China and the future of internet of vehicles

By : |June 20, 2016 0

Internet-connected cars that can entertain passengers, coordinate with other vehicles, navigate themselves and, eventually, drive autonomously are on their way to enter real space and the world thanks to platforms like Apple’s CarPlay and Google’s Android Auto.

And there are no two opinions about where the future of this technology will likely be charted. It’s China, without any doubt. And in trying to compete there, foreign companies are facing a stark choice: Partner up or be left behind.

A few weeks ago, Apple’s Tim Cook was an epitome of contentment as he stepped into a sedan operated by DidiChuxing. Apple had just invested $1 billion in the ride-sharing company, and Cook was no doubt feeling satisfied. The contentment also reflected relief at getting a piece of China’s “internet of vehicles” before it’s too late.

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China’s edge starts with its market. With 24.6 million cars sold in 2015, it’s the biggest in the world. And because the typical Chinese car buyer is young and permanently connected, that scale is also a crucial driver of innovation.

A 2015 McKinsey survey says that 60 percent of Chinese new car buyers would switch brands if it meant improved connectivity. There lies the opportunity that Chinese companies are seizing. Baidu, the search-engine giant, has persuaded a collection of automakers representing about a third of domestic sales to use CarLife, its answer to CarPlay, in models made in China. Baidu’s grip on these companies — including Hyundai, BMW, Mercedes, Ford, Audi and Volkswagen — will be hard to dislodge.

Even if Baidu wasn’t locking down the big manufacturers, Apple and Google would be in a tough spot. Google Maps, a key navigational component of Android Auto, is inaccessible or inconsistent in much of China. Regulators shut down Apple’s iBooks and iTunes movies in April. Although CarPlay wasn’t affected, would-be car buyers surely got the hint.

Made in China 2025″ initiative

Last year, Chinese government inaugurated the “Made in China 2025” initiative, an effort to transform the country into an innovation hub. The idea is to support domestic companies working on certain technologies in the hope that they’ll become global leaders. According to the Planning documents, Chinese companies should own 80 percent of the domestic market for vehicle entertainment modules by 2030, and 100 percent of the market for satellite navigation systems.

To realize this dream, the government wants companies to collaborate in creating an “ecosystem” for connected cars, akin to an operating system like iOS or Android. This might mean fierce competitors working together, such as when rival ride-sharing apps merged to create DidiChuxing last year. Or it might mean new businesses entirely, such as Baidu’s joint venture with an insurer to create usage-based auto insurance.

For foreign carmakers, the problem is that this ecosystem will shut their products out of China. A more alarming possibility is that as China’s auto industry expands overseas — notably to Africa and Southeast Asia — the ecosystem will follow, potentially shutting competitors out of other markets too.

But the picture is not completely bleak for Apple and Google, of course. Millions of Chinese who already use iOS and Android products will surely want their dashboard counterparts. Foreign makers of automotive equipment, such as Pioneer, have found their own route to China’s internet of vehicles. And Apple, by taking a stake in Didi, is buying itself a seat at the table when the company chooses its technology platforms.

Ambitious connected-car companies need to recognize that China’s internet giants have prospered partly because the government shielded them from competition. Unless foreign competitors get creative, they’re likely to get locked out of the internet of vehicles too. And that would indeed be shameful for them and for the drivers of the future.

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