Q-Series: Could China lead in the mass deployment of autonomous vehicles?

Can China replicate its success in electric vehicle when it comes to autonomous driving (AD)? Investors have reasons to be skeptical, as globally AD has yet to breakthrough many hurdles including technology, infrastructure and regulation. We argue, however, that China has the potential to lead in the mass deployment of self-driving cars. The country benefits from a large domestic market with high acceptance of AD, comprehensive ecosystem, efficient supply chain, and supportive policies and infrastructure. Our analysis shows the potential market size related to autonomous driving in China could be around the $100bn-level by 2030E, with passenger vehicle advanced driver-assistance system (ADAS) accounting for about half.

Chinese contenders have become increasingly relevant since we asked “Who will win the race to autonomous cars” in 2018. Chinese autonomous driving players generally take a hardware-heavy approach to overcome what they may lack in software. Chinese self-driving cars have extra sensors including LiDAR (laser imaging, detection and ranging), and China also has the unique advantage of a fast-developing domestic ecosystem, and includes HD map, which supplements vehicle-side perception and helps navigation. Another important enabler is its smart road system.

We interviewed over 20 industry participants to understand the development and opportunity in China autonomous driving. The most realistic progression is to add AD features to mass-produced cars and gradually improve the functionality, from driving assistance, to navigated autopilot on highway, and then in city environments, to eventual fully autonomous, in our view. Admittedly, such progress is unlikely to be linear, given uncertainty in technology breakthrough and probably occasional accidents. Nevertheless, we believe autonomous driving is positioned to be the next technological revolution in the auto space, arguably a more significant megatrend than electrification.