We believe that China will become a leading force in AV technology for a number of reasons:

1.

Chinese AV companies are catching up to its Western peers technologically and will take a leading position as they have an exceptionally high innovation rate. For one, China has an existential problem of traffic gridlock and pollution in its large cities. Getting AVs on the roads as soon as possible will be a crucial part of the solution. Furthermore, Chinese companies have much larger quantities of available data to train self-driving software compared to the West and there is a relentless competition between Chinese AV players, which is pushing them to innovate at an incredible speed. Finally, Chinese tech firms are already world leaders in building online ecosystems and mobility services. This will be the main value-generating segment of the industry, shifting the power balance to these firms.

2.

Second, the Chinese government has made no secret of its desire for China to become the world leader in electric and autonomous vehicles as part of the "Made in China 2025" masterplan. This national policy is backed up by a strategy to invest hundreds of billions of dollars in "smart cars" and train thousands of AI experts in the coming years. The announcement also has the effect of rallying the whole ecosystem and galvanizing the automotive and technology industries to work together towards a common cause. Given China's proven historical record of achieving its ambitious goals, the pursuit becomes highly credible.

3.

Third, China will be first to roll out the next generation of mobile infrastructure. Similar to AVs, China aims to be a leader in 5G technology by 2020. China is already rolling out its 5G network faster than Western countries, thus enabling the communication between vehicles and their surroundings, which is a crucial precursor for the commercial use of AV mobility concepts in the 2020s. As the three largest mobile operators in China are all state-owned, motivating and funding the rollout of 5G will not be a problem.

4.

Fourth, Chinese consumers are more willing adopters of new technologies than people in the West. Recent surveys show that three quarters of Chinese consumers would be willing to ride in an autonomous car today while only about half or less of respondents in Western countries give the same answer. Consumer sentiment in China is likely to accelerate the dawn of the epoch of commercial AV services, whereas in Europe and the U.S., lacking willingness to adopt AVs might delay their market entry due to e.g. safety concerns.

In ascending the world stage in autonomous vehicles, Chinese AV firms will not confine themselves to their domestic boundaries. We expect Chinese companies to target Western markets with mobility solutions such as ride-hailing services in urban areas as soon as they have proven the concepts in China, for a number of reasons. First, Chinese companies will want to enter new markets in their search for additional growth. Autonomous mobility will likely expand city by city. After they have grown to their limits within China's top tier cities, local AV players may likely turn to foreign cities for growth before looking at lower tier cities in China. Second, fierce competition among Chinese AV companies will quickly drive down prices and margins, which will lead some firms to search for growth elsewhere. Third, given the speed with which the Chinese AV industry is developing, there will be an opportunity for Chinese companies to move into white spots in Western markets where domestic companies are less mature. Fourth, the Chinese government’s quest for world leadership as expressed by the Made in China 2025 plan puts external pressure on companies to move into foreign markets.

This push by the Chinese AV industry has wide-reaching implications for European and American governments and companies and represents a significant risk of them being outcompeted in their home markets. In any case, Western regulators and businesses will not be passive bystanders to this development and they will make use of a range of options to protect their home markets and to take advantage of the opportunities the Chinese market presents to them.

Western governments are already setting up barriers to entry by developing regulations that curb foreign takeovers in certain sensitive industries, in an effort to protect themselves from foreign appropriation of intellectual property and technology. An example is the German government's consideration to ban Huawei from rolling out 5G in Germany. Furthermore, strict rules on public and passenger safety will likely require Chinese mobility providers to adapt their products to Western markets (though most regulation concerning AVs is yet to be defined). This will require additional time and effort but probably not be a showstopper as it would be worthwhile for Chinese firms to make this investment to upgrade their offering.

In addition to setting up regulatory barriers to entry with their governments, Western AV companies are also trying to protect their home markets in the business arena. Similar to what Chinese AV companies do, Western businesses could enter into alliances with each other to develop AV solutions, which many of the leading AV companies are already doing. Smaller companies in the software, hardware and automotive supplier industries should try to do the same and join existing alliances or establish specialized partnerships of their own. Alternatively, if there are no obvious Western companies to partner with, these smaller companies should consider to work with Chinese firms to become suppliers or business partners that help them succeed in the West, in order to appropriate some part of the AV value chain and not be outcompeted. Furthermore, Western AV firms should work to swing public opinion in their favor, prove to the public that AVs are a safe mode of transport in general, and then focus on passenger and public safety as a central part of their value proposition.

 

Finally, the Chinese market presents exciting opportunities for Western AV companies. Rather than adapting solutions they have developed at home to a vastly different market, Western companies should place part of their R&D in China to work on solutions for Chinese mobility problems directly. This approach should make economic sense, as China is already by far the largest market for the automotive industry, and will only become bigger. Furthermore, Western companies should collaborate with Chinese firms and cities to co-develop solutions. For the first time, Western firms want the knowledge that Chinese companies have, and not the other way around. Such East-West alliances could prove fruitful for all parties, as long as they remain protective of their intellectual property. Establishing tight bonds with Chinese companies and regulators as well as the development of AV solutions for the local market are crucial prerequisites for Western AV firms to succeed in China, or anywhere in the world for that matter, since China represents such a large part of the world's mobility markets. Or as Daimler-CEO Dieter Zetsche puts it: "When we want to go autonomous, we have to make sure it works in China."

 

 Read the full perspective here

Eager to learn more about this topic? Contact the authors:
Nikolaj Christian Herskind
nikolaj.herskind@qvartz.com
+45 29 69 69 14
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Eager to learn more about this topic? Contact the authors:
Sophia Holst
Sophia.Holst@qvartz.com
+47 915 88 594
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