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LONGFORM

Start Your Engines

Will tech companies or traditional automakers win the race to market China’s next generation of smart cars?

By Li Jia and Min Jie Updated Jul.21

When you arrive at a high-speed train station, a driverless car comes to you. You can get in the car and leave the station. The car brakes automatically and steers more precisely than a person. It does not have the problems of drunk driving, drowsy driving or texting while driving.” It’s a vision that would enrich our lives and save us time, as we can control the facilities in our apartment or office on our way. This is how driverless cars will change our lives in the future when they become a common means of transportation, according to Chen Anning, general manager of car company Chery, as he addressed a forum on April 25 at Beijing’s Auto China 2018 exhibition. There, he unveiled the company’s roadmap for smart travel, and pledged to mass produce its Level 3 self-driving car by 2020, which would offer full automation in certain conditions but require driver intervention in an emergency.  

The same day at the same show, Beijing-based Singulato Motors announced it would deliver its first smart car at the end of the year, an electric special purpose vehicle with some self-driving features. Two days later, it pledged to release a third generation car in 2019. It also announced a partnership with Beijing Automotive Industry Holding Company (BAIC) to develop smart and new energy motors (new energy refers to battery electric vehicles and plug-in hybrid vehicles).  

Unlike Chery or BAIC which have years of automaking experience, Singulato defines itself as an “innovation-oriented internet company.” Before joining the company, shareholder-CEO Shen Haiyin worked in the computing and internet sector for more than 20 years, including as a senior executive for major companies. Over the past four years, an array of new car brands have been created by startups similar to Singulato.  

Known as a “new force in automaking,” they focus on new energy smart cars, and plan to bring their brands from concept to mass production within the year. Veteran automakers employ the same strategy. The competition promises to shape the current and the future journey of China’s car industry.  

Green and Smart 
At car industry forums held in Beijing in April, executives, researchers, government officials and PR representatives of Chinese auto giants and tech companies discussed the coming era of new energy smart cars.  

Li Qingwen, director of Carbingo Academy, an online platform that advises car buyers, told the 10th Annual Global Auto Industry Summit that new energy autos are a “necessary stage” and smart cars the “most sensible strategic choice” for China’s auto industry on its path to the future.  

Although Tesla immediately impressed the market with its powerful batteries, it impressed Shen more with its integration of the internet into vehicles. Shen drove a Tesla for the first time in 2014 after borrowing it from a friend. He told NewsChina he was surprised to find the hardware was designed as a programmable platform which made it possible to add new functions to its existing models at any time by updating the software. This is how internet concepts have redefined automaking, he says. By contrast, in conventional car manufacturing, all parts and functions must be made exactly the way they are designed. So a new design, such as heated seats, can only be realized in the next generation, which might take five or six years to come to fruition.  

Shen uses the following analogy. A conventional car is a restaurant that only serves what is on the menu – let’s say meat fried with green chilis, or egg and tomato stir-fry. But a smart car is a supermarket that sells meat and vegetables, and it’s up to customers to decide which ingredients to use, and how.  

China’s tech giants have all jumped on the bandwagon. Tencent, Alibaba and Baidu have already begun to compete in building operating systems for cars. The three giants, as well as e-commerce platform JD, have invested in major new auto players such as NIO, an electric smart car technology company established in Shanghai in 2014. In March 2017, Tencent acquired a five percent stake in Tesla.  

Once all-electric cars can run more than 500 kilometers with a single battery charge, the market for oil-fueled and hybrid energy cars will be smashed, claims Zhao Zeguo, a sales consultant for Chery’s new energy cars. He told NewsChina he was confident that this technological breakthrough could be realized within two years.  

The existing automaking industry has high barriers to market access because of the fully integrated supply chain, which is dominated by automakers that control factories and designs. Electric cars are expected to challenge this, says Wang Xiaoming, director of Research Development of Industrial Economy at the Development Research Center of China’s State Council. Battery producers will have more say in the supply chain, and automakers could also produce cars for other car brands. Independent contractors could emerge as we have seen with electronics manufacturing giant Foxconn which does not have its own brand. All this means newcomers, whether internet teams or battery makers, will have more chance of building a stronger presence in the automaking industry than ever before.  

Running Mates? 
With so many new players rushing into the market, relations have grown more complicated than in the conventional auto industry. When electric smart cars first emerged, there was more cooperation than competition. In the US, some startups developing self-driving systems do not make their own cars. They instead use one or two car models to test various new designs, turning the cars into concept vehicles to test the market. Shen thinks his company should do the same, providing hardware equipment for driverless autos, such as cameras, ultrasonic wave and millimeter-wave radar, to software developers who would focus on the algorithms and big data. This would make Singulato a platform where any operating system for driverless autos could be tested.  

These major new automakers are now considering building an alliance to share resources and do collaborative research. Shen thinks that it is because consumers are yet to be convinced that electric smart cars are worth buying.“If an electric smart car company fails, the market sentiment toward electric smart cars will be hit hard,” he said.  

But relations between this group, referred to as the “new automakers,” and conventional automakers are delicate. In the race to develop electric smart cars the former, with their advantages in artificial intelligence, seem to be edging ahead.  

But the latter’s supply chain dominance is expected to hold for the foreseeable future.  

Without manufacturing experience or an automaking license, tech-savvy startups of the“new automakers” are seeking support from existing giants. “Internet-savvy teams are good at developing cool designs, algorithms and applications, but the real competition in the future will be over quality, safety and cost efficiency,” said Cheng Bo, director of the Suzhou Automobile Research Institute of Tsinghua University. Cheng told NewsChina this was why the new players needed to improve their manufacturing ability by collaborating with conventional producers. For example, Anhui Jianghuai Automobile Group (JAC), an automaker listed on the Shanghai Stock Exchange, announced in May 2016 that it would produce electric cars for NIO with investment from Chinese tech giants, as well as Chinese and international venture capital. Meanwhile, these new players, including NIO, Singulato and VM Motors, are building their own manufacturing bases.  

Huang Shaotang, chief technology officer of the research arm of Guangzhou Automobile Group (GAC), told NewsChina that while public opinion once favored the new players and many thought conventional automakers would become mere assembly lines for them, this was no longer the case.“I was once almost convinced by this forecast. However, what happened in the past year has proved that the pendulum is moving back to automaking companies,” he said.  

Some technology companies have sought to turn ordinary cars into smart cars by installing their own software and systems. Huang does not believe this will work, and claims automakers will better their performance when it comes to automatic safety and control systems.  

However, conventional automakers are certainly feeling the heat. GAC is preparing by building their own big data system. It has joined with internet and AI companies, including navigation software company AMap, and iFlytek, an intelligent speech and language technology company from Anhui Province. Meanwhile GAC, JAC and King Long United Automotive Industry, a bus and van maker from Fujian Province, are working with internet giants to develop operating systems.  

It is too early to say who will lead the market in the future. “Conventional automakers may become just manufacturers, or they may acquire internet-oriented teams. Either is possible,” said Chen Bo.  

International Race 
The Chinese government has also been eager to embrace electric smart cars. Electric automakers and buyers are granted tax exemptions and subsidies. In Beijing, an electric car buyer has much more chance of getting a license to own and use the vehicle than someone buying a fuel-powered vehicle. Zhao Zeguo of Chery attributed the fast growth of the electric car market in the past three years largely to government support.  

More exciting, but difficult changes are expected when it comes to making cars as smart as possible. Shen said the new automakers that focus on electric autos without a smart system could be squeezed out of the market quite soon once conventional auto giants all turn to electric.  

In this regard, an urgent challenge for both conventional and new automakers is to bring their concept vehicles to the market.  

“Consumers are fed up with all the talk. It’s time to prove that driverless cars can win consumers, market and capital,” said Huang Shaotang of GAC.  

The government is ready to help realize this. Beijing and Shanghai have approved road testing for some driverless cars. Xiongan New Area in Hebei, a national special zone with the ambition of growing into a green, smart and innovative global city, could be the first city in China to realize smart transportation and autonomous driving. Xu Bin, vice director of the reform and development department of the Xiongan government, told NewsChina that it would be built as a highly digitally integrated city from the outset. On December 20, 2017, seven cars self-drove about four kilometers on the open road in the city fully autonomously.  

In early January 2018, the National Development and Reform Commission, China’s major economic planning agency, issued a draft of a national strategy for smart cars. It highlights the significance of the industry not only in solving traffic and environmental problems, but in promoting China’s innovation-oriented growth. It warns that major developed countries already have a head start through their national strategies and technological advantages. It aims to have smart cars account for half of new cars and have wireless vehicle-to-everything communications systems covering 90 percent of China’s large cities and highways by 2020.  

A lot must be done to achieve those goals. Wang Xiaoming of the State Council’s research division believes it is necessary for the government to take a broader view when mooting auto industry policy. He stressed the future of the auto industry should be part of the future of transportation, energy transformations and the digital economy. He added that the regulatory framework for the auto industry should cover both manufacturers and transportation service platforms.  

China still lags behind international auto giants on sensors, algorithms and chips. Chinese automakers typically have teams of hundreds of personnel that research and develop these technologies – far fewer than the tens of thousands of personnel in such roles at Germany��s Volkswagen or Japan’s Toyota, according to Wang Xiaoming. And sourcing parts and components once smart cars are designed on paper will also prove tough. “The supply chain of the auto industry in China is yet to be strengthened,” Cheng Bo said.  

Though Germany and Japan may be champions of car and chip manufacturing respectively, the US is leading smart car development right now. Cheng attributed this to the combination of Silicon Valley’s power in AI and Detroit’s breakthrough in self-driving technologies. He thinks China can compete with the US on how the match between capital and technology can create new technologies, products and business models, as China has shown strong potential in internet technology applications. Wang agreed, saying that Chinese companies are competitive on communication technologies, geographic navigation, AI and big data. In addition, the complicated road conditions also give China an advantage. A car which is tested in China should be able to run any place in the world, Cheng added.  

The race is on. 
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