China’s self-driving car push hits legal, cost roadblocks
Published on: Tuesday, January 24, 2023
By: Nikkei, FMT
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Companies like Pony.ai are struggling to make self-driving taxis profitable. (Pony.ai pic)
GUANGZHOU: China’s efforts to get more nearly autonomous vehicles on its roads have become bogged down by growing uncertainty over the technology’s near-term profit potential in a challenging environment.

The country has made significant strides in recent years under a national strategy that prioritises autonomous-driving technology. A road map released in November 2020 calls for 20% of all new vehicles sold to have Level 4 capabilities – letting them operate without a driver under certain conditions – by 2030.

But analysts are starting to doubt this target will be met, with some seeing the figure as low as 3%, as regulatory issues and profit worries have chilled investment and pushed startups to seek other ways to bring in revenue.

Owen Chen at S&P Global Mobility, which predicts the share will reach only 7%, argues that China has not developed an adequate legal framework for Level 3 and higher technology and that even if one is put in place, scaling up the business will take time. Level 3 self-driving systems still require drivers but can let them take their hands off the wheel.

The slower-than-expected progress on robotaxi adoption makes it tougher to make money for players like startup Pony.ai, which operates 100 self-driving cabs in Guangzhou’s Nansha district and is eyeing an expansion into Beijing, Shanghai and Shenzhen.

Reporting late last year indicated Pony.ai, which is still in the upfront investment stage, is undergoing restructuring. The company itself says it will be difficult to turn a profit in the short term.

Baidu, an industry leader, has said its autonomous-driving business does not contribute significantly to sales.

With the profit outlook for the field turning increasingly murky, investment has dropped off sharply. China saw about 130 investments last year totalling 20 billion yuan (US$3 billion), according to local media reports — about a fifth the total value in 2021.

Among the challenges for self-driving taxi companies is that rules on autonomous driving are set by local governments, with no nationwide legal framework. Companies are limited in where they can operate geographically and must deal with different regions individually.

And trials of self-driving vehicles usually require a human supervisor in the passenger seat to ensure safety, which adds more labour expenses and keeps businesses from fully leveraging the cost benefits of robotaxis.

The vehicles themselves are expensive as well. Chinese investment group Citic Securities estimates the price of an autonomous taxi at around 500,000 yuan, five times the cost of a standard cab. The brokerage expects the technology to start taking off once the price of a fully autonomous car drops to about 200,000 yuan.

Uncertain profit prospects have spurred some companies to adjust course, accelerating efforts to market their systems to outside customers as another revenue stream.

WeRide announced a sensor suite at the CES consumer electronics trade show this month that works with Level 3 applications and is cheaper and more compact than previous versions. The Chinese company said it aims to not only work toward commercialising Level 4 technology, but also improve products for Level 3 systems.

WeRide, established in 2017, has operated self-driving taxis in major Chinese cities. After an investment last year from Bosch, the world’s top auto parts maker, the company announced mass production plans for Level 3 systems and set out a strategy to step up its role as a supplier.

Pony.ai said last week it has begun delivering self-driving software to outside customers. It has set up a new division for outside marketing, aiming to make this a core part of its business alongside its robotaxis.