CMS_LawTax_Negative_28-100.eps Fasten your seatbelts: China revs up driverless tech Contents 3 Executive Summary 4 Introduction 6 Players in China 10 Commercialisation of self-driving cars in China 12 Supporting infrastructure 14 Law and policy 16 FDI outlook for self-driving cars 18 Going forward 20 References 22 Contact us 2 | Fasten your seatbelts: China revs up driverless tech Executive Summary — There are only a few key players in China with the ability to develop autonomous driving technology. — Due to regulatory constraints, we anticipate a slow process before China reaches wide-spread commercialisation. — The regulations published are high-level; however, we see an increased effort by regulators to provide guidance that is more specific. — Foreign investors may enter the market by either partnering with a local automaker or investing in a Chinese start-up. It will be a challenge for foreign automakers to venture into China directly. 3 Introduction On 13 June 2017, the Ministry of Industry and Information Technology (“MIIT”) and the Standardisation Administration of China (“SAC”) jointly published draft guidelines setting out the various automation levels of self-driving cars and the accompanying standards. The draft guidelines signalled the Chinese government’s ambitions to boost the development of self-driving cars in China. LOW Only one automatic operation: steering, accelerating or decelerating — Control: Human and system Driving — Monitor: Human Assistance — Respond to ineffectiveness: Human (DA) Normal driving in the lane, highway without intervention, or parking conditions More than one operation: steering, accelerating, decelerating — Control: Human and system Partial — Monitor: Human Automation — Respond to ineffectiveness: Human (PA) Highway, inner-city road without intervention, round-the island road, congestion, car-following Intelligent Level Full automation. Required human intervention sometimes — Control: System Conditional — Monitor: System Automation — Respond to ineffectiveness: Human (CA) Normal driving conditions of highway, inner-city road without lane intervention Full automation. The driver can respond to the system request — Control: System High Level — Monitor: System Automation — Respond to ineffectiveness: System (HA) All the conditions of highway inner-city road with lane intervention Full automation. No need for human intervention — Control: System HIGH Full — Monitor: System Automation — Respond to ineffectiveness: System (FA) All operating conditions Level one i.e. the “driver assistance” level, also known as the Advanced Driver Assistant Systems (“ADAS”), is the starting point for most research and development. ADAS technology has already been installed in some cars on the market. With ADAS, the car is able to detect its surrounding environment through a combination of sensors installed. These sensors are able to collect data and identify, detect and track objects. When combined with navigator map data, the car is able to detect potential dangers and alert the driver. At present, most automakers’ technologies rest in the second level i.e. partial automation; while tech giants such as Google, Tesla and Baidu are comfortably within the third level i.e. conditional automation. The industry consensus is that fully automated driving technology is achievable by 2020. This report focuses on the development of self-driving cars in China. It introduces the key players in China, the various challenges they face in the commercialisation of self-driving cars, and the development of infrastructure necessary for self-driving cars. The report also considers both the current and future legal landscape and provides an outlook for foreign investors wishing to enter the Chinese market. 4 | Fasten your seatbelts: China revs up driverless tech 5 Players in China Players in China The Brawn In the west, traditional automakers have dabbled in self-driving research, however, the sense of urgency only picked up recently. As described by the New Yorker, ‘suddenly, the prospect of autonomous vehicles looms as a tangible threat to traditional cars, and auto companies are ploughing ahead with driverless experimentation, worried that if they don’t they’ll be left behind.’ The key risk for traditional automakers is that they would end up ceding their industry to Silicon Valley, and end up acting as subcontractors to the likes of the Internet giants, providing only the shells of the cars and letting the technology companies fit in the software. To mitigate this risk, automakers are now learning how to build autonomous cars themselves. Traditional Chinese Chinese automakers car makers start-ups FAW Changan NIO Weltmeister Geely Auto SAIC Motor CHJ Automatic Singulato GAG Group CHERY XiaoPeng LeSEE Motors BAIC Group BYD Chinese automakers, faced with the legal constraints surrounding China’s mapping rules, have got around this hurdle by collaborating with technology giants (who are licenced to conduct mapping surveys). Chery Automobile and JAC Motors have both announced their collaboration with Baidu; Guangzhou Automobile Group entered into a joint partnership with Tencent; and Changan has announced cooperation with Gaode，Huawei，Intel，Baidu，Bosch and NIO (蔚来). Shanghai’s SAIC Motor Corporation Limited has entered into a joint venture with Alibaba to form the Shanghai-based Banma. The Banma operating system, known as YunOS, has been installed in a range of cars. It was fitted in the Roewe RX5 sport utility vehicle, which during its July 2016 launch, was described as “the world’s first mass-produced internet car”. According to the China Association of Automobile Manufacturers, the RX5 is in high demand - in July 2017, it became the sixth bestselling sport utility vehicle in its class in China. In October 2017, Banma announced an additional partnership with French-China joint venture Dongfeng Peugeot-Citroën. According to the two companies, Citroën will launch its first internet car based on YunOS in 2018. 6 | Fasten your seatbelts: China revs up driverless tech The Brains Internet giants such as Alibaba, Baidu and Tencent are well positioned in the self-driving car industry. These Internet giants do not build cars; they equip automakers and end-users with big data and ‘end-to-end’ technology that mobilises the self-driving cars. In 2017, Baidu set up an intelligent driving group and released the Apollo platform (“Apollo”). The Apollo platform constitutes of four parts: (1) a vehicle platform; (2) various hardware such as GPS, cameras, and radars; (3) a core software stack; and (4) various cloud services. The available software records the behaviour of a car being driven by a person and then plays that back in autonomous mode. According to Baidu, Apollo aims to provide an open, complete and reliable software platform for its partners in the automotive and autonomous driving industry to develop their own autonomous driving systems. The ‘open-platform’ is a resource-sharing platform, enabling Apollo’s partners to share their training and testing data with each other. Baidu’s move of making its data openly accessible marks a significant departure in the field of commercial AI, where information used to develop algorithms is guarded in secrecy. If Apollo gains momentum, it is likely that we will see an increase in resource sharing between key players within the industry. At an event in Beijing, a Californian startup called AutonomousStuff demonstrated how it created a rudimentary self-driving car using the Apollo technology in just three days. How Baidu intends to generate revenue from such open source model remains unclear, however, the data generated by the project is arguably the largest commercial incentive behind the set up. Technology giants may also enter the market by creating synergies with other giants. Tencent, the owner of WeChat (China’s main social networking app) is incentivised to offer internet services across as many sectors as possible. In March 2016, Tencent bought a 5 percent stake in Tesla for $1.78bn, cementing itself as the fifth largest shareholder. There are currently no concrete plans for Tesla and Tencent to integrate their technologies yet. 7 Players in China New entrants As technology giants pursue new revenues outside of their usual markets, we see a flood of capital being poured into partnerships with the ‘up-and-coming’. High-tech device manufacturers Apple Samsung SAP Nokia Huawei China Unicom Audi Telefonica Software Google BMW Telecom Toyota T-Mobile providers Mercedes-Benz companies Microsoft Vodafone Traditional HRS automotive players Huawei WhatsApp Renault Nissan Vinci faurecia BOSCH Online Deezer Infrastructure services Pandora Volkswagen providers Audible Siemens Twitter Groupon Foursquare Facebook Social communities Source: A.T. Kearney analysis Unsurprisingly, these outsiders are the technologically advanced and those who are able to provide leading research in robotics and artificial intelligence. With these new investments, we see what has been conventionally deemed as ‘unrelated businesses’ being connected. For example, Nvidea invested 20 million USD into TuSimple in August 2017. Tusimple (图森) is a new start up founded in 2015, which provides artificial intelligence algorithms. They are primarily technology-driven. Founded in 2015, they provide truck companies with customised deep learning algorithms. Last year, the learning algorithm devised by Tusimple was ranked first according to an evaluation conducted by KITTI, Cityscapes. Another example of an unconventional partnership