Category: UNCATEGORIZED

VC and corporate investment into ClimateTech grew at a faster rate than overall VC investment as a whole between 2013 – 2019, according to a major new report — to the tune of $60 billion of early-stage capital.

The new research by PwC (“The State of Climate Tech 2020“) found that although it’s still early days for ClimateTech in terms of the overall VC market (approx 6% of total capital invested in 2019), VC investment into the space is growing at a clip: it increased from $418 million per annum in 2013 to $16.3 billion in 2019. According to the report, that is approximately three times the growth rate of VC investment into AI over the same period, and five times the average growth in VC.

The reasons are, predictably, to do with market economics. It’s quickly becoming more capitally efficient to prove and scale the technologies involved, and carbon-neutral or even carbon negative solutions have fewer costs than carbon-producing ones.

Nearly half of this venture cash ($60bn) went to US and Canadian climate tech startups ($29 billion), while China comes in second at $20 billion. The European market attracted $7 billion. The majority of investments for the US and China go to mobility and transport solutions.

ClimateTech startup investment in the San Francisco Bay area, at $11.7 billion, was 56% higher than its nearest rival, Shanghai, which reached $7.5 billion. Europe is more invested in renewable energy generation (predominantly photovoltaics cells) and batteries.

Celine Herweijer, global leader, Innovation & Sustainability, PwC UK in a statement: “The analysis shows the urgency of the opportunity, and gap to close, to support and scale innovative technologies and business models to address the climate crisis. Climate tech is a new frontier in venture investing for the 2020s.”

“Some of the technologies and solutions critical to enabling this transformation are proven and need rapid commercialization, which is why venture capital is key. It will not need trillions invested in startups to make a difference. But for the trickier technologies and markets it will need targeted support, including from governments, to make it through research and development, and the early stages beyond which capital increasingly is lining up,” she added.

The biggest drivers for growth in ClimateTech, according to the report, relate to mobility and transport, heavy industry, and Greenhouse Gas (GHG) capture and storage> These are followed by food, agriculture, land use, built environment, energy, and climate and Earth data generation.

Anyone who reads TechCrunch will be well aware of the electric scooter and e-bike wars that have broken out in recent years. And sure enough, the report finds that investment in these micro-mobility startups has grown dramatically, recording a CAGR of 151%, and representing 63% $37.4 billion of all ClimateTech funding over the past seven years.

Azeem Azhar, senior advisor to PwC UK, founder of Exponential View, and co-author of the report, said: “The climate tech market is maturing. As a society we are seeing more entrepreneurs launch startups, more investors back them, and an increasing number of larger funding rounds for later-stage high-potential deals. But PwC’s analysis shows the ecosystem is still nascent, with key gaps in the depth and nature of funding available to founders and tricky structural hurdles for them to navigate as they scale their businesses.”

Where is the investment coming from? From a wide range of sources: traditional VC firms and venture funds specializing in sustainability, corporate investors including energy majors, global consumer goods companies and big tech, government-backed investment firms, and private equity players.

The report found that corporate venture capital (CVC) looms large in the sector, especially startups typified by high capital costs aimed at disrupting incumbent industries with high barriers to entry, such as in energy, heavy industry and transport. For Mobility and Transport, 30% of the climate tech deals include a CVC firm, and in Energy, 32% of capital deployed came from CVCs. Overall, nearly a quarter of climate tech deals (24%) included a corporate investor.

Herweijer said: “The involvement of corporates will be key to the continued success of climate tech – both in terms of their net-zero commitments driving demand for new solutions, and their investments into commercializing innovation. It’s not just the financial means they bring, but the commercial know-how, and industry knowledge to help startups navigate how to rapidly deploy and scale new innovations into the market.”

Amongst the top ten cities for ClimateTech startup investment are – outside of the US and China – were Berlin, London, Labege (France) and Bengaluru, India. These attracting $1.3 billion, mainly across energy, agriculture and food and land use.

The sections perhaps most relevant to a TechCrunch audience occur on page 44 onwards which shows that the ClimateTech market is starting to behave like the high-growth tech startup world. Where barriers existed before such as technical risk, product risk, market risk, these are being addressed. Recognizable VC names such as Sequoia, GV, Kosler, Horizons, YC, USV are all getting involved.

And although almost 300 global companies have committed to achieving net-zero emissions before 2050, “with just ten years to reduce by half global greenhouse gas emissions to limit global warming to 1.5C, climate tech needs a rapid injection of capital, talent and public-private support to match its potential to build and accelerate faster, bolder innovation,” added Herweijer.

Peterson Ventures, a 12-year-old, Salt Lake City, Ut.-based seed-stage fund, has long operated fairly quietly, but many of its bets have become known brands in the respective worlds of consumer and enterprise software investing. Among these is the shoe company Allbirds, the men’s clothing company Bonobos (acquired a few years ago by Walmart), and Lucid Software, which closed its newest, $52 million round back in April.

Thanks to a newly raised, $65 million fund — more than double the $33 million its second fund closed with in 2016 — Peterson has even more money now to write checks in the range of $250,000 to $1 million in a wide variety of startups.

We were in touch this week with Peterson partner Ilana Stern, whose own consumer startup, Weddington Way,  raised money from Peterson before selling to the Gap in 2016, to learn a bit more about the firm’s newest fund and where it’s looking to shop. Stern, who joined the outfit last fall, is based in San Francisco. Our exchange has been edited lightly for length.

TC: Peterson is part of a bigger platform called Peterson Partners. How many asset classes is Peterson Partners funding?

IS: Peterson Ventures is part of the Peterson Partners platform with funds that invest in lower middle market private equity and search funds. There are over 30 people firm wide, including a four-person full-time investing team [on the venture side. We’ll be looking to add one to two more members in the next year.

TC: How does the firm think about consumer versus SaaS, and is this different than in past years? For example, First Round Capital used to invest half its capital in consumer-facing startups, and that’s not the case right now, as Josh Kopelman told us a couple of weeks ago.

IS: Our first, $25 million fund, was close to a 50/50 split; in the second fund, we shifted to 65%/35%, focusing more heavily on B2B SaaS than consumer. Going forward, we expect to be investing around 60% to 70% SaaS and around 30% to 40% consumer. The bread and butter of the Utah market is SaaS, and we expect to continue to back great SaaS companies in Utah.  That said, there is a growing ecosystem of compelling e-commerce and consumer companies, including in healthcare and financial services where we see a continued ‘consumerization’ of those two sectors.

TC: What are two of the firm’s most recent bets, and what do they say about the way your team operates?

IS: Via and Tava Health are two of our new seed investments. Via connects businesses to their consumers on their favorite messaging and voice platforms. Commerce infrastructure is an area where we’ve been very active over the last five or so years, [including because it’s a] perfect cross section of SaaS companies selling into e-commerce and retail. Tava Health is a telemedicine platform for mental health for employees paid by employers, and healthcare SaaS is an area that we’ve also invested in a lot. In fact, its founder, Dallen Allred, is someone whose earlier company, Artemis Health, is another portfolio company.

TC: Out of curiosity, how did Peterson get involved with Bonobos?

IS: Co-founders Andy Dunn and Brian Spaly were students of our founding partner, Joel Peterson, at Stanford GSB. GSB is a key area of deal flow for us. Joel has been teaching there for almost 30 years. Ben [Capell, a partner with Peterson since 2010] has been involved in backing over 20 companies in the last 8 years led by Stanford GSB alumni, and I’ve been guest lecturing there for seven years.

TC: Obviously, you don’t invest exclusively in Utah, but you spend much of your time with local startups. How has the Utah scene changed since Peterson swung open its doors?

IS: Peterson dates back to 1995, so we’ve been fixtures in the Utah market for 25 years as a firm. When we started Peterson Ventures in 2008 investing Joel’s personal capital — it’s now a mix of institutions, family offices and high net worth individuals — there were no seed-stage firms. Now there are three institutional seed-stage firms, several Series A firms that will also invest in seed stage startups, and active family offices and angel investors.

Also, where the firm used to have to work hard to convince coastal firms to invest in Utah we now have an abundance of mid- and late-stage investors from both coasts spending significant time and
investing meaningful dollars here.

Shopify blames “rogue” employees for a data breach, Google Maps adds COVID-19 data and China pushes back against the TikTok deal. This is your Daily Crunch for September 23, 2020.

The big story: Shopify confirms data breach

The e-commerce platform blamed two “rogue members” of its support team, alleging that they stole customer data from “less than 200 merchants.” Shopify said it has fired the employees in question and referred the matter to the FBI.

In a blog post, the company said the affected data includes names, postal addresses and order details, but not “complete payment card numbers or other sensitive personal or financial information.” The company also said that there’s no evidence that the data has been utilized.

A merchant shared with TechCrunch a copy of their notification from Shopify, which said that the last four digits of customers’ payment cards had also been taken.

The tech giants

Amazon removes the $500 Prime Bike, says it has nothing to do with the Peloton knock-off — Echelon Fitness said it developed the Prime Bike “in collaboration with Amazon,” but Amazon is saying that isn’t the case.

Google Maps gets a COVID-19 layer — Google Maps users will be able to see a color-coded map indicating the number of cases per 100,000 people.

Top 20 iOS homescreen customization apps reach 5.7M installs after iOS 14 release — The three most-downloaded apps (Widgetsmith, Color Widgets and Photo Widget) account for 95% of these 5.7 million downloads.

Startups, funding and venture capital

China says it won’t approve TikTok sale, calls it ‘extortion’ — An editorial in the official English-language newspaper of the Chinese Communist Party said China has no reason to approve the “dirty” and “unfair” deal.

Zoom’s earliest investors are betting millions on a better Zoom for schools — ClassEDU is a new startup from former Blackboard CEO Michael Chasen aiming to answer the question: What if someone created a Zoom experience that was designed, not just marketed, for classrooms?

Endel raises $5M to create personalized ‘sound environments’ that improve productivity and sleep — I tried it out myself, listening to Endel’s mix of soothing music and white noise as I worked.

Advice and analysis from Extra Crunch

Fundraising lessons from David Rogier of MasterClass — Rogier says entrepreneurs should try to raise funds before launching.

Scaling to $100 million ARR: 3 founders share their insights — For this Disrupt panel, Alex Wilhelm spoke to Egnyte CEO Vineet Jain, Kaltura president Michal Tsur and GitLab CEO Sid Sijbrandij.

Dear Sophie: Possible to still get through I-751 and citizenship after divorce? — Another edition of “Dear Sophie,” the advice column that answers immigration-related questions about working at technology companies.

(Reminder: Extra Crunch is our subscription membership program, which aims to democratize information about startups. You can sign up here.)

Everything else

Data breach at New York Sports Clubs owner exposed customer data — Town Sports International, the parent company of New York Sports Clubs and Christi’s Fitness gyms, is mopping up after a security lapse exposed customer data.

Curly the curling robot throws stones like a pro — Researchers designed Curly to be a robot that can observe the real world and act accordingly in a precise and strategic manner.

TC Sessions Mobility 2020 kicks off in two weeks — Speakers include Redwood Materials CEO JB Straubel and Celina Mikolajczak, vice president of battery technology for Panasonic Energy of North America.

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 3pm Pacific, you can subscribe here.

It happens to the best of us. Some newer, flashier model comes along and we’re no longer the latest and greatest new thing. The iPad’s had a plenty good run, of course. Ten years ago, the device redefined what a tablet is and has maintained a dominant spot atop the category, as countless competitors have fallen away. Apple recently announced that it has sold north of 500 million units over the life of the device.

These days, the device has been overshadowed by its own brand. The standard iPad has become something of an also-ran, compared to the Pro and Air. Now in its eighth generation, the product represents the entry level for Apple’s tablet offerings. While the Air took center stage at the company’s recent hardware event, it did extend some love to the iPad.

The latest version of the tablet retains the familiar design of recent generations, including the 10.2-inch display (up from 9.7) and smart connector on the side of the device for accessories introduced the last time out. The size isn’t too dissimilar from the Air — it’s a touch taller and about a millimeter and a half thicker, weighing in at an additional 32 grams.

This is the last of three iPads to hang onto the Lightning Port — that’s certainly starting to feel like a bit of a relic. The upshot of that, however, is that the product continues to be compatible with older accessories, which means there’s a good chance you’ll save a little extra cash on that end, as well. The tablet also ships with a larger charger than the previous generation.

The biggest update this time out is, unsurprisingly, internal. The new version of the slate gets the same A12 — marking the first such upgrade for the device in two years. The update puts it a generation behind the Air, which received the A12 last year and has been upgraded to the A14. The Pro, meanwhile, currently sports the A12Z. Confusing, I know, but the main thing you need to know here is that the iPad is the entry-level model.

That includes the display, which is smaller than the other models and lacks the 120Hz refresh rate and brighter display of the Pro. Nor does it sport Apple’s True Tone display tech or the Face ID found on the Pro, instead retaining the home button Touch ID (versus the power button on the Air). The two-speaker system is also lacking compared to the quad-speakers on the Pro, most notably when you’re watching a movie on the tablet in landscape mode.

The battery is rated at 10 hours, which puts it in line with the other devices. I found I was able to get something in line with the company’s stated “all day life” for the product. If you’re someone like me who just uses a tablet for a couple of hours a day for entertainment purposes, you should be able to get away with charging it every few days.

The iPad is compatible with the standard Smart Keyboard, but not the new Magic Keyboard. If you’re looking for something that can seriously replace your PC, you’re going to want to take a good long look at the Pro. The iPad is fine for sending emails and the like, but beyond that, you’re going to want to consider something more robust.

The iPad is really the workhorse of the line. Starting at $329 for the 32GB model, it’s by far the least expensive iPad model. The Air and Pro start at $599 and $799, respectively. And sale prices are a certainty, heading into the holiday season. As I type this, the entry-level device is currently marked down to $299 on Amazon.

The truth is, for most users, the standard iPad will be more than enough for most applications. Certainly that applies to people who are looking for devices to check email, visit some sites, play mobile games and watch Netflix (though it might be time to reconsider its camera placement in the age of teleconferencing). The iPad isn’t the king of the hill it once was among Apple tablets, but it remains a fine device.

In this case, money, it really is the shoes.

GOAT, the proprietor of online and physical retail locations for reselling the collectible kicks and kits that are the currency of street cred and cultural cool among the youths, is now worth a whopping $1.75 billion thanks to $100 million in new financing.

It’s a big number, and a big day, for the Los Angeles-based startup. But the no-longer nascent sneaker and streetwear market is a big market, with the potential to reach $30 billion in sales globally by 2030, according to a recent report by the research firm, Cowen (cited by The Wall Street Journal, which first reported the financing).

These days, GOAT is about more than just shoes, at least according to the company. Since it launched in 2015 it has expanded into adjacent categories and become one of the biggest retailers of the current e-commerce craze.

“Our mission is to bring the world’s great products together from the past, present and future, while providing a premier end-to-end customer experience with a point of view on culture and style,” said co-founder and chief executive Eddy Lu, in a statement.

Setting aside Lu’s apparent access to a Delorean and ability to go back… to the future, the company has managed to rack up some major milestones on its way to becoming a commercial touchstone for a new generation of shoppers.

The company has managed to raise $200 million from investors including Accel, Upfront Ventures, and the shoe retail giant, Foot Locker and counts retailers like Alexander McQueen, Nike, and others among the brands that sell their wares directly on the platform.

It’s also not alone in getting a billion dollar valuation for giving people a way to resell luxury and lifestyle goods. StockX, the company’s major competitor, also managed to score a $1 billion valuation on a $110 million round late last year.

According to a statement, the company will use the new round of financing to double down on its research and development and expand internationally.

“We witnessed the impressive success that catapulted GOAT to become a top player in the sneaker space and were drawn to their disciplined operational approach and differentiated value proposition,” said Dan Sundheim, the founder of D1 Capital Partners (a statement that definitely doesn’t translate into we weren’t allowed into the StockX round). “As GOAT continues to grow its core business and expand into new categories, it is rapidly emerging as one of the best positioned next generation global e-commerce platforms.”

Money, it’s gotta be the shoes.

Live TV streaming service Sling TV is joining in on the co-watching trend. The company today announced the launch of its own version of a co-viewing feature, which allows friends and family in different locations to watch live TV together at the same time. What makes Sling TV’s implementation unique, however, is that it’s allowing for both text and video chat alongside live TV, which is a first for the live TV industry, it says.

The feature, called Sling Watch Party, is initially available to existing Sling TV customers. But during the beta preview period, the company says guests will also be able to join a Watch Party by creating a free Sling TV account. However, this free access will only be available through month-end (Sept. 30).

To get started with a Watch Party, users should look for the new Watch Party icon on supported content.

Currently, Watch Party requires the Google Chrome web browser on a desktop or laptop computer in order to work. After clicking to start the Watch Party, users will sign into their Sling TV account if they hadn’t already, then send out an invite link that allows friends and family to join the Watch Party session. Sling TV will provide a built-in tool to quickly email the link or you can copy the link and distribute in other ways — like a preferred messaging app, for example.

At launch, Watch Party-enabled content can be viewed by 4 total participants at the same time. It’s also not available across all of Sling TV’s online library or live programming. Instead, the company says that it works on “most” live, On Demand and Lookback content, but not local channels like NBC and FOX, rentals, Pay-per-view events, Premium or standalone channels, or programming saved on the Cloud DVR. Standard regional blackouts will also apply.

The feature is supported across Sling TV plans, including its domestic base service (Sling Orange and/or Sling Blue), Sling Latino, Sling International or any Sling TV Extra, depending on subscription.

That means users can co-watch content from channels like TNT, TBS, AMC, CNN, A&E, History, IFC, BBC America, TruTV, and others. Sling TV suggests the feature would be great for co-watching the NBA Western Conference Finals Game 4 or Star Wars: The Empire Strikes Back on TNT, The Walking Dead on AMC, American Pickers on History, or the first presidential debate on CNN, for example.

During the Watch Party session, the content will live stream in the middle of the screen while text chat sits off to one side of the screen (where it can be optionally hidden) and video chat is on the other. Sling TV recommends all users wear headphones for the best experience. Individuals will also be able to control what volume at which they hear each guest separately from the show itself by hovering over a friend’s video and adjusting their audio bar.

Customers can only host one Watch Party at a time, but there’s no limitation on how often the feature can be used otherwise.

Several streaming services and video chat applications have rolled out co-viewing experiences in the wake of the coronavirus pandemic, which has limited real-world gatherings. In addition to Hulu and Amazon Video, users are co-watching Netflix with an unofficial extension, Netflix Party, and co-watching on Plex. HBO is working with Scener to support virtual theater experiences and Facebook just launched co-watching within Messenger, too.

For Sling TV, the feature’s launch may also be tied to hopes of stemming subscriber losses. The company in February posted its first-ever subscriber decline as streaming competition heated up. It then shed 56,000 more subscribers in Q2 as the pandemic took its toll. With the support for temporary guest access, Sling TV may be hoping to convert some new subscribers, as well. But the feature is being offered for such a brief period that users may not have time to make co-viewing the sort habit they later decide to pay for, and instead use it for a one-off co-viewing session of sorts.

 

 

TikTok’s fight with the Trump administration doesn’t yet appear to be over, regardless of what the deal that was signed between its parent company ByteDance and Oracle says over the weekend.

Earlier today, the company filed a motion to stop the Commerce Department from enforcing a ban against the popular social app. That ban was supposed to come into place on Sunday, but after the signing of the ByteDance/Oracle deal, it was delayed by a week, with additional delays expected as the deal closes in the coming weeks.

Now though, the company seems to be taking more aggressive action to stop the government. It’s perhaps looking at the plight of another app, WeChat, whose users successfully argued for an injunction in San Francisco federal court this weekend that blocked the app from being banned on Sunday by the Commerce Department. Unlike in WeChat’s case, where the lawsuit was brought by American citizens rather than its owner Tencent, TikTok itself filed its lawsuit against President Trump and the government, originally filing its lawsuit on September 18th, according to court records.

In its filing for an injunction, the company says that it has “made extraordinary efforts to try to satisfy the government’s ever-shifting demands and purported national security concerns, including through changes in the ownership and structure of [its] business, and [we] are continuing to do so.”

In particular, the company noted that the damage of the ban could be significant, arguing that “hundreds of millions of Americans who have not yet downloaded TikTok will be shut out … six weeks before a national election.” The company argues that President Trump and the Commerce Department exceeded its authority under existing legislation to enforce a ban, which mirror arguments made in the WeChat case this weekend.

It’s just the latest challenge in a sprawling situation that changes by the hour. Overnight, my colleague Rita Liao noted that China itself may not even approve the ByteDance/Oracle deal, calling it “extortion” and putting the whole framework for TikTok moving forward in doubt.

Shopify has confirmed a data breach, in which two “rogue members” of its support team stole customer data from at least 100 merchants.

In a blog post, the online shopping site said that its investigation so far showed that the two employees, who have since been fired, were “engaged in a scheme to obtain customer transactional records of certain merchants.”

Shopify said it had referred the matter to the FBI.

The employees allegedly stole customer data, including names, postal addresses, and order details, from “less than 200 merchants,” but financial data was unaffected.

Shopify said that it does not have any evidence to suggest that the data was used, but that it had notified affected merchants of the incident.

One merchant shared a copy of Shopify’s email notification with TechCrunch, which said the company first became aware of the breach on September 15, and that the two employees obtained data that was accessible using Shopify’s Orders API, which lets merchants process orders on behalf of their customers. The email also said that the last four-digits of the customers’ payment card was also taken in the incident.

Shopify did not say how many end customers were affected by the theft of data from merchants, but the email sent by Shopify contained the specific number of customer records taken in the breach. In this merchant’s case, over 1.3 million customer records and over 4,900 were accessed.

A spokesperson for Shopify didn’t respond to a request for comment.

Just last month, Instacart admitted two of its third-party support staff improperly accessed the information for shoppers, who deliver grocery orders to customers.

Tesla is suing the Trump Administration over tariffs on a computer chip and other parts it imports from China, joining an increasingly long list of similar lawsuits filed by hundreds of companies, including automakers Ford, Mercedes-Benz and Volvo.

Tesla, which names U.S. Trade Representative Robert Lighthizer in the lawsuit filed in the U.S. Court of International Trade, wants the court to declare the tariffs unlawful. Bloomberg was the first the report the lawsuit. Tesla is also seeking a refund for the tariffs it paid with interest. The lawsuit centers on two types of tariffs, a 25% duty enacted in 2018 and 7.5% tariff on hundreds of other products that went into effect last year.

Last year, the United States Trade Representative (USTR) denied Tesla’s request for an exemption on a new custom chip built in China.

The custom chip is part of the company’s advanced Autopilot 3.0 hardware that is intended to enable what the company describes as full self-driving (FSD) operation for all of its new vehicles. This hardware is now standard in all new Model 3, S and X vehicles. Customers pay an additional $7,000 for the software upgrade called FSD.

This hardware is contained within the Autopilot ECU (or engine control unit), a module that Tesla has described as the “brain of the vehicle.”

The module is assembled in Shanghai, China, by a company called Quanta Computer. The module, along with a range of other electronics and products that are made in China and imported into the U.S., is subject to 25% punitive tariffs.

In its request to the USTR, Tesla said it was unable to source manufacturing for the Autopilot ECU 3.0 in the United States.

Tesla was unable to find a manufacturer with the requisite expertise to produce the Autopilot ECU 3.0 with the required specifications, at the volume requested and under the timelines necessary for Tesla’s continued growth. This module is the brain of the vehicle. As such, the sourcing decision for this was not taken lightly nor simply on a cost basis. Autopilot is a complicated, safety critical feature of the Tesla experience where even the slightest imperfection can have major ramifications, so all of our decisions aim to decrease risk.

Tesla was also denied an exemption on the media control unit, or MCU, component of the Model 3’s computing system. The MCU is a combination of three printed circuit board assemblies (PCBAs) enclosed in a mechanical chassis. The PCBAs include the media control unit which controls data going to and from the vehicle’s touch display, audio speakers/microphones, radio, connectivity board (cellular internet), Bluetooth, Wi-Fi, USB charger, and back-up camera, the company explained in its request. The MCU is linked to and communicates with the vehicle’s ADAS and connectivity board modules.

Tesla is suing the Trump Administration over tariffs on a computer chip and other parts it imports from China, joining an increasingly long list of similar lawsuits filed by hundreds of companies, including automakers Ford, Mercedes-Benz and Volvo.

Tesla, which names U.S. Trade Representative Robert Lighthizer in the lawsuit filed in the U.S. Court of International Trade, wants the court to declare the tariffs unlawful. Bloomberg was the first the report the lawsuit. Tesla is also seeking a refund for the tariffs it paid with interest. The lawsuit centers on two types of tariffs, a 25% duty enacted in 2018 and 7.5% tariff on hundreds of other products that went into effect last year.

Last year, the United States Trade Representative (USTR) denied Tesla’s request for an exemption on a new custom chip built in China.

The custom chip is part of the company’s advanced Autopilot 3.0 hardware that is intended to enable what the company describes as full self-driving (FSD) operation for all of its new vehicles. This hardware is now standard in all new Model 3, S and X vehicles. Customers pay an additional $7,000 for the software upgrade called FSD.

This hardware is contained within the Autopilot ECU (or engine control unit), a module that Tesla has described as the “brain of the vehicle.”

The module is assembled in Shanghai, China, by a company called Quanta Computer. The module, along with a range of other electronics and products that are made in China and imported into the U.S., is subject to 25% punitive tariffs.

In its request to the USTR, Tesla said it was unable to source manufacturing for the Autopilot ECU 3.0 in the United States.

Tesla was unable to find a manufacturer with the requisite expertise to produce the Autopilot ECU 3.0 with the required specifications, at the volume requested and under the timelines necessary for Tesla’s continued growth. This module is the brain of the vehicle. As such, the sourcing decision for this was not taken lightly nor simply on a cost basis. Autopilot is a complicated, safety critical feature of the Tesla experience where even the slightest imperfection can have major ramifications, so all of our decisions aim to decrease risk.

Tesla was also denied an exemption on the media control unit, or MCU, component of the Model 3’s computing system. The MCU is a combination of three printed circuit board assemblies (PCBAs) enclosed in a mechanical chassis. The PCBAs include the media control unit which controls data going to and from the vehicle’s touch display, audio speakers/microphones, radio, connectivity board (cellular internet), Bluetooth, Wi-Fi, USB charger, and back-up camera, the company explained in its request. The MCU is linked to and communicates with the vehicle’s ADAS and connectivity board modules.