China’s car companies are turning into tech companies

This morning, I published a story that took a closer look at how city NOAs have become the industry darling in 2023, including how they actually perform and the difficulty in educating drivers on using the system responsibly. You can read all of it here.

But during my interview with Zhang Xiang, a Chinese auto industry analyst and visiting professor at Huanghe Science and Technology College, one comment stuck out to me. “The auto industry is very competitive now. Consumers are expecting those vehicles to be tech products, like smartphones. It’d be hard for auto brands to sell their cars if they didn’t advertise their products this way,” he said.

Zhang’s observation is consistent with what I saw this year, particularly when I went to the massive auto show this April in Shanghai. Not only was everyone boasting about their brand’s autonomous driving capabilities, but companies were also showcasing all kinds of other advanced software features.

For example, SenseTime, an AI company, uses facial recognition tech to monitor driver fatigue and also to identify children left in the car; SAIC Volkswagen is using augmented reality to display map information on the windshield; Baidu is incorporating its generative AI model in the in-car audio chatbot for route planning.

NIO, one of the frontrunner companies in China’s homegrown EV industry, has embraced the subscription model. By paying 380 RMB ($52) a month, NIO owners can get the basic version of an NOA system in their cars, which works on highways and major urban roads. In the future, they will be able to pay double the amount for a more advanced version. Meanwhile, as batteries make up the majority of the costs and upkeep of an EV model, NIO also launched a monthly battery-swap service in China and a monthly battery-rental subscription in Europe.

All of these examples show that we are increasingly seeing auto companies turn into tech companies. Beyond horsepower and exterior/interior design, companies are now also competing on who can adapt the latest technology into a consumer-facing product. Globally, this trend is spearheaded by Tesla, with traditional auto brands slowly playing catch-up. But that transition is happening even faster in China.

Tu Le, managing director of Sino Auto Insights, a business consulting firm that specializes in transportation, breaks down the ongoing auto industry evolution into four phases: electrification, smartification, servicification, and autonomization. (While the first two are easy to understand, the third phase means the auto companies’ business models revolve around selling services, and the fourth phase means the proliferation of robotaxis.)

As I wrote earlier this year, China has managed to achieve a significant lead with the development and adoption of EVs, through a mix of different factors like government subsidies and battery tech innovations. That enables the Chinese auto industry to hop on the next phase earlier than everyone else. “The United States and Europe are in phase one, electrification; China is in phase two, smartification,” Tu says. 

The third phase is not far away, he believes. “Once more and more EVs on Chinese roads have ADAS [advanced driver-assistance systems]—the free systems and the premium systems—then we will get to servicification. Then they will start adding more features and trying to charge you,” he says. 

Chinese car companies aren’t just becoming tech companies, Chinese tech companies are also turning into car companies. Autonomous driving tech is one of Baidu’s main focuses now that it has transitioned from a search engine to an AI company. Xiaomi, one of China’s smartphone giants, has spent nearly a billion dollars on becoming an EV company. Even Huawei, forced by US sanctions to reinvent itself, is now targeting smart cars as its next strategic focus.

With these tech juggernauts joining the race, Chinese car companies are being forced to up their tech game to have a chance of competing.

At the end of the day, is that a good thing? I’m not sure. The heated competition is pushing Chinese auto companies to offer more advanced tech products at more affordable prices, and consumers stand to benefit from that. At the same time, it also brings in the difficult problems that the tech industry has failed to address: data security, privacy invasion, AI biases and failures, and potentially more.

But it does seem like this is an inevitable trend. In that sense, whatever’s happening in China now will be a valuable lesson for the industry in other countries.

What do you think of the trend of automakers turning into tech companies? Let me know your thoughts at zeyi@technologyreview.com.

Catch up with China

1. With domestic adoption of the digital yuan stalled, Beijing is increasingly pushing for its use in international trade settlement. (MIT Technology Review)

2. The Biden administration released new rules that ban US private equity and venture capital investment in Chinese AI, quantum computing, and semiconductor companies. (CNN)

• Afterward, Beijing issued a document of 24 guidelines on how to attract more foreign investment, including strengthening the enforcement of intellectual property rights. (Reuters $)
• Foreign investment in China is already at its lowest point in decades. (Bloomberg $)

3. The best place to buy a Tesla is in China, where they are 50% cheaper than in Europe and the US, after several rounds of price cuts. (Financial Times $)

4. International students are more likely to be accused of cheating by AI writing detection tools, new Stanford research finds. (The Markup)

5. China’s internet regulator was busy last Tuesday: it released one regulation restricting the use of facial recognition tech to protect privacy (Wall Street Journal $) and another that mandates all mobile apps available in the country must register their business details with the government (Reuters $).

6. The Village Basketball Association, a national league for amateur players from the countryside, has become the latest sports sensation in China. (Wall Street Journal $)

7. Taiwanese chip giant TSMC is investing $3.8 billion to build a new factory in Germany. (New York Times $)

8. After Taiwan’s justice department announced that being filmed smoking marijuana abroad is a prosecutable offense, an activist filed a lawsuit against Elon Musk to show the rule’s overreach. (Radio Taiwan International)

Lost in translation

An anti-corruption campaign is shaking up China’s healthcare and pharmaceutical industry. According to the Chinese publication Lanjing Caijing, China’s top anti-corruption regulator has in recent months been publicizing cases of bribery in the healthcare field. Most hospitals are publicly owned in China, and the investigations focus on pharmaceutical companies allegedly bribing hospital executives to secure procurement contracts through sponsoring their research, hosting academic conferences, and paying kickbacks. 

While these practices are not new, the campaign this year seems to be particularly serious. At least 160 top hospital executives in China have been placed under investigation so far—that’s already twice as many as in all of 2022. Because these bribes would often be recorded as marketing expenses in the companies’ accounting books, companies with sky-high marketing spending are under particularly strict scrutiny right now. In 2022, nearly 40 of the top 66 pharmaceutical companies in China spent half of their annual revenues on marketing, according to their financial disclosures.

One more thing

Don’t you just long for some VR-powered propaganda education when you are exercising on a stationary bike? A Chinese company recently posted a video of its “Red VR Rides” educational device, which allows the user to read about the Chinese Communist Party’s history while pedaling. In fact, there are quite a few Chinese VR companies that have released similar products in the past. This niche industry is apparently thriving.