Self-driving automakers’ first step to making money isn’t robotaxis
A WeRide robotaxi with medical supplies heads towards Liwan District on June 4, 2021, in southern China’s Guangzhou city.
Daily of the Southern Metropolis | Visual Group China | Getty Images
BEIJING — While governments may be wary of driverless cars, people want to buy the technology and companies want to cash in.
It’s a market for a limited version of self-driving technology that helps drivers perform tasks like parking and changing lanes on a highway. And McKinsey predicts that the market for a basic form of self-driving technology – known as “Tier 2” in a classification system for self-driving – is worth 40 billion yuan ($6 billion) alone. ‘in China.
“L2, improving security value for users, its business value is very clear,” Hong Kong-based McKinsey partner Bill Peng said Monday in Mandarin translated by CNBC. “Robotaxy is definitely a direction, but it’s not. [yet] have a marketing result.”
Robotaxi companies have made progress in recent months in China, with Baidu and Pony.ai being the first to win permission to charge fares in a suburban district of Beijing and other parts of the country. Locals are enthusiastic – Baidu’s robotaxi service, Apollo Go, claims to make around 2,000+ rides a day.
But when it comes to revenue, robotaxi apps show that companies are still heavily subsidizing rides. For now, the money for self-driving technology is in software sales.
Investment analysts from Goldman Sachs and Nomura point to opportunities in automotive software itself, from in-car entertainment to autonomous driving systems.
Last week, Chinese self-driving tech start-up WeRide announced that it had received a strategic investment from German engineering firm Bosch to produce an assisted driving software system.
The goal is to jointly develop an L2/L3 system for mass production and delivery next year, WeRide founder and CEO Tony Han told CNBC. L4 refers to fully autonomous driving capability under specific circumstances.
“As a collaborator, of course we want this to be sold [in] so many car manufacturers in China so that we can maximize our [revenue and] profit,” he said, referring to automakers. “We really believe that L2 and L3 systems can inspire people to drive cars. [more] without issue.”
In a separate statement, Bosch called the deal a “strategic partnership” and said its China business would provide sensors, computing platforms, algorithmic applications and cloud services, while WeRide would provide the software. Neither company shared the amount of capital invested.
The deal “is very significant,” said Tu Le, founder of Beijing-based consultancy Sino Auto Insights. “It’s not just a VC who sees the potential of the global market and invests in the sector.”
He expects the next step in commercialization is to get more of WeRide’s technology on the OEM partner’s products to launch more riders in China and experience paid services so they can modify business models and understanding pricing dynamics and customer needs better.”
WeRide has a valuation of $4.4 billion, according to CB Insights, with backers including Nissan and Qiming Venture Partners. WeRide operates robotaxis and robobuses in parts of the southern city of Guangzhou, where it is also testing autonomous street sweepers.
CEO Han declined to talk about specific valuation numbers. He said rather than needing more funds, his main concern was how to reorganize the startup’s engineers.
“Because Bosch is in charge of the integration, we really have to spend 120% of our time helping Bosch with the integration and adaptation work,” Han said. WeRide has not yet been made public.
For publicly traded Chinese automotive software companies, Goldman’s thematic picks for autonomous driving include ArcSoft and Desay SV.
An outsourcing business model in China offers ISVs more opportunities than in the United States, where software is developed in-house at companies like Tesla, analysts said. Beijing also plans to have L3 vehicles in mass production by 2025.
“Automotive OEMs are investing significantly in automotive software/digitization through 2025, targeting more than US$20 billion in software revenue obtainable by the end of the decade,” Goldman analysts wrote at mid-March.
They estimate that for each car, the value of the software inside will increase from $202 each for L0 cars to $4,957 for L4 cars in 2030. For comparison, the battery component costs at least $5,000 today. According to this calculation, the market for advanced driver assistance systems and autonomous driving software is expected to grow from $2.4 billion in 2021 to $70 billion in 2030, with China accounting for around a third, analysts predict. .
In September, General Motors has announced that it invest $300 million in Chinese autonomous tech startup Momenta develop autonomous driving for GM vehicles in the country.
“Customers in China are embracing electrification and advanced self-driving technology faster than anywhere else in the world,” Julian Blissett, executive vice president of General Motors and president of GM China, said in a statement.
Correction: This story has been updated to correct the currency conversion figure for the estimated self-driving technology market size.