Faced with roadblocks, China’s robotaxi darling slams on the brakes

some years In the past, robotaxis were the darling of Chinese venture capitalists. A slew of bold startups, including Deeproute.ai, WeRide.ai, Pony.ai and Momenta, have raised hundreds of millions of dollars to pursue their expensive ambitions. With deep pockets, they are investing generously in building fleets of self-driving cars. Their eccentric top brass swapped their T-shirts for smart suits, currying favor with local officials and pushing policy in their favor.

However, as the valuations of these companies continue to climb, they are gradually realizing a stark reality: widespread commercialization of robotaxis remains elusive. At the same time, monetization has become more urgent as its high price has kept most investors away. Compounding the financing woes, prospects for U.S. listings, a traditional exit route for Chinese technology companies, have dimmed amid rising geopolitical tensions.

Unlike some of their financially-backed U.S. counterparts, such as Alphabet Inc’s Waymo and General Motors Co’s Cruise, China’s robotaxi upstarts, including the self-driving car unit of internet giant Baidu, have found themselves eager to pursue other sources of revenue. As the need to survive eclipses their once-vaunted dream of eliminating human drivers, China’s robotaxi companies are turning to less advanced but more commercially viable smart driving solutions.

Cost-effective robotaxis

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

It’s this last factor, in particular, that has fueled more speculative attempts by China’s robotaxi pioneers. To be profitable, robo-taxis will eventually need to eliminate human operators. Although China recently clarified its regulations regarding the need for human supervision, driverless taxis are currently only allowed to operate in restricted areas. To attract customers, robo-taxi services offer steep discounts on their paid rides.

Once subsidies disappear and users’ initial curiosity subsides, who wants to pay the same as a taxi fare for a few fixed routes?

In an effort to combat this problem, China’s robo-taxi startups have woken up to the reality that their businesses are burning cash. More recently, Cruise suspended services across the country following serious incidents, further damaging their confidence. Cruise burned through $732 million in the third quarter of 2023 and now faces concerns about whether it will impose a financial burden on parent company General Motors. In response to soaring costs, Cruise will lay off 900 employees, accounting for 24% of its autonomous driving workforce.

“I was shocked when I learned these financial figures,” said an executive at a Chinese self-driving car startup interviewed by TechCrunch.

TechCrunch spoke with six current and former executives from China’s leading autonomous vehicle companies, including Deepproute, WeRide, Pony.ai, Momenta and Baidu. Most of them requested anonymity because they were not authorized to speak to the media.

“If even [Cruise]As the industry leader, it requires 1.5 operators per vehicle,” she added, referring to figures reported by The New York Times. “Then [robotaxis] Still far from being a viable business. The ratio of people to vehicles needs to be at least 0.9:1 to have a business that can compete with driverless taxis. “

[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.]

However, Baidu CEO Robin Li is more optimistic about self-driving taxis. In a recent financial report, he said Baidu’s goal remains unchanged, which is to “achieve break-even regional unit economics for the robotaxi business within a few years before achieving operating profitability.”

Another executive also believes that robotaxis are not far away from profitability. He gave a mathematical formula: The revenue generated by robo-taxi is essentially the cost saved by eliminating human operators. Assume that a taxi driver’s annual salary is RMB 120,000 (USD 16,800). This means the robotaxi can save up to $84,000 over five years of operation. Assuming each robotaxi costs 500,000 yuan ($70,000) to manufacture, each vehicle will earn about $14,000 in five years.

In practice, the outlook seems a bit too optimistic. A prerequisite for the success of these calculations is the complete elimination of human operators. To do this, robo-taxi companies need the absolute trust of regulators and the public. The cruise ship accident highlights the fragility of this trust, which can collapse overnight due to a serious incident. It may still be years before the profits envisioned by executives are realized, and in the meantime the company must find a more straightforward business model to survive.

OEM manufacturer’s commitment

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

Alibaba-backed Deeproute has significantly scaled back its robotaxi business this year and is providing ADAS directly to automakers. Its mass-produced solution includes intelligent driving software and lidar-driven hardware, priced at a very competitive US$2,000. Likewise, Baidu is “downgrading its technology stack” to find paying customers on its so-called “self-driving Everest” journey.

“The experience and insights gained from deploying our solutions [mass-produced] Vehicles are being incorporated into our self-driving technology, providing us with a unique moat in terms of safety and data,” a Baidu spokesperson said.

Momenta is the first company to pioneer this business model. For years, the company has pursued a two-pronged strategy of selling ADAS to automotive original equipment manufacturers (OEMs) while using data collected from those vehicles to inform its Level 4 algorithms. (Level 4 is the SAE term for systems that can drive themselves without human control in most situations.)

The approach, while initially derided by its more idealistic rivals, has nonetheless earned it an enviable network of strategic investors, including some of the world’s largest automotive OEMs: General Motors, Daimler Toyota, Toyota and China’s state-owned SAIC Motor. Not surprisingly, some investors, such as General Motors and Bosch, have become ADAS customers.

Late last year, the collective shift among China’s robotaxi players became increasingly noticeable. Around the same time, some U.S. counterparts also showed signs of struggling. Ford and Volkswagen-backed Argo AI shut down in October 2022, seemingly due to an inability to attract new investors. Ford CEO Jim Farley said shortly after Argo closed that “we’re a long way from achieving profitable, fully autonomous vehicles at scale.”

Does it make money?

Despite the gold rush for OEMs, self-driving car insiders are divided on how profitable the business will actually be. One executive believes revenue from sales to OEMs may be limited compared to the potential of operating a driverless taxi service. If scaled to hundreds of thousands of vehicles, robo-taxi could become a billion-dollar business.

In comparison, the ADAS business appears to have a much bleaker future, he said. “China sells about 20 million new cars every year. The licensing fees for OEMs per life cycle are at most a few thousand yuan, which means the entire potential market is only a few million yuan. [$1 ≈ 7 yuan]. Ultimately, the market will be divided among a few major players, as no OEM will take the risk of 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 – nearly all of China’s established and emerging EV manufacturers are integrating some degree of advanced driving automation.

“Many consumers view this feature as optional,” said a former Robotaxi marketing director, adding that the relationship between OEMs and their software suppliers is increasingly tenuous. “In the past, these advanced driving solutions were in high demand, but now OME is developing its own L4 solutions.”

Another executive countered this notion, arguing that the relationship is more accurately described as “collaborative competition.” This is because traditional OEMs rely heavily on knowledge transfer from software companies and are less committed to investing in in-house autonomous technology.

Even if an agreement is signed, there’s another challenge: OEMs may be reluctant to share user data with suppliers. The executive again disagreed, arguing that data sharing is a “win-win” situation for partners, as automakers want help debugging and improving their software capabilities.

Still, the executive recognized that building partnerships with OEMs is a long and arduous process. “It takes years or even ten years to build this relationship, but more importantly, you need a vision and direction. Products are highly customized. When you enter the later stages of joint development, your points of contact will Significant increase. You need buy-in from many different players within the OEM, from C-level executives to engineers.”

other paths

Other robo-taxi players rely on government contracts to survive. For example, WeRide established a partnership with Guangzhou Automobile Group in its city in 2021. As GAC Group injected strategic investment into WeRide, WeRide also invested in OnTime, a taxi-hailing brand owned by GAC Group, and the cooperative relationship between the two parties has continued to strengthen. . In Guangzhou, a southern metropolis with a population of more than 15 million, the self-driving car upstart currently operates a network of self-driving buses, street cleaners and delivery vans.

In addition to having to navigate China’s tangled web of bureaucracy (which can be more opaque and laborious than developing relationships with OEMs), the business’s financial prospects may be less positive.

“It’s a three-tiered nested capital structure,” said the CEO of a Chinese delivery truck company. “GAC invested in WeRide, WeRide invested in On-Time, and On-Time purchased services from WeRide. In other words, no revenue was generated.”

Whether this pessimistic view holds true remains to be seen, but WeRide is at least exploring other ways to raise capital. In August, the company won approval from Beijing for its plan to list in the U.S., a route that is now under increasing scrutiny from the Chinese government, which is concerned that cross-border data transfers mandated by U.S. authorities could pose national security risks. threatening.

Finally, there’s Pony.ai, which as of this writing still holds the crown as China’s most valuable robo-taxi company. With a history of R&D in the Bay Area, it appears to be most aligned with its U.S. peers in the breadth of its self-driving ambitions. Ma Huateng is also trying to diversify his revenue sources as his IPO plans continue to suffer after failing to win support from Chinese regulators.

The company took the path of self-driving trucks early and is experimenting with them internally. But an internal reorganization last year to merge the trucking and bus divisions resulted in the departure of several key trucking managers. Since then, Ma Huateng seems to have relied more on forming joint ventures to continue his logistics business.

As domestic business and financing become challenging, some of China’s robo-taxi darlings are exploring overseas markets. Both Ponytail and WeRide have expanded their businesses to the Middle East, which is regarded by entrepreneurs as a relatively untapped market with friendly regulations and abundant capital, just like China ten years ago. Pony.ai raised $100 million in funding from Saudi Arabia to put self-driving cars on the country’s roads, while WeRide obtained the first self-driving car testing license in the neighboring United Arab Emirates.

China’s robo-taxi pioneers have yet to prove whether their new profit model works. As funding dries up and losses pile up, the next year could be the difference between success and failure for their self-driving dreams.

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