Tuesday, March 5, 2024

Faced with obstacles, China’s robotaxi favorite puts on the brakes

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Image credits: Chung Hyo/Getty Images

A few years ago, robotaxis were the darling of Chinese venture capitalists. Executives at bold startups like Deeproute.ai, WeRide.ai, Pony.ai, and Momenta have raked in hundreds of millions of dollars to further their expensive ambitions. With money aplenty, they spent lavishly on building self-driving vehicles. Geeky executives swapped T-shirts for sharp suits and approached local officials to influence policy decisions in their favor.

But as the valuations of these companies continue to rise, the sobering reality sinks in for them: widespread commercialization of robotaxis is still a long way off. On the other hand, its high prices have become prohibitive for most investors, making monetization more urgent. Adding to funding dilemmas and rising geopolitical tensions, prospects for Chinese tech companies’ traditional exit route for initial public offerings in the United States have dimmed.

Unlike some U.S. companies backed by wealthy patrons, such as Alphabet’s Waymo and General Motors’ Cruise, Chinese robotaxi startups, including internet giant Baidu’s self-driving car division, are seeking alternative are aware that they are eagerly looking for sources of revenue. As the need for survival overshadows once-proud dreams of eliminating human drivers, Chinese robotaxi companies are turning to less advanced but more commercially viable smart driving solutions. It is transitioning.

cash-burning robotaxis

Despite years of hype and advances in self-driving technology, widespread availability of robotaxis remains a distant reality. This is due to a combination of safety, regulatory, and cost challenges.

That last factor in particular is what has pushed China’s robotaxi pioneers into more opportunistic endeavors. For robotaxis to be profitable, they will eventually have to eliminate human operators. Driverless taxis are currently only allowed in restricted areas, although China recently clarified rules regarding the need for human supervision. To attract customers, robotaxi services offer steep discounts on paid rides.

Once the subsidy wears off and users’ initial curiosity wears off, who would be willing to pay the same amount as a taxi fare for some fixed routes?

Struggling to address this question, Chinese robotaxi startups have woken up to the reality that their businesses are wasting money. Their credibility was further eroded recently when Cruise suspended service across the United States following a serious incident. Cruise, which is burning through $732 million in the third quarter of 2023, faces concerns that it will become a financial burden to parent company General Motors. To combat rising costs, Cruise is cutting 900 jobs, or 24% of its self-driving workforce.

“We were shocked to see these financial numbers,” said an executive at one of the Chinese self-driving car startups interviewed by TechCrunch.

TechCrunch spoke to six current and former executives from China’s largest self-driving car companies, including Deeproute, WeRide, Pony, Momenta, and Baidu. Most of them requested anonymity because they were not authorized to speak to the media.

“parable [Cruise]”The industry leader requires 1.5 operators per vehicle,” it added, citing figures reported by The New York Times. “after that [robotaxis] It is still far from being viable as a business. To have a business that can compete with driving taxis, the human-to-vehicle ratio must reach at least 0.9:1. ”

[It’s worth noting that the worker-vehicle ratio obtained by the Times is slightly misleading. Cruise’s founder Kyle Vogt, who stepped down as CEO in November, had subsequently clarified that the quoted staffing number included not just remote assistants but also those who performed functions like cleaning, charging and maintenance.]

But Baidu CEO Robin Li is more optimistic about self-driving taxis. In a recent earnings call, he said Baidu’s goal remains unchanged: to “achieve break-even regional unit economics for robotaxi operations within a few years before becoming operationally profitable.” He said that there is.

Another executive agrees that it won’t be long before robotaxis become profitable. He showed the formula. The revenue generated from robotaxis is essentially the cost saved by eliminating the human operator. Let’s say a taxi driver’s annual income is 120,000 yuan ($16,800). That means the robotaxi could save him up to $84,000 over five years of running. Also, if the manufacturing cost of the robotaxis is 500,000 yuan ($70,000) per vehicle, the revenue for one vehicle will be about $14,000 in 5 years.

In fact, the outlook seems a bit too optimistic. A prerequisite for the success of these calculations is the complete elimination of human operators. To do so, robotaxi companies will need absolute trust from both regulators and the public. The cruise incident highlights the fragility of this trust, which can be destroyed overnight by a single major incident. It could still be years before executives realize the profits they envision, and in the meantime, companies must find more immediate business models to survive.

OEM promise

One logical way to monetize self-driving technology is to sell less robust versions of the technology: advanced driver assistance systems (ADAS) that still require human intervention.

Deeproot, which is backed by Alibaba, has significantly scaled back its robotaxis business this year and moved in earnest to supply ADAS to automakers. The production-ready solution, which includes smart driving software and lidar-powered hardware, is competitively priced at $2,000. Similarly, Baidu is “downgrading its technology stack” to find paying customers on its way to climbing what the company calls the “Everest of self-driving cars.”

“The experience and insights gained from implementing our solution [mass-produced] “The vehicles are embedded with our self-driving technology and have their own moat around security and data,” a Baidu spokesperson said.

Momenta was the first company to pioneer this business model. The company has long boasted a two-pronged strategy of selling ADAS to automotive original equipment manufacturers (OEMs) while also using data collected from those vehicles to inform Level 4 algorithms. . (Level 4 is his SAE term for systems that do not require human control in most situations and can be driven automatically.)

Although this approach was initially ridiculed by more idealistic rivals, it has attracted an enviable network of strategic investors, including some of the world’s largest auto OEMs, including General Motors, Daimler, Toyota and Chinese state-owned SAIC. brought to the company. Not surprisingly, some of his investors, such as GM and Bosch, are also customers of ADAS.

The collective pivot by China’s robotaxi operators has become increasingly pronounced since late last year. Around the same time, some of its American peers also showed signs of struggling. Argo AI, backed by Ford and Volkswagen, shut down in October 2022, apparently after failing to attract new investors. “Profitable, fully autonomous vehicles at scale are a long way off,” Ford CEO Jim Farley said shortly after the Argo shutdown.

Will it make money?

Despite the OEM gold rush, AV stakeholders are divided on how lucrative this business actually is. One of his executives believed that the revenue from sales to OEMs could be limited compared to the potential of operating a driverless taxi service. Robotaxis could become a billion-dollar business when scaled to hundreds of thousands of vehicles.

In comparison, the ADAS business looks less promising, he said. “About 20 million new cars are sold in China every year. OEM licensing fees are at most a few thousand yuan per life cycle, so the total addressable market is only a few million yuan. [$1 ≈ 7 yuan]. Ultimately, the market will be split between multiple large players, as the OEM does not want to risk having only one supplier. ”

“The OEM business doesn’t even come close to the revenue potential of robotaxis,” he added.

There’s also the question of whether consumers want smart driving features, despite the hype. Virtually all existing and emerging electric vehicle manufacturers in China have integrated some degree of advanced driving automation.

“Many consumers think this feature is optional,” said a former Robotaxi marketing director, adding that the relationship between OEMs and their software suppliers is becoming increasingly delicate. “Previously, there was a very high demand for these advanced driving solutions, but now he and OME are starting to work on his L4 solution on their own.”

Another executive disputed this view, suggesting the relationship would be more accurately described as “cooperative competition.” That’s because traditional OEMs rely heavily on knowledge transfer from software companies and are less keen to invest in self-driving technology internally.

Even if a deal is signed, other challenges remain. OEMs may be reluctant to share user data with vendors. Again, the aforementioned executives disagree, arguing that data sharing is a “win-win” situation for partners, as automakers want their help in debugging and improving their software features. Did.

Nevertheless, the executive recognized that building partnerships with OEMs is a long and difficult process. “It takes years, if not a decade, to cultivate a relationship like this, but more importantly, it requires vision and direction. Products are highly customized. Later stages of joint development As you move forward, the number of contacts increases significantly. You need buy-in from many different stakeholders within the OEM, from executives to engineers.”

other path

Other robotaxi operators rely on government contracts to survive. For example, WeRide began a partnership with its home base Guangzhou Automobile Group in 2021. The relationship between the two parties has strengthened over time, with GAC injecting strategic investments into WeRide, and WeRide investing in GAC’s on-demand taxi brand OnTime. . In Guangzhou, a large southern city of more than 15 million people, AV startups now operate a network of self-driving buses, street sweepers, and delivery vans.

Aside from having to navigate a complex network of Chinese bureaucracies, this can be an even more opaque and arduous process than building a relationship with an OEM, but at the end of the day, business The financial outlook may not be so rosy.

“It’s a three-tier nested structure,” said the CEO of a Chinese delivery van company. “GAC invests in WeRide, WeRide invests in On-Time, and On-Time procures services from WeRide. In other words, no revenue is generated.”

It remains to be seen whether this pessimism holds true, but at least WeRide is exploring other avenues to raise capital. The company received permission from the Chinese government in August for its plans to go public in the U.S., but China is concerned that cross-border data transfers, which are now required by U.S. authorities, could pose a national security threat. Government scrutiny of this route is increasing.

Finally, there is Pony, which remains the most highly rated robotaxi company in China at the time of this writing. With a history of research and development in the Bay Area, it appears most aligned with its U.S. peers in the breadth of its self-driving ambitions. Pony is also trying to diversify its revenue sources, as its IPO plans remain stalled due to lack of support from Chinese regulators.

The company chose the self-driving truck route and brought the effort in-house early on. But last year, the company underwent an internal reorganization that combined its truck and passenger car divisions, resulting in the departure of several key truck division managers. Since then, Pony appears to be relying more on forming joint ventures to continue its logistics pursuits.

Amid difficulties in domestic commercial and fundraising activities, some Chinese robotaxi enthusiasts are exploring overseas markets. Pony and WeRide have both expanded into the Middle East, which entrepreneurs see as a relatively untapped market with friendly regulations and deep pockets, much like China was a decade ago. ing. Pony raised his $100 million from Saudi Arabia to install AVs on the country’s roads, while WeRide secured its first AV testing permit in the neighboring United Arab Emirates.

China’s robotaxi pioneers have yet to prove their new monetization model works. As funding dries up and losses continue to accumulate, next year is likely to be the time to make the self-driving dream a reality.

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