Magna International has abandoned plans to buy Veoneer, a safety and autonomous-driving technology company, after being officially outbid by deep-pocketed chipmaker Qualcomm.

The battle over the Stockholm-based startup suggests that as cars require more software and semiconductors, manufacturing heavyweights like Magna will increasingly have to compete with big international tech money.

How it started: The Aurora, Ont.-based auto-parts maker had hoped that its US$3.8-billion purchase of Veoneer would expand its Asia client base, add 1,700 software engineers to its talent pool and bring it closer to dominating the automotive camera and radar-technology markets. 

But despite reigning as Canada’s largest manufacturing employer, Magna isn’t a chipmaker. There are about 1,400 chips in an average vehicle today—and they could become more important as self-driving technology advances. Naturally, Qualcomm’s new leadership has been eyeing autos as a way to diversify from smartphone chips.

Before announcing the agreement on July 22 to buy Veoneer, Magna was already working with chipmaker Intel on a self-driving platform. Veoneer, meanwhile, started working with Qualcomm in January on a system on a chip for advanced driver assistance and autonomous vehicles. 

How it’s going: Qualcomm’s bid came two weeks after the ink dried on Magna’s agreement. But Veoneer’s shareholders ultimately decided that Qualcomm’s US$37-per-share all-cash bid was superior to Magna’s US$31.25 offer.

Under the US$4.5-billion deal, Qualcomm’s investment partners, SSW Partners, will split off the rest of Veoneer’s business and broker separate deals. Qualcomm will keep the project it developed with Veoneer, called Arriver.

Magna, which will get a US$110-million termination fee, said the decision to abandon the deal represents its “disciplined approach to valuation.”

Why it matters: Traditional automakers are increasingly competing with Silicon Valley on driver assistance and autonomous driving. Yet they’re still getting stymied by outdated chips and failing to rewrite code—areas where Qualcomm might surprisingly lend a hand.

If Magna CEO Swamy Kotagiri drummed up an appetite for Veoneer, it could have shown his vision for the future as he wraps his first year on the job. On the other hand, he has an existing investment in Waymo in his pocket, and now has US$3.8 billion and change to spend elsewhere.