Ukrainians sell technology to Audi, earn €14M — the story of Apostera
AIN.UA tells the story of Apostera, which has become a leading supplier of mixed reality systems for the German and American automotive industry in less than four years.
Audi e-tron Q4 came out with a unique technology — a visual navigation system on a windshield head-up display. Besides Audi, only two other brands have similar technology — Mercedes and VW (VW and Škoda). The system installed on Audi helps drivers navigate the road in an entirely new way and is technologically superior to the solutions available in Mercedes and VW. Few people know that the system was developed in Ukraine.
It all started at Luxoft
Andrey Golubinskiy, Viktor Sdobnikov, and Olga Mirkina met at Luxoft, one of the most prominent outsourcing companies in Ukraine. All of them were involved in projects for car manufacturers. Today, software for the automotive industry is also made by other Ukrainian outsourcers, such as GlobalLogic, EPAM, TietoEVRY (Infopulse). However, the first embedded and in-vehicle infotainment systems were conceived in Odesa’s Luxoft back in 2006.
“The first software for the foreign automotive industry in Ukraine was developed by Luxoft’s Ukrainian engineers in 2006. For example, navigation systems for premium cars of the German market were made in Odesa,” says Viktor.
The idea for the Apostera was born back in 2012 with a concept that seemed fantastic at the time. Andrey and Viktor were driving in a car through Germany and expressively told their customer where the world was going and what the navigation of the future would be like.
“We talked enthusiastically about the fact that soon we wouldn’t have to take our eyes off the road to look at the map. That we would be looking through the windshield, and there would be instructions right on it – how to get to the pharmacy, for example. There would be no need to count the exits or compare buildings in real life and on the map. Just imagine: the car stops suddenly, and the driver says smilingly, ‘here is the pharmacy, get out,'” Viktor said, laughing.
At that time, there was no technology that would make it possible to implement the idea. It was postponed but not forgotten. Andrey and Viktor had worked in the automotive industry for ten years and understood the fundamental problem of modern navigation, which no one has yet been able to solve qualitatively.
In 2018, Apostera solved it.
From point A to point B
In 2012, there were already quality navigators with detailed maps and smart routes in the market. It seemed that there was nothing more to disrupt in this sector. But Apostera’s founders were plagued by one problem.
The approach to road navigation hadn’t changed for 30 years. People looked at their navigators the same way they looked at paper maps before smartphones. The driver had to compare two pictures all the time: the road he sees in front of them through the windshield and its digital copy on the navigator screen.
“For example, you need a hospital. You enter its address in the navigator, drive along the route, and see the building in front of you. You need to understand whether this is what you need or not. You switch from the road to the map and compare the two buildings – the real one and the virtual one,” explains Andrey.
This is mental work that a person has to do very quickly in order to avoid getting into an accident. It takes up to 90% of our thinking resource, leaving only 10% for the road. But this is not enough. In the past roads were quite simple, but nowadays, in megalopolises such as Shanghai, Los Angeles, Tokyo, or Kyiv, the road infrastructure is very complicated – interchanges, tunnels, heavy traffic, etc.
When we get distracted by the map, we lose control of the situation in front of the car, and it changes dynamically: someone changes lanes, someone brakes, someone crosses the road at undesignated places.
“The number one cause of accidents in the world is a distraction from the road. At the top of all distractions are those related to navigation systems, including those on a smartphone. In the UK alone, according to a study conducted a few years ago, there were over 300,000 accidents related to the use of GPS navigation systems,” says Viktor.
And if you follow the road closely without looking at the navigator, you risk missing some tricky junction – it would take you 20 minutes to get back on the route, and as a result, you would be late for an important meeting.
The process of driving has become more complicated, but the navigation system has remained the same. Navigation companies create a digital copy of what you see through the windshield. It is as detailed as possible to make the comparison of the two pictures in the driver’s head as quick and easy as possible. But the area is constantly changing: some road repairs have started here, markings have changed there, or a new sign has been added. And even though companies spend billions of dollars on regular map updates, the two pictures will still be different.
“What’s the point of creating a digital copy of what we already see? Instead, we should put digital information on top of the real picture, which will tell us where to go. Thus, avoiding the mental task of comparing the two pictures,” says Andrey.
First steps of Apostera
In 2014, the Luxoft team made a few prototypes of such a system. In addition, they actively communicated with the customer, Daimler, which already had its own internal developments.
Today, there are two working AR-HUD navigation systems globally with linkage to the real world (simpler options can also be found in VW and Škoda): Audi has the first one, developed by the Ukrainian Apostera. Daimler has the second one, which is internal development.
Apostera was founded in 2017 by engineers and managers with extensive experience in the automotive industry. “A crowd of men and I,” Olga Mirkina laughs. Most of the founders are still working at Apostera.
It was decided to establish the company in Munich, the capital of the German car industry, the core focus of the company’s developments. The company was registered in a notary office on Marienplatz (Independence Square in Munich), and the founders saw a certain symbolism in this. “Just like Maidan Nezalezhnosti,” says Andrey.
Initially, the team consisted of about 30 people (including the founders). Quite a lot for a startup, but the product is very complex, and they knew at Apostera that they could not achieve anything with less effort. Investments helped handpick the best engineers and developers, including investments from the Ukrainian SMRK. The seed funding round helped raise $1 million, plus the founders’ funds, which were used to develop a demo version of the platform. It took 1.5 years to accomplish it.
First rejection and the first contract
During their 10 years at Luxoft, the founders of Apostera have acquired acquaintances in the automotive industry. At the time of company’s creation, they secured agreements with a potential investor, who was supposed to become the very first buyer of the system. But as often happens, the partner changed his mind. It was a big blow for Apostera. But the Ukrainians did not intend to give up.
Apostera implemented its first project in China, which wasn’t initially company’s target market. It was an AR HUD augmented reality prototype in conjunction with a major Tier1 in a Chinese automaker’s car.
“In Shanghai, we got to know the Chinese way of doing business,” Olga smiles. “I arrived in heels, in a suit, and they took me to garages. It was sizzling hot weather, there was a bunch of Chinese workers, and the test car was all covered in dust in a dingy, poorly lit garage. So, there I was, crawling inside the car on my knees between the disassembled seats to locate and take a picture of the cable needed to connect our system. It was an interesting experience.
And when it came to testing the system on a test car, their engineers had to put a navigation display there. And to secure it, they sprayed it with polyurethane foam. Yes, a foam!”
Despite the peculiarities of the Chinese corporate culture, the cooperation turned out to be successful. For Apostera, this project confirmed hypotheses and a test of its design under actual operating conditions. Now they had to conquer Europe.
In 2018, Ukrainians took the product to the Consumer Electronics Show in Las Vegas. They showed the system installed on a real car, and Audi representatives became interested in the development. There, in Las Vegas, Apostera held its first meeting with them and decided to participate in the upcoming Audi tender. The automaker was looking for an augmented reality navigation system developer.
“Imagine a small unknown startup that bursts into a carmaker’s tender and tries to compete with world-class suppliers like Bosch and Continental,” Olga smiles. “But we had a huge advantage: we were the only ones who were ready to show a fully working prototype. Get-in-and-drive type of prototype.”
So, a few individuals with strong accents and unpronounceable last names drove the test car to the Audi representatives. A couple of weeks before that, other suppliers presented their developments — large companies with a worldwide reputation. Credit should be given to Audi engineers — they decided to give the startup a shot. And they were not wrong: the systems of world suppliers that were shown to them earlier paled by comparison to what the Ukrainians demonstrated.
“One of the engineers, who was sitting in the back during the demo, broke through between the seats and, pointing at the screen, shouted: “We have to have it in production!” says Olga.
As a result, Audi signed a contract with Apostera to supply the technology in the new Audi e-tron Q4. The car was released in May 2021. From that moment on, the cooperation of the Ukrainian team with the German auto group became public information.
“We were impostors. It was challenging to get there. And we could not tell anyone about it for so long. That is why now we are so emotional about it,” admits Viktor.
Thanks to the deal with Audi, Apostera has gained recognition in the market. The company now has contracts with four car brands and tenders for four more contracts. The company is not allowed to disclose the brands yet. However, according to Andrey, these are the leaders of the premium segment of the German and American automotive industry.
What is Apostera’s technology
In the picture that the driver sees through the windshield, Apostera adds information that shows where to go. As if someone had drawn directions over the road. It looks like augmented reality, but not really.
Classic augmented reality is not suitable for navigation. It complements reality without understanding the physics of the environment. Imagine that you are driving on the road, and an important hint pops up on the windshield and completely blocks the view of a pedestrian crossing the road right in front of your car. Behind the classic augmented reality, you would not see the pedestrian and would not have time to hit the brakes.
Therefore, Apostera uses what is called Mixed reality. Before displaying anything, the technology recognizes and analyzes what is happening ahead: cars, pedestrians, roadways. Then, based on the situation at hand and various probabilistic patterns, the system predicts how the situation will change when a prompt appears on the screen. And with these calculations in mind, seamlessly blends augmented objects on top of reality.
There is another nuance. While driving, you are looking not at the windshield, but through it, into the distance, and your vision is focused on a distance about 15 m in front of the car. Therefore, it is essential that the superimposed information pops up on more remote objects. Classic augmented reality does not take this into account, while Mixed reality does it perfectly.
“Our technology stack is comparable to companies that are engaged in autonomous driving,” Andrey says. “The only difference is that we do not guide a car. We recognize the environment, build its 3D model, and predict where the cars will be to get such a beautiful picture. It is actually a very complex process.“
Looking at the working Apostera system renders, you might think that the arrows and hints are drawn directly on the windshield. In fact, this is the result of a complex projector. In the industry, it is called a head-up display.
The image originates in this box (picture below), after which it is projected onto the windshield so that the picture is clear, correctly superimposed on reality and is not distorted due to the curved shape of the glass or other factors.
Apostera makes only the software part, while the hardware is supplied by Japanese, American, and European companies, leaders of the head-up display market. But to integrate such a display into a car, you need to make serious changes to its design. For example, the projector is a complex optics – it is pretty large and must be placed in front of the steering wheel to project onto the windshield. To achieve this, Audi had to replace the steering column with a drive-by-wire system and put a projector in its place.
“Now there is no direct connection between the steering wheel to the wheels — it is powered by electronics, which transmits a signal to the chassis via wires,” explains Viktor. “Our feature is seen as very interesting, otherwise they wouldn’t go that far.”
The automaker bears the costs of changes to the design. Every centimeter means a lot of money. In total, it amounts to millions of euros. But the auto groups are ready to do this because otherwise they can lose to their competitors in the long term. The car market is changing rapidly, the price of delay is bankruptcy.
“Cars are becoming shared: one car can be used by me, you, and a stranger. Furthermore, they become electric with long range. Accordingly, over time, there will be much fewer produced car units. It leads to the fact that the market for the automaker could shrink 10 times over the next 10-15 years. And 10-15 years in the automotive industry is a swift revolution. So, they lose their profits from sales. Meanwhile, the companies that have no cars sell software to be embedded in them and take the profit for themselves,” says CTO of Apostera.
“What automaker will not be affected by these changes? Tesla, because it already makes software for its electric vehicles. It recently presented a new version of the firmware, and most of the drivers paid thousands of dollars to update it. And they will continue to pay.”
Admittedly, head-up displays are not found in all cars as they are rather expensive equipment. For models without them, Apostera offers its technology in a different version. It is a navigator, on which a driver sees not a digital copy of the terrain but the same thing as through the windshield: the video is transmitted to the display from the camera installed on the front of the car. On top of this video, Apostera superimposes a mixed reality with hints. It is closer to the usual navigators, but the problem of comparing two pictures is leveled.
In addition, Apostera is developing a passenger solution. For example, imagine you are driving through the center of Kyiv and see a new restaurant. With your mixed reality tablet, you can quickly find it on the map and order food or book a table. That is, you interact with reality through the screen.
Certification and recognition of Apostera
Back to Audi. Such contracts for a startup that is less than 2 years old (at the time of signing the contract) is an achievement comparable to a flight to Mars. Apostera managed to create a working and popular technology and get a Tier1 supplier status, particularly important in the automotive industry. Such a status is held by global international experts like Valeo, Bosch, or Continental, and a tiny Apostera shares the same level with them.
Let’s take a look at what Tier1 is and why it matters. The entire global automotive industry is divided into three categories:
- An automobile manufacturer or Original equipment manufacturer (OEM). For example, General Motors is an OEM. It manufactures cars: it develops design, engine, gearbox, etc.
- Suppliers of the first tier or Tier1. These are companies that work directly with car manufacturers, supplying them with their individual solutions or equipment. Typically, Tier 1 is large companies with tens of thousands of employees with offices around the world. They take on massive obligations and responsibilities.
- Suppliers of the second tier or Tier2. They are subcontractors of the first tier. They include service companies and outsourcers who supply software to Tier1 companies.
“To be Tier1, you need to have a number of certificates and permits,” explains Andrey. “There are large companies in the automotive industry that have been operating for decades, and they are still outside the first tier — they just cannot get a certain certificate.”
There is only a handful of certified companies. So, how did the Ukrainian startup do it? While still at Luxoft, the founders of Apostera understood how important certification is for automakers and how to get it.
The automotive industry is a highly regulated industry along with medicine and aircraft manufacturing. Because the slightest mistake in the code will hit millions of cars and become a threat to the lives of drivers, passengers, and pedestrians. Therefore, before something gets into production, it goes a long way through strictly established processes. The chaos that often reigns in startups is not tolerated here. Every process that takes place in a company must have a precisely written policy that proves that the company knows what it is doing and is responsible for the result.
To get Tier1 status, it is necessary to certify development processes, at least nine processes from the group of ASPICE processes adopted in the automotive industry. Apostera certified 11: 6 engineering, 4 support processes, and 1 management process, with each having dozens of policies. From the first days, up to 10% of the entire team’s work was devoted to building these processes and intelligently drafting policies.
To get certified, we hired a German audit company with a good reputation in the market. The certification process itself takes a week: auditors come to conduct the assessment, they sit with the team, ask questions, see if the process really exists and everything works. It costs 10,000-15,000 euros.
“Compared to the fact that the entire company dedicates 10% of its time in the span of 2-3 years on creating processes, it is not a big amount of money,” says Olga.
It is important to note that at the time when Apostera signed a contract with Audi, we did not have certification yet. But the automaker was so impressed with the prototype that it gave an unknown startup carte blanche and allowed it to show the certificate a year later. “That is a lot of trust,” concluded Viktor.
How much does Apostera earn
Apostera has multiple sources of income.
- Apostera charges a fee for each vehicle that uses its technology under a license.
- The so-called service non-recurring engineering fee (NRE), in simple words, an integration fee. Each car model requires significant platform modifications for the correct integration of software with hardware: everyone has different sensors, maps, and technical requirements.
The customer pays for the integrations in tranches throughout the project, and the license fee for Apostera is received after vehicles are put into production. It takes 2-3 years from the start of the project to the release of the first car. “Previously, it was generally 4-5 years, so this is very fast for automotive,” Olga notes.
Any contract for Apostera starts with a tender. For example, in November 2020, Apostera applied for tenders with three European and American automakers. If the Ukrainians win them, they will start working around the beginning of 2022. After that, the product will go into production in another 2-2.5 years. That is how long the sales in the automotive industry are. Because of this, there is a gap in the cash flow.
“You can imagine, in a startup with all sorts of technological issues, the question arises that your cash flow will be positive only in a few years,” says Viktor.
But this is the specificity of the automobile industry, and Apostera was ready for this. So, in April 2019, the company attracted investments from ICU as a convertible loan to close the financial gap in the project with Audi. The amount of the deal was not disclosed, but it allowed Apostera to cover operating costs in its maiden project and to achieve positive cash flow.
The company’s revenues are growing rapidly. “If you do not look at last year, where we received the same revenue as the previous one, we can say that we grew twice year-on-year,” says Andrey.
“We are a profitable company since the end of 2018. Since the beginning of the company’s existence, we have already earned more than 14 million euros.”
To date, Apostera has successfully won all tenders in the field of automotive Augmented Reality systems, in which it took part, being ahead of competitors across multiple indicators. Daimler’s technology is an internal development of Mercedes, and the group will most likely not sell it outside. This is a unique advantage over competitors. In turn, for Audi and other automakers, Apostera is an opportunity to compete in the market by introducing fundamentally new approaches to navigation. And here the Apostera product has advantages, namely the linkage of the image to the real world.
Big responsibilities, big ambitions
Apostera now holds three contracts outside of Audi and participates in 4 tenders. Viktor’s chances of winning are very high. Meanwhile, the load of the team is already estimated to be 150%. Apostera should increase the staff very quickly since the responsibility is like on Tier1 – very high. Although the work on one project has been going on for several years, the product must reach production within the deadline strictly stipulated with the car manufacturer. Deadline violation in automotive is unacceptable.
“Postponing the sale results in millions of euros of financial losses, – Olga explains. – For example, the manufacturer planned to produce 5 million cars over three years. A few-month shift equals 200,000 undelivered cars. And the loss isn’t just in the margin. The people who were waiting for these cars can go and buy them from someone else. Accordingly, it is a failure of a further marketing campaign.”
“The first car will go to the conveyor and will be delivered to the user on time. It is like a full moon – it will happen in a predetermined time, whatever happens,” Viktor concludes.
The company now employs over 100 people. Apostera has four offices, plus a representative branch in Shanghai. Three of them are the R&D centers: in Kyiv, Odesa, and St. Petersburg. The main part of the development is done in Ukraine by about 80 people. Fifty-five of them are in Kyiv, and the rest – in Odesa. There are about ten people in St. Petersburg. The company is also opening a new office in Detroit.
Apostera plans to hire over 50 new employees in the Ukrainian R&D by the end of the year. The open roles include requirements engineers, different developers, testing specialists, and management. “This is considering the modesty factor because we need about 90 people. In other words, we need to double the staff,” says Viktor. “The staff that we have will allow us to simultaneously conduct production projects for five different car brands, but next year, there will be seven of them, and we want even more.”
We are here to solve a particular problem, and what is very important for us is the goal and the reason why we come to work every day or turn on our laptop early in the morning, working remotely. We’re constantly looking for like-minded people and people who are willing to fundamentally change the automotive industry with us. When someone chooses a new company, it is crucial to ask yourself: “Why? What does the company do, for what reason was it created? Life is short to do what you don’t like or to solve a problem that someone has already solved,” Andrey adds.
Most employees work remotely, but test engineers have to go to the office to test all of these systems on automotive equipment. In addition, Apostera engineers have a unique ability to test new cars before they enter the market. This requires acquiring special rights and skills, which is not easy but can be compared to an extreme hobby.
“This is an extreme driving test. Because the test cars aren’t always in the right technical condition, the driver has to be prepared for something to fail – the brakes, the steering wheel, some system – and know exactly what he’s going to do – says Olga Mirkina. – Our engineers go on a business trip to Germany for a few weeks to drive cars that haven’t been sold yet. They’re interested. I think few companies in Ukraine can boast of such a thing.”
Olga was the first one to receive these special driving rights in Apostera and to debug the system on the Mercedes S-Class test.
“In order to turn on our system, we shut down some of the car’s systems – parktronics, a screen with a rear-view mirror, a rear-view camera. The car itself is huge, heavy, and difficult to maneuver. As a result, I crashed it,” Mirkina says.
“I spent twenty-four hours getting ready to call the customer and tell them I crashed their car. I mustered up my courage, sent a picture, and said: ‘How are we going to show your top management the demo now?’ To which they replied: ‘Oh, it is no big deal, is it the back door? Well, someone will close it with themselves.'”
Apostera has at least a dozen of these test cars. They all have something to be remembered for. One of them speeded up and got about 10 tickets in the name of the customer. The other one had a disk damaged and because of its specific size, it was needed to urgently look for a replacement all over Austria. One was accidentally pumped with oil so much that the battery stopped charging.
The only thing that always worked well was the Apostera demo system.
Today Tier1-suppliers come to Apostera with a partnership offer, and car manufacturers are consulted even before the tender announcement.
“We are known all over America, Europe, and Korea. We participate in almost all the tenders from car manufacturers on the subject of AR,” Olga says.
When asked whether the founders had received offers to buy Apostera, Viktor and Olga look at each other and don’t answer for a minute.
Then, Viktor says, “Of course, just imagine, a car manufacturer is ready to invest millions in an AR navigation technology, and it will. On the other hand, there is Apostera with a strategic R&D, which is on the market with an offer of current interest both today and in three years coming. The market of heads up-displays is at the stage of formation and, according to forecasts, this market will grow intensely in the next 5-7 years for automotive devices.”