Auto Manufacturing Re-Imagined — How is China Doing?
This article features a list of Chinese companies with their updates on the “software-defined vehicle”(SDV) trend. It also touches on why SDV, the potential new business model, and the significance of owning software capability.
As the automotive industry transforms towards automation, connectivity, and electrification, traditional automakers and tech companies have been acquiring new skills to hopefully be well positioned in the software-defined vehicle era.
Hardware-based to software-centric
“Software-defined vehicle” isn’t a new concept. It is becoming achievable now and more importantly, auto manufacturers have to move towards this direction in order not to be left out.
- The advancement of semiconductor industry has dramatically improved chip memory and computing power as well as lowered the cost.
- The mobile Internet evolution provides a good case of decoupled hardware and software, which not only inspires automobile but also transfers talents.
- The path to automation, connectivity, and electrification requires a new approach to vehicle software and electrical and electronic architecture.
- The pioneer in this area, Tesla, has revealed tremendous potential judging by its sales volume in different countries and high valuation on the secondary market, posing threats to all traditional auto companies.
New business model forming
As with cellphones, the software and hardware in automobile would not eventually be tightly coupled. A vehicle could transform into a software platform that supports an ecosystem of “applications”, some of which are pre-equipped and can be updated over-the-air like security patches or monitoring and tuning of core functional capabilities (such as powertrain and vehicle dynamics), some are optional with the OEM like Autopilot/FSD, and some are optional from 3rd parties like infotainment features.
For over 100 years, a vehicle’s value has been defined by the combination of brand, design, engine horsepower, assembly quality, etc. It drops from the moment a vehicle is sold and the OEM gets a one-time profit. That model is changing with software-defined vehicles where OEMs are able to constantly improve consumer experience via OTA updates by developing revenue-generating features throughout the vehicle life cycle.
Taking Tesla’s FSD as an example, although it isn’t currently contributing big chunk of revenue given the 27% selection ratio, FSD’s gross profit comes close to 30%. Lots of opportunities are to be explored, many of which haven’t even been conceived yet. Two years ago, the founder of Xpeng made a controversial claim that the key with intelligent vehicles was operation instead of manufacturing. It makes more sense now.
Morgan Stanley has made a “bold” prediction that the hardware value would be 40% in a vehicle as opposed to the current 90% with the rest 60% from software.
OEM’s Coping Strategies
Traditional automakers took some time to buy into the fantasy. They’re now fully and irreversibly in the game, with plans made and actions being taken, like Daimler’s MBition, Volkswagen’s Car.Software, and very recently Toyota’s Woven Planet Holdings. As for the local Chinese OEMs:
SAIC Motor
In July 2020, SAIC unveiled its software subsidiary as Z-ONE where the company has started recruiting talent since April and aims for a thousand-sized team. The new unit will be primarily working on intelligent driving engineering, software architecture, underlying software platform and data factory.
Great Wall Motors
In April 2020, it was reported that Great Wall Motors has established a tier 1 (by internal standard) department “Digital Center” covering intelligent driving, smart cockpit, digital marketing platform, data middle platform, user operation platform etc. to support all models under the Great Wall Motors brand.
Chery
Chery’s subsidiary Lion Tech has been working on the development of cutting-edge technologies since it was established in 2014. Over the years, the company has identified a CheryLion strategy to emphasize 5 business areas that are autonomous driving, Internet of vehicles, manufacturing, data operation and mobility service, in which Lion Tech is positioned as the operational entity. This year the subsidiary just set up a new R&D center in Nanjing.
GAC Motor
In March 2020, GAC R&D Center and ThunderSoft announced the establishment of a Joint Innovation Center for Intelligent Vehicle Software. The pair plans to develop a world-class Intelligent Connected Vehicle (ICV) platform and to promote the establishment of an ICV ecosystem.
Geely
ECARX is an independent Geely invested company focusing on intelligent and connected vehicle technologies. Since it started in 2016, ECARX has released several products such as GKUI (a digital cockpit system that merges infotainment, connectivity integration, and vehicle management together with big data and cloud platforms) and E-Series chipset that is made specifically to further enhance users experience on GKUI-equipped vehicles.
Changan
In December 2019, Changan set up a wholly-owned subsidiary dedicated to the R&D of intelligent driving, smart cockpit, intelligent vehicle control, intelligent auto cloud service, etc. It aims to build core competitive advantages in software and facilitate Changan’s transformation to a smart mobility technology company.
Tech companies’ new territory
A good analogy in the overseas market is Google’s Android Automotive. The giant companies in China that have been dominating the mobile world would want a slice of the cake in auto by leveraging their specialties like software.
Big Tech’s Trojan Horses by Berylls Strategy Advisors
Tencent
Tencent Auto Intelligence (TAI) is a cloud-based open platform targeting in-vehicle infotainment experience. The latest release TAI3.0 is compatible with infrastructure systems like Android or Linux, and can be fitted onto different hardware as fast as in 2 months. The platform currently aggregates in-house products like “QQ Music”, “WeRead”, “Tencent News” as well as many 3rd party products like “Ximalaya”.
In addition to TAI, Tencent made strategic investment in Zhidao Hulian, a startup developing Internet of vehicles solutions, in 2019. Tinnove, as joint venture of Tencent and Changan, offers an intelligent operating system for vehicles built on Android called Tinnove OS.
Baidu
DuerOS is Baidu’s in-vehicle operating system solution offering voice assistant, Baidu Map, mini-Apps, etc. Together with DuMirror, automobile cloud, CarLife+, etc., the Apollo Intelligent Vehicle Connectivity Platform provides OEMs a comprehensive and customizable solution to create differentiated user experience.
Alibaba
Alibaba began creating its vehicle operating system in 2014 called AliOS. In 2015, Alibaba and SAIC Group co-founded Banma to develop an open platform for intelligent vehicles based on AliOS. Banma’s solutions had been exclusively adopted by SAIC’s models until August 2019 when the company was restructured to be open to serve other OEMs.
Huawei
Huawei started strategically planning for its own operating system ever since 2012 and officially released in September 2019. HarmonyOS is micro-kernel based and will be compatible with smartphones, tablets, laptops, computers, wearable devices, automobiles, etc. HarmonyOS with a smart cockpit ecosystem is one of the five auto strategies Huawei initiated last year.
At the very recent 2020 China Auto Forum, Huawei shared its latest achievements in auto, which include cockpit operating system “HOS” (HarmonyOS), automated driving operating system “AOS”, vehicle control operating system “VOS” and a cross-domain integrated software framework “Vehicle Stack”. Numerous partners are carrying out technical development based on these system and solutions.
Who will be calling the shots?
With new trends pushing and traditional approaches being challenged, Tier 1 suppliers such as Bosch and Continental, new generation OEMs like Li Auto, and startups are also in the race besides the above-mentioned traditional OEMs and tech giants. But the plans or offerings are not necessarily overlapping.
Generally speaking, there are 4 types of auto operating system:
- Base OS: it is an infrastructure level OS like QNX, Linux, Huawei’s HarmonyOS.
- Custom-made OS: it is deeply developed and tailored on the basis of base OS like AliOS, Baidu’s DuerOS
- ROM OS: customized development is based on Android (or Linux), instead of changing system kernel. Geely subsidiary ECARX’s GKUI and Tencent JV’s Tinnove OS are examples.
- Super auto APP: it is a versatile APP integrating map, music, voice control, social features, etc. Examples are Tencent TAI3.0 (2 APPs) and Baidu’s CarLife+.
Obviously tech companies are quite ahead in the race extending olive branch to automakers with their products and solutions. Given OEMs’ hardware-oriented mentalities and supplier-oriented style, there are concerns that they couldn’t command software soon enough hence dependent upon tech companies ultimately.
It’s not time yet to predict if the history with Nokia and Apple would repeat. The race is still open as automakers have woken up and are fighting back. From their perspective, it is tempting to adopt 3rd party solutions to avoid the huge up-front investment but it is more important to remain control from deeper software level.
Making another analogy to the cellphone transformation, the ones owning data turned out to be the ones dominating the mobile market. With automobile, data is generated from the operating system and data is key when it comes to autonomous driving and smart mobility. Therefore, the ongoing race is not only for auto OS supremacy but also to win initiatives in a re-imagined auto manufacturing industry.
