(Bloomberg Opinion) -- Everybody wants autonomous vehicles now: It’s the auto industry’s way forward and Silicon Valley’s latest preoccupation. China is no different.
Alibaba Group Holding Ltd. is testing self-driving cars in China, and Baidu Inc. started trials of autonomous technology last year. BMW AG earlier this month was the first foreign carmaker to get a license to test its offering in China. In mid-May, Shenzhen-based Roadstar.Ai LLC raised a record amount from Chinese investors.
Meanwhile, Tencent Holdings Ltd. and bigger-than-Uber ride-hailing provider Didi Chuxing said in the last couple of weeks they’re testing autonomous cars in California. They join a host of niche Chinese tech companies that now account for about one-fifth of those with permits for self-driving trials in the U.S., alongside carmakers and startups.
A lot of this follows a Beijing-mandated push. In April, the government laid out national road-testing guidelines for autonomous vehicles, adding to rules in place in Shanghai and Beijing. That will make it possible for China to collect vast amounts of data on AV testing on public roads, the way Alphabet Inc., Google’s parent, did with its sibling Waymo. If automakers see a future in China, the world’s largest car market, they’ll need to have data collected and created in China. Californian data won’t fly.
China’s official entry into the race could address the biggest barrier to mass production of autonomous cars — cost — as it did with batteries for electric cars over the last year.
Getting rid of drivers cuts costs. Take an American electric car that runs 24 hours a day, seven days a week as part of a ride-sharing network. According to Nissan Motor Co. Chairman Carlos Ghosn, charging the car costs about $250 a month and the lease takes $300 to $400 a month. Because the cars run around the clock, there are three drivers — together they draw $15,000 a month. Eliminate that expense, and this is a very different proposition.
As much commercial sense as that makes for ride-hailers like Uber and Didi and carmakers like Nissan supplying fleets to these companies, the cost of the technology itself (and the associated safety testing) is still far too high — indeed, it’s the biggest hurdle to the widespread use of autonomous vehicles.
Take one example: Laser-based sensors currently made by Velodyne Lidar Inc., the key element in a driverless car, cost between $8,000 and $80,000 and weigh anywhere from just under 1 kilogram to as much as 13 kg. If these light-emitting radars were mass-produced, they might cost as little as $1,000. Cheaper workarounds don’t quite cut it yet, though Elon Musk seems to believe they do.
This is where China can help. Look at Quanergy Systems Inc., a low-key Silicon Valley maker of lidars, which use light to create three-dimensional images from a 360-degree field of view. Quanergy has already teamed up with the likes of Daimler AG’s Mercedes-Benz, Delphi Technologies Plc and Nissan, and is probably closest to making the ideal sensor. The Californian firm also has a strategic partnership with Sensata Technologies Plc, a technology developer that says its content per vehicle in China is growing rapidly.
Quanergy’s lidars, which are solid-state and tiny, already cost less than the magic $1,000. Gross margins are somewhere above 50 percent, while research and development costs are almost 70 percent of revenue. But getting to that point took more than three decades. Chinese investors are likely to become significant shareholders in the company after the next funding round, according to people familiar with the company.
Investors should keep an eye on the cash China is plowing into this industry, whether through state subsidies, through its tech giants, or through pools of capital chasing the next big thing. This money will bridge a chasm that low-margin, high-cost carmakers can’t, despite talk of their mobility ambitions. The sheer amount of capital needed to fund the infrastructure for autonomous vehicles will be far more than many — or any — government is willing to commit just yet, other than China.
Silicon Valley never quite made it in China, and this time won’t be different. The same can’t be said of Chinese capital: It has roots in Sunnyvale and Shanghai, and blessings from Beijing.
©2018 Bloomberg L.P.