China races to deploy its autonomous vehicles to overtake Tesla

Though Chinese robotaxis cost less than those made elsewhere, analysts say they are still prohibitively expensive for mass production, and operators are years away from breaking even. After investing more than $US10 billion in robotaxis, General Motors in December axed that loss-making project to focus on mass-produced cars with ADAS instead.

ADAS is more about aiding drivers than replacing them. Everyone is watching to see when Chinese regulators will allow a move from L2, whereby cars can steer, accelerate and brake on their own with a human in the car, to L3, which requires no hands or eyes on the road in certain situations. The widespread adoption of L3 would transform transport. Drivers could legally check emails or watch films during tedious commutes, as long as they sit ready to take over if the car requests.

China has dominated the rollout of ADAS, too. As the world’s largest auto market, it has churned out more L2 cars than any other country. These cars, including the more advanced L2+ subset, still require the driver to keep hands on the wheel and eyes on the road, but are gearing up for the shift to L3. Counterpoint, a research firm, in June forecast L3-capable car sales in China to be four times that of either North America or Europe in 2026, with more than 1 million on Chinese roads by then. By 2040, 90 per cent of all car sales in China will be AVs of L3 or above, compared with nearly 80 per cent in Europe and about 65 per cent in America, according to the bank Goldman Sachs.

Intense competition helped China achieve its lead. In America and Europe, sophisticated ADAS had been limited to premium models, though the technology is becoming more common now. But in the cut-throat Chinese market, car makers were quick to include it as standard to compete, and many customers are now unwilling to pay for it. BYD, the world’s biggest EV maker, last month said even its cars priced under $US10,000 would come with free ADAS that can get on and off motorways, change lanes and park by itself. Though more advanced than BYD’s entry-level system, Tesla’s self-driving software costs $US8800 on top of the cost of the car. Analysts hailed BYD’s move as the “democratisation” of autonomous tech. Competition among suppliers is also sharp. Hesai, which makes lidar sensors that help self-driving cars perceive the world, has slashed prices from thousands of dollars five years ago to about $US200.

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Roadblocks ahead

Regulation is the biggest roadblock. America’s industry, hobbled by safety investigations in recent years, has called on its government to develop a national framework for AV development. “Federal inaction has created regulatory uncertainty,” a lobby group wrote to the US Department of Transportation in January, noting that Chinese competitors have benefited from their government’s support. American self-driving car makers and suppliers hope Tesla’s founder, Elon Musk, who has called for fewer barriers to AV deployment, will be a boon to the industry in his new position advising President Donald Trump. Tesla’s gigafactory in Shanghai was a catalyst for the growth of China’s EV industry. Its Full Self-Driving software, which relies on cameras and an AI model but still requires human supervision as an L2 system, has also spurred China’s AV development.

With an eye to dominating the global AV market, Chinese officials have paved the way for the rollout to accelerate. In 2020, the Chinese state planner set a goal for L3 mass production by this year. In June, the government gave nine car makers approval to test L3 systems on public roads. In October, the industry minister vowed to speed up rule-making. Competing local and regional governments provided permissive regulation and billions of dollars in subsidies for research and development, computing power and infrastructure investment that makes streets easier for driverless cars to navigate. At China’s annual parliamentary meeting this month, Lei Jun, the boss of Xiaomi, a smartphone maker that launched a popular EV, urged the government to allow self-driving functions by 2026.

Some countries have legislated for higher levels of autonomy but have few firms making cars with those capabilities. Mercedes-Benz received approval to sell L3 cars in Germany and in the American states of California and Nevada, allowing drivers to go hands-off, eyes-off below certain speed limits on approved highways. Though China only allows L2, many of its car makers already advertise “L2.9” systems to show their tech is edging towards L3. Car makers elsewhere had been less keen to invest in L3, which they saw as unprofitable, says Yale Zhang of Automotive Foresight, a consultancy. In China, by contrast, he says, “as soon as L3 is approved, that will be revolutionary and change the state of driving”.

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That potential shift raises questions about safety and liability. In January, Xiaomi recalled 31,000 of its SU7 EVs following several hundred complaints of crashes when the sedans tried to park themselves. Once China approves L3, hundreds of thousands of similar cars will be navigating more complex roads, at higher speeds than parking. What happens if a driver turns self-driving features on and the car kills someone? Experts say L3 shifts responsibility to auto makers. Mercedes has assumed liability for its L3 system when used as intended. But there are many details that regulators, car makers and insurers need to resolve.

There are other big issues to contend with. Facing slower economic growth, China has to balance tech progress with job loss. In July, a robotaxi collision with a pedestrian in the city of Wuhan set off debates about how taxi drivers will be affected. Then there are the troves of data that self-driving cars collect. The headwinds Chinese EV-makers face in entering big Western markets – including steep new tariffs from the EU and the US – will only grow stronger for smart cars and connected technology. Though few China-made cars drive on American roads, the Biden administration proposed a ban on Chinese “connected-car” hardware and software on national-security grounds. Biden’s successor, Trump, must decide if that will happen.

He, the boss of EV maker XPeng, wants to convince drivers that self-driving tech is as useful as ChatGPT and just as safe. But the stakes are much higher sitting behind the wheel.