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How automakers are re-inventing themselves to become mobility leaders in China

On April 8, 2017, BAIC Group established a new company to expand efforts to profit from mobility services, putting Cai Suping, member of the standing committee of BAIC Group Party committee, as vice president in charge.

“The new unit, BAIC Mobility LLC, could integrate all mobility resources of BAIC Group with hundreds of billions of investment,” Cai said in an interview during the new company launch ceremony. “The mobility company is to launch a travel platform suitable to all sectors of society, which includes car rental, finance leasing, taxi, car-hailing, travel service, time-sharing bus, used car and other business models and it will roll out its services in all the major cities in China next year before possibly expanding to other countries. According to official document released by BAIC, the automaker has invested a registered capital of ¥1.5 billion ($218 million) in BAIC Mobility.

BAIC’s move comes amid a flurry of manoeuvres by big automakers to buy or build the capability to sell mobility services, profit from high-speed digital connections to vehicles and engineer vehicles that could drive themselves. Just two days earlier on April 6, Volkswagen Group China entered into a strategic partnership with Mobvoi Inc., a leading Chinese artificial intelligence (AI) company, to develop and implement AI technologies in cars, which is a key part of Volkswagen’s mobility plans.

 

From automaker to mobility provider

As the auto industry heralds a new era of e-mobility, ride-hailing and car sharing, autonomous driving and connectivity, traditional automakers are facing a decade of disruption as they race to not only adapt to a digital future but also become key players in a new and competitive environment.

At this year’s Two Sessions in early March, Xu Heyi, a National People’s Congress (NPC) member and chairman of BAIC Group, said that BAIC planned to launch car-sharing pilot projects in key areas of Beijing such as Wangjing later in the year.

“The new vehicles will be two-seater electric cars. And we will launch a new app for users to access the services and locate the vehicles,” said Xu. BAIC Group is in talks with the authorities concerned on building sites where users could rent cars. It will build such sites under overpasses or at traffic hubs.

At a media workshop ahead of Auto Guangzhou 2016 last November, Volkswagen Group outlined its initiatives aimed at transforming itself from a car manufacturer to a provider of sustainable mobility under its TOGETHER – Strategy 2025. Prof. Dr. Jochem Heizmann, president and CEO of Volkswagen Group China, said the company wants to be a forerunner in the future of mobility.

The partnership with Mobvoi is the latest in a series of cooperative initiatives formed by Volkswagen Group China in the past year under the TOGETHER – Strategy 2025.

On November 16, 2016, the company announced an agreement with Didi Chuxing, China’s largest ride-hailing provider, with the two parties expected to bring into play their respective strengths in product marketing, branding and data technologies to provide a high-quality, safe and efficient mobility service for ride-hailing.

Also last year Volkswagen Group China inked a deal with its two automotive partners in Changchun and Shanghai to set up a three-party partnership to tap into the rapidly growing pre-owned car market with an aim to create a new e-commerce platform that incorporates innovative financial leasing solutions and the benefits of big data.

In addition, Volkswagen Group China has also been working with Shouqi Group, which operates the GoFun car-sharing platform, to grow the car-sharing business in China, with the ambition of serving millions of customers in cities across the country.

Chinese private carmaker Geely has for some time been exploring ride sharing. In 2016, it began operating a 24,000-vehicle service across 12 Chinese cities called Zuo Zhong You, which allows people to rent pure electric micro cars for ¥20 to ¥25 per hour. Customers can book cars over the phone or via the app, and collect a car from their local distribution center. They can then return the car or drop it off at another center. Another mobility service that Geely has established is Cao Cao Zhuanche, an on-demand ride-sharing service that runs predominantly with new energy or pure electric vehicles, mostly from Geely, and uses directly-employed drivers. Currently Cao Cao Zhuanche is available in five cities across China with over 8,000 cars in operation. Geely’s initiative as a mobility service provider goes beyond just acquiring technology or setting up ride-hailing services by launching a new brand: LYNK & CO in Berlin last October with a physical product, a launch date and a clearly defined strategy built around smart mobility, sharing and connectivity.

Lifan Motors has also established a Chongqing-based car-sharing service provider called Panda Auto, which rivals Daimler’s car2go currently only available in the same city. Panda just added 1,100 electric cars to its operation, increasing the fleet to 1,400 units.

Premium carmakers are also striving for a place in China’s burgeoning sharing economy, Audi, BMW and Daimler all have ambitious plans to foray into premium mobility services in China and all have been testing the waters to avoid missing out on opportunities in China.

Being the first premium auto maker to offer car sharing in China, Daimler car-sharing service car2go was launched in Chongqing in April 2016. The Chinese mega-city ranks among the 10 largest car2go programs worldwide. In China, the German premium car maker also runs Car2Share, a traditional, station-based car-sharing company. In March, Daimler announced to consolidate the two platforms under the car2go brand. “By providing users with services perfect for any occasion, more and more Chinese customers can choose alternate mobility solutions for their daily travels,” said car2go China CEO Chen Bing over the consolidation.

BMW Group’s premium urban mobility service DriveNow is in its pilot run among its employees with the BMW i3, after launching its Charge-Now service in China in 2015 as a first step toward launching around the world. Pilot trials of “Audi at home” have been available at select luxury residences in Hong Kong since August 2016. Residents can book an Audi trip via an app and pay for the duration of travel.

 

Embracing digital technologies

“We are impressed by Mobvoi’s innovative approach of AI technologies, and we are pleased to form this joint venture to explore the next generation of smart mobility. With the new joint venture we promote people-oriented mobility for our customers in China, along with the potential to be adopted globally. This partnership is a particular example of Volkswagen’s determination to work with ground breaking Chinese tech companies like Mobvoi to create new forms of people-oriented mobility technology,” said Heizmann.

Top executives from Volkswagen China Investment Co., Ltd. (VCIC) and Mobvoi signed the contract on March 30 for a 50:50 JV targeting the Chinese auto market. With this transaction Volkswagen Group committed an overall investment of $180 million into the joint automotive activities and further growth of Mobvoi. The new JV will develop and apply AI technologies to a wide range of Volkswagen Group models as well as other brands. Initial products will include Mobvoi’s existing smart rearview mirror, which provides navigation, POI (points of interest) search, instant messaging, and on-board infotainment via voice input.

“All cars will soon be digitalized, they will become like mobile computers, we want to enable voice interaction and personalized services and accelerating the development of driverless cars,” said Li Zhifei, Mobvoi’s founder. Li previously worked for Google at its California head office after obtaining a Ph.D. from Johns Hopkins University. When he returned to China, he sold a minority stake in his company to Google and the two have formed a partnership to market the Ticwatch smartwatch. Mobvoi has developed a “smart” rearview mirror that provides navigation, instant messaging and an infotainment system that responds to voice commands.

“There is a tech arms race for carmakers trying to get to autonomous driving,” said Robin Zhu, Hong Kong-based analyst for Bernstein. “Automakers are confused about what the ultimate technology solutions will be and they are buying whatever they think has the potential to be those solutions.” Many are turning to existing technology companies to add competencies such as robotic driving or deep learning to their arsenal.

While Fiat Chrysler Automobiles has partnered with Waymo, the driverless car unit of Google’s parent company Alphabet, Nissan unveiled plans to integrate Microsoft’s digital assistant into some of its vehicles and Ford has become the first automaker to bring Amazon Echo, a voice controller that uses artificial intelligence, into their cars, others are buying companies outright, such as General Motors acquiring driverless tech group Cruise Automation.

Chinese automakers are positioning themselves as well. And in May 2016, China’s biggest carmaker SAIC Motor launched what it claimed is the first internet-connected car, the Roewe RX5, fitted with the YunOS operating system owned by Alibaba.

At this year’s CES in Last Vegas, BAIC announced a strategic partnership with Chinese internet giant Baidu to expand the smart vehicle sector. The two will cooperate on Level 3 autonomous driving technology including high definition maps, while Baidu will provide BAIC with intelligent vehicle OEM solutions including CarLife, CoDriver, and MapAuto. They will also launch a research lab to promote technological collaboration and the mass application of intelligent vehicle technology.

Not so long ago, mobility was mere a buzzword in China, however 2017 proves that China is at the epicentre of a disruptive wave of automotive innovation as we’re starting to see more money from traditional automakers being poured into research as well as acquisitions of strategic targets. At 28 million units sold last year, China is the world’s largest new vehicle market with 721 million internet users, and the industry of mobility service is just in a nascent stage. The road to achieving a profitable mobility provider in China will be anything but easy. Meticulous planning will be, not only necessary, but also of crucial importance.

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