—say, in how it manages processes, data, or internal workflows—an OEM may be willing to work with the startup while the product is still in a relatively early stage.
In those situations, the value of the relationship can include guidance: clarity on requirements, continuous feedback, and an understanding of what the automaker needs to see in order to broaden deployment later.
The development then advances with a line of sight to a specific customer’s expectations.
Deep tech hardware lives on a different timeline.
The bar for maturity is higher before a meaningful collaboration can begin, because the path from lab to factory floor involves more steps, more stakeholders, and more irreversibility.
A hardware product has to fit into existing manufacturing and supply chains, meet strict quality and safety standards, and survive the realities of industrial-scale production.
As a result, the level of risk differs across categories. For software, earlier-stage engagement can make sense if the strategic importance is clear. For hardware, the expectation is that the company has already moved beyond purely theoretical concepts and is in a position to support pilot-level testing.
The Manufacturing Learning Curve Behind Cost Claims
One of the most common patterns in early hardware pitch decks is making ambitious cost claims.
Founders often present a vision in which their technology not only reaches cost parity with existing solutions but ultimately beats them on price. On paper, the argument can be compelling: new materials, new architectures, or new processes that promise lower unit costs once they scale.
The difficulty is that many of these claims are made before the team has gone through the manufacturing learning curve.
The theoretical cost model may not yet reflect the realities of production: the machinery required, the number and type of suppliers involved, the yields that can be achieved at each stage, and the inevitable surprises that surface when a process moves from the lab into real-world factories.
A large automotive player like General Motors, with decades of manufacturing experience, views cost through a different lens.
Having built and optimized production systems for more than a century, it understands where efficiency is gained and where it is lost. When a startup arrives with strong statements about cost competitiveness, the natural response is to dig deeper.
The conversation quickly turns from slogans to specifics:
What exactly drives the projected cost reduction?
Which third-party manufacturers and supply chain partners need to be involved?
How will their capabilities, incentives, and constraints affect the economics?
What are the push-and-pull forces that will either support or undermine the claimed price point once the product is integrated into an actual vehicle program?
These questions are not academic. In automotive, the viability of a new hardware solution depends on whether its promised economics can survive contact with the full industrial stack.
Moreover, each segment, each technology, and each supply chain path introduces its own variables. So, integration is the destination, but manufacturing maturity is the road that leads there.
Pricing, Unit Economics, and the Cost Curve
In automotive, price is always in the frame, but it is not evaluated in isolation from timing and maturity.
When a startup enters discussions with a large automotive player at an early stage, the expectation is not that the product already matches the long-term target cost structure of a high-volume program.
What matters more is whether there is a credible roadmap to get there.
The sector is intensely competitive. No single player controls the majority of the market, and even incremental differences in cost can influence how a product is positioned and scaled across a portfolio.
For that reason, cost competitiveness becomes critical when a solution is considered for mass-market deployment, especially in segments where price sensitivity is high and margins are thinner.
At the same time, a young company faces realities that make its initial unit economics less favorable. Volumes are low, manufacturing processes are not yet fully optimized, and many of the learning cycles that reduce cost over time are still ahead.
When CVCs decide to take both investment risk and strategic risk by working with an early-stage company, it does so with the understanding that early price points will not look like end-state figures.
What it does look for, however, is alignment. The manufacturer and the startup need to agree on a path by which costs can decrease as volumes rise and processes mature, without compromising the underlying capability of the platform.
The roadmap is as important as the current number: it shows how a technology that may initially be expensive can, over time, become suitable for broader deployment across different models and trims.
Leveraging Resources and Joint Ventures to Cut Costs
One of the advantages a large automaker brings to this journey is the depth of its existing supply chain. Over decades, it has developed relationships, joint ventures, and internal capabilities that give it a granular understanding of how cost moves through the system.
When a startup plugs into this environment, it gains access not only to manufacturing capacity but also to cost-improvement levers that would be difficult to access on its own.
A corporation with in-house expertise and joint ventures in this area can help a young company understand where its technology could sit within that stack, and how economies of scale, process optimization, and integration choices might influence long-term pricing.
The goal is not merely to negotiate a lower price, but to design a path in which cost comes down structurally.
That can involve better alignment with existing manufacturing flows, more efficient use of materials, or smarter integration into platforms that are already being produced at scale. A strategic investor could help spot these possibilities and, where appropriate, open doors to partners and facilities that make them real.
To recap, startups are not expected to arrive with perfect unit economics on day one. What they are expected to bring is a serious view of how their costs can evolve, and a willingness to engage with the industrial realities that will shape that evolution.
With that mindset and with the support of a large automotive player’s supply chain and partnership network, a promising technology can move from an expensive niche to a viable, cost-competitive component of mainstream automotive platforms.
Beyond Gross Margin: Designing for Cash Flow in Automotive Startups
Realistic Margin Expectations in Hardware and Software
When founders ask what margins they should target to be attractive to an automotive partner, the temptation is to look for a single number.
In practice, the answer is more nuanced.
Margins in this sector are structurally different depending on whether the company is building hardware, software, or some combination of the two.
In pure software plays, gross margins tend to be higher. Once the product is built and deployed, the cost of serving additional customers is comparatively low, and the economics can move toward attractive levels relatively early. This is one reason software businesses in and around automotive often reach appealing margin profiles sooner in their lifecycle.
Hardware tells a different story.
Physical products must be designed, manufactured, tested, shipped, and integrated into complex systems. Each of those steps brings cost and complexity.
As a result, margins in hardware businesses are generally lower, often in the low double digits and, in good cases, somewhat higher—but rarely approaching the levels seen in software.
For an investor or strategic partner looking at a hardware startup in automotive, this difference is not a surprise; it is part of the baseline expectation.
The question is not whether the company can replicate software-like margins, but whether it understands what “good” looks like in its category and has a plan to reach that level over time.
Why Cash Flow Matters More Than a Single Product Line
A unit can look attractive on paper while the company as a whole is still consuming cash at a rate that is unsustainable.
The more decisive measure is whether the business can design a credible path to company-level cash flow positivity.
That does not mean expecting a young startup to be cash flow positive in the next quarter or even within the next year. It means insisting on a roadmap that shows how the organization will move from investment-heavy growth to a position where its operations fund themselves.
What matters is the intention and the discipline.
A startup that has thought through how its cost base evolves, how its pricing relates to that cost base, and how volume, efficiency, and mix will eventually produce positive cash flow is in a stronger position than one that simply assumes future scale will fix everything.
For a strategic investor, that mindset is a key signal.
Reaching company-level cash flow positivity is rarely a straight line. It usually involves a series of operational decisions that reshape the cost structure over time.
Sometimes that means reallocating resources across facilities, consolidating where it makes sense, and investing more heavily where the impact on efficiency and cost is greatest.
In other cases, it may involve changing the footprint of the business itself—shifting where certain activities are performed, rethinking manufacturing locations, or restructuring parts of the operation to better match the realities of demand and supply.
Throughout that process, the guiding principle is consistent: continuously work down the cost base while preserving enough margin to move the overall company toward sustainability.
That requires attention to both sides of the equation.
Cost discipline alone is not enough if pricing is not aligned with the value being delivered, and ambitious pricing without a handle on underlying costs will not survive contact with the automotive market.
For founders, the implication is clear. When engaging with an automotive manufacturer or its venture arm, it is not sufficient to present a compelling technology and an attractive gross margin on a slide.
What resonates is a thoughtful view of how the entire business will progress toward positive cash flow—how the organization will evolve, where it will seek efficiencies, and how it will structure its operations so that, over time, it is not just building impressive products but also running a financially resilient company.
Capital Crowds Into Electrons for GPUs; Industrial Biomining and Methane-Cutting Ag Score New Series A; Battery Contamination Control and Open Humanoids Close B & more | Deep Tech Capital Movements 44
This week Deals Sector Allocation — Energy & Industrial/Robotics 8; Semis & Quantum 6; Ag/FoodTech 5; Bio 4; AI/Compute; Cyber/Defense 3; Materials 2; Mobility & Space/Aero 1
