Self-driving car companies’ first step in making money is not a robot axis

BEIJING – While governments may be on guard against driverless cars, people want to buy the technology and companies want to make money.

There is a market for a limited version of self-driving technology that helps drivers with tasks such as parking and changing lanes on a highway. And McKinsey predicts that the market for a basic form of self-driving technology ̵[ads1]1; known as “Level 2” in an autonomous driving classification system – is worth 40 billion yuan ($ 6 billion) in China alone.

“L2, enhances the security value for users, its commercial value is very clear,” said Bill Peng, Hong Kong-based partner at McKinsey, on Monday in Mandarin translated by CNBC. “Robot axis is certainly a direction, but it does not [yet] have a commercialization result. “

Robotaxi companies have made progress in recent months in China, with Baidu and Pony.ai being the first to be approved to charge tariffs in a suburb of Beijing and other parts of the country. Locals are enthusiastic – Baidu’s robotic taxi service Apollo Go claims to clock about more than 2,000 trips a day.

But when it comes to revenue, robot taxi apps show that companies still subsidize trips heavily. For now, the money for self-driving technology is in software sales.

Investment analysts from Goldman Sachs and Nomura point to opportunities in the car software itself, from in-car entertainment to self-driving systems.

Last week, the Chinese self-driving technology startup WeRide said it received a strategic investment from the German engineering company Bosch to produce a software system for assisted driving.

The goal is to jointly develop an L2 / L3 system for mass production and delivery next year, Tony Han, WeRide founder and CEO, told CNBC. L4 indicates complete self-propelled capability under specific circumstances.

«As a partner, we obviously want this sold [in] so many car OEMs in China so we can maximize ours [revenue and] profit, “he said, referring to carmakers.” We really believe that L2 and L3 systems can get people driving [more] safe. “

In a separate release, Bosch called the deal a “strategic partnership” and said the China business would offer sensors, data platforms, algorithm applications and cloud services, while WeRide provides the software. None of the companies shared how much capital was invested.

The agreement “is very important,” said Tu Le, founder of Beijing-based consulting firm Sino Auto Insights. “This is not just a VC that sees potential in the overall market and invests in the sector.”

He expects the next step for commercialization will be to get more of WeRide’s technology “bolted on partner OEMs’ products to get more pilots launched in China and experiment with paid services so they can refine business models and better understand price dynamics and customer needs.”

WeRide has a value of $ 4.4 billion, according to CB Insights, with supporters such as Nissan and Qiming Venture Partners. WeRide operates robotic axes and robotic buses in parts of the southern city of Guangzhou, where they also test self-propelled street sweepers.

CEO He declined to talk about specific valuation figures. He said that instead of needing more funds, his main concern was how to reorganize the start-up engineers.

“Because Bosch is responsible for integration, we really need to spend 120% of our time helping Bosch with integration and adaptation work,” he said. WeRide has not yet been made public.

For listed Chinese automotive software companies, Goldman’s thematic autonomous driving choices include ArcSoft and Desay SV.

An outsourcing business model in China gives independent software vendors more opportunities than in the United States, where software is developed internally at companies such as Tesla, analysts said. Beijing also plans to have L3 vehicles in mass production by 2025.

“Automotive OEMs are investing significantly in automotive software / digitization by 2025, with targets of $ 20 billion + of achievable software revenue by the end of the decade,” Goldman analysts wrote in mid-March.

They estimate that for each car, the value of the software in the software will increase from $ 202 each for L0 cars to $ 4957 for L4 cars by 2030. By comparison, the battery component costs at least $ 5000 today. With that calculation, the market for advanced driver assistance systems and autonomous driving software is set to rise from $ 2.4 billion in 2021 to $ 70 billion in 2030 – with China accounting for about a third, analysts predict.

In September, General Motors announced that it would invest $ 300 million in Chinese self-driving technology start-up Momenta to 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,” said Julian Blissett, Executive Vice President of General Motors and President of GM China, in a statement.

Correction: This history has been updated to correct the currency conversion rate for the estimated size of the self-propelled technology market.