“Welcome to the Future, Mom” proclaimed a short video doing the rounds on social media from Baidu last month, showing a middle-aged woman climbing into a driverless taxi from Apollo Go, the search giant’s ride-hailing service.
After years of anticipation about autonomous vehicles on Chinese roads, regulators have just released new licences for driverless rides in Beijing, sparking excitement that the self-driving revolution is finally here.
Yuqian Ding, Head of Auto Research at HSBC Qianhai Securities, takes a similar view in ‘China Autonomous Driving, Taking off the learner plates’, a major piece of research that champions China as the global frontier for the sector.
The technologies of the future were also a feature of the HSBC China Conference last month, with sessions that covered semiconductors to supply chains, alongside briefings on industries like green energy, electric vehicles and artificial intelligence.
During the conference Ding delved deeper into the latest trends in autonomous driving (AD) with two senior executives from the industry – one in chip making, the other in software systems.
Here’s what they had to say about three themes to consider.
China is on a faster track than other markets
The consensus is that AD adoption in China is likely to lead the rest of the world. Much of that is because of advantages in connectivity, especially an infrastructure of 5G networks, data centres and base stations that is going for a fuller and faster adoption of the new technology.
China’s consumers are more open to riding in driverless cars as well, Ding says, especially the tech-savvy, younger Generation Z. And in the shorter term they also seem prepared to pay a premium for autonomous driving features.
The conference session highlighted other trends, such as how accelerating electrification is likely to boost autonomous driving technology because EVs have higher autonomous driving content than vehicles with internal combustion engines.
Given the increasing homogeneity of propulsion systems in EV models, Ding expects autonomous driving content to be one of the key differentiators.
The point was also made that the automotive sectors in other countries generally look at EVs and autonomous cars as parallel lines of business. That’s not the case in China where the two streams are seen as much more overlapping and integrated.
This distinction is important because of where the car-making industry is headed. Level 3 autonomous driving standards (so-called conditioned automation in which parking and some manoeuvring is handled automatically) are largely being achieved, including deployments in vehicles with internal combustion engines. But getting to Level 5 standards (where drivers are completely replaced with an autonomous system) is going to take longer, when the focus will be entirely on electric vehicles and cars with traditional engines aren’t going to feature.
Brands with a history of melding EV and AD technologies together will be in pole position – something that Chinese manufacturers have grasped the quickest.
Software is spurring the revolution
Carmakers have competed for decades on the speed and power of their engines. But the new generation of electric vehicles is dependent on batteries that are increasingly similar in performance. EVs will need new points of differentiation and much of that is going to come from the software.
In addition to digital cockpits and connected content, which are already getting interest from consumers, Ding sees an increasing focus in future on more advanced autonomous driving features.
The boundaries between the auto and technology industries are melting, with new business models in which software is sold through licensing deals or over-the-air (OTA) updates to vehicles.
The changes mean that software companies are getting a new chance to be involved across the car’s lifecycle. The manufacturers, or OEMs, will also have to stay in closer touch with the suppliers of the software and vehicle operating systems if they want to know where the technology is going in future and how that is likely to affect their businesses.
Of course, these higher performing operating systems, or ‘brains’ inside the cars, are going to demand more processing power. This is putting pressure on chip design, another area that came in for commentary at the conference, including the long lead times for the more specialised semiconductors now in demand from the automotive sector.
The market is already splitting into the generalised chips already part of automotive production processes and the specialised ones that power the performance of self-driving functions, many of which are AI-enabled.
Chinese chip designers are doing well in automotive chip design, the conference experts claimed. Indeed some companies are already leaders in pioneering formats of autonomous driving chips. Specialised chips for the auto sector are also worth pursuing because of huge demand in future. Chip manufacturing is also going to bring sustainable revenue streams over the longer term because the Chinese government doesn’t want to see dependency on foreign suppliers.
Tesla is the trailblazer and the target
Another area of debate is how the leading manufacturers of self-driving cars are going to build their businesses – as vertically integrated companies or firms that forge partnerships for the components and systems that power their vehicles?
The distinction here is between so-called ‘full-stack’ companies like Tesla and those that are choosing to source the operating systems, supporting software and other key components from others.
The feedback is that Tesla’s situation is unique in the industry. When it started out as an electric vehicle brand with plans for self-driving features in its vehicles, the approach had to be different because it couldn’t source what it needed from the market.
Instead it was forced into a vertically integrated model in which it did everything in-house.
Tesla was the trailblazer but the story today is different because the industry has coalesced around a set of common ideas and standards.
With that also comes a supportive supply chain of chipmakers and software developers, so it makes both commercial and technical sense for companies in the sector to move away from a vertically integrated model.
Why go full-stack when you find better and cheaper technology from someone else, one of the conference participants argued.
Tesla loomed large in other areas of the discussion, however, including the argument that AD companies in China need to find common ground if they are to catch up with Elon Musk’s juggernaut brand.
Tesla has made more than two million cars globally, far more EVs than the largest of the Chinese OEMs, the panel pointed out. This gap is significant, not just in the economies of scale it allows Tesla in the production process but also in highlighting how Chinese chip firms and software producers need to get to greater scale before they can mount a serious challenge for number one position.
With more than two million of its cars already sending data into the cloud, Tesla is constantly tweaking its approach and achieving improvements in performance, for instance. According to the panellists at the conference, software makers in China need access to similar flows of data on the performance of their own systems, especially as software deployments from the cloud are going to be one of the key battlegrounds in determining the winners and losers in the sector.
That is going to require some strategic thinking from the major players, the conference experts agreed. Currently Tesla is leading the autonomous driving race. It might be helpful for Chinese challengers to accelerate their catch-up via technology alliances.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.