Facing obstacles, China’s robotaxi darlings hit the brakes


few years Previously, robotaxis were the darlings of venture capitalists in China. A cadre of adventurous startups, including Deeproute.ai, WeRide.ai, Pony.ai and Momenta, invested millions of dollars to pursue their expensive ambitions. Despite having deep pockets, he spent generously on building a self-driving vehicle fleet. His shrewd officials traded sharp suits for T-shirts, coordinated with local officials, and swayed policymaking in their favor.

However, as the valuations of these companies increased, they were faced with a grim reality: widespread commercialization of robotaxis remains a long way off. Meanwhile, monetization has become more urgent as their high price tags have become prohibitive for most investors. Amid rising geopolitical tensions, going public in the US, the traditional exit route for Chinese tech companies, has become less likely, exacerbating their funding dilemma.

Unlike some of their American counterparts, which are buoyed by moneyed patrons like Alphabet’s Waymo and General Motors’ Cruise, China’s robotaxi upstarts, including the autonomous vehicle arm under Internet giant Baidu, are positioning themselves eagerly for alternative revenue streams. Find by looking for. As the need for survival has eclipsed their once-vaunted dream of removing the human driver, China’s robotaxi companies are shifting toward less advanced but more commercially viable smart-driving solutions.

cash burning robotaxis

Despite years of hype and progress in self-driving technologies, the widespread availability of robotaxis remains a distant reality. This is due to a confluence of challenges including security, regulations and cost.

The last factor, in particular, is one that has pushed China’s robotaxi pioneers toward more opportunistic endeavors. To become profitable, robotaxis eventually need to replace human operators. Although China has recently clarified regulations regarding the need for human supervision, driverless taxis are currently only allowed in restricted areas. To attract customers, robotaxi services offer huge discounts on their paid rides.

Once subsidies end and initial user curiosity wanes, who is willing to pay the same amount as taxi fares for certain routes?

Struggling to address that question, China’s robotaxi startups have become aware of the money-spending reality of their business. Their confidence diminished further recently when Cruise suspended its service nationwide following a serious incident. After spending $732 million in the third quarter of 2023, Cruise now worries whether it will be a financial burden on its parent company General Motors. To deal with rising costs, Cruise is cutting 900 employees, or 24% of its self-driving workforce.

“I was shocked to learn these financial figures,” an executive at one of the Chinese autonomous vehicle startups told TechCrunch in an interview.

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

“if even [Cruise]The industry leader, requires 1.5 operators per vehicle,” he said, referring to a figure reported by The New York Times. “Then [robotaxis] Still a long way from becoming a viable business. You will need to reach a human-vehicle ratio of at least 0.9:1 for a business that can compete with driver-driven 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 shows more optimism in self-driving taxis. In a recent earnings report, he said Baidu’s goal remains unchanged, which is to “achieve breakeven on regional unit economics for the robotaxi operation within a few years before becoming operationally profitable.”

Another executive agrees that Robotaxis isn’t far from turning a profit. He presented the math: The revenue generated from robotaxis is essentially the cost saved by eliminating human operators. Let’s say the annual cost of a taxi driver is 120,000 yuan ($16,800). This means a robotaxi could save up to $84,000 over five years of being on the road. And assuming each robotaxis costs 500,000 yuan ($70,000) to build, each vehicle will earn about $14,000 over five years.

In practice the outlook seems a little too optimistic. A prerequisite for completing these calculations is the complete removal of human operators. To that end, robotaxi firms need full trust from both regulators and the public. The cruise disaster has highlighted the fragility of this trust, which can collapse overnight due to one serious incident. It may still take years to realize the profits envisioned by executives, and in the interim, companies will have to find more immediate business models to survive.

OEM Promise

A logical path to monetize self-driving technology is to sell a less robust version of the technology, namely advanced driver assistance systems (ADAS) that still require human intervention.

DeepRoute, which is backed by Alibaba, largely scaled back its robotaxi operations this year and turned to supplying ADAS to vehicle manufacturers. Its production-ready solution, which includes its smart driving software and lidar-powered hardware, sells competitively for $2,000. Similarly, Baidu is “upgrading the tech stack” to find paying customers on its way, which it calls “the Mount Everest of self-driving.”

“Experience and insights gained from deploying our solutions [mass-produced] The vehicles are being incorporated into our self-driving technology, giving us a unique approach around security and data,” said a Baidu spokesperson.

Momenta was the first to pioneer this business model. For years, it has boasted a two-pronged strategy of selling ADAS to automotive original equipment manufacturers (OEMs) while using data collected from those cars to inform its Level 4 algorithms. (Level 4 is an SAE term that refers to a system that can run itself under most circumstances without the need for a human to take control.)

Although this approach was initially ridiculed by its more idealistic rivals, it has gained it a remarkable network of strategic investors, including some of the world’s largest automotive OEMs: General Motors, Daimler, Toyota and the Chinese state. Owned by SAIC Motors. Not surprisingly, some of its investors, such as GM and Bosch, have become its ADAS customers.

The collective pivot of China’s robotaxi operators became increasingly noticeable late last year. Around the same time, some of their American counterparts also showed signs of conflict. Ford- and VW-backed Argo AI is set to shut down in October 2022, apparently due to an inability to attract new investors. Ford CEO Jim Farley said shortly after the Argo’s shutdown that “massively profitable, fully autonomous vehicles are still a long way off.”

Does it make money?

Despite the rush for OEMs to approach, AV insiders disagree on how lucrative the business is. One of the executives believed that revenue from sales to OEMs may be limited compared to the potential for running a driverless taxi service. Robotaxis, with capacity for hundreds of thousands of vehicles, could be a billion-dollar business.

In comparison, the ADAS business looks much less promising, one executive said. “China sells about 20 million new vehicles every year. Licensing fees for OEMs are at most several thousand yuan per lifecycle, which means the total addressable market is just several million yuan. Ultimately, the market is going to be fragmented by several major players as no OEM will risk being the only supplier.

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

There’s also a question about whether consumers will want these smart driving features despite the hype – virtually all major and emerging electric car makers are integrating some level of advanced driving automation. A former robotaxi marketing director said, “Many consumers think this feature is optional.”

However, challenges have already emerged. “Now OEMs are becoming less eager to work with software companies. In the past, there was a lot of demand for these advanced driving solutions, but now OMEs have started working on L4 solutions themselves,” said a former director of a Chinese robotaxi firm.

Another executive countered this view, suggesting that the relationship is more accurately described as “cooperative competition”. This is because traditional OEMs rely heavily on knowledge transfer from software companies and are not as dedicated to investing in self-driving technology internally.

Even when deals are signed, another challenge remains: OEMs may be reluctant to share user data with their vendors. Again, the above executive disagreed, arguing that sharing the data is a “win-win” situation for the partners as carmakers want help debugging and improving their software features.

However, the executive admitted that building partnerships with OEMs is a long and difficult process. “Such relationships take years, if not a decade, to nurture, but more importantly, you need a vision and direction. Products are highly customized. As you move into the later stages of joint development, your contact point increases significantly. You need many different players within the OEM to get buy-in, from C-level executives to engineers,” she said.

sympathy towards the government

Other companies depend on government contracts for survival. For example, WeRide launched its partnership with Guangzhou Auto Group in its home city, a southern metropolis with a population of more than 15 million, in late 2021. The relationship has since gradually strengthened, as GAC has made a strategic investment in the robotaxi firm, while Veride has in turn invested in GAC’s on-demand taxi brand OnTime.

In its home city, the AV upstart now operates a network of autonomous buses, street cleaners and delivery vans.

Apart from the need to navigate the complex network of Chinese bureaucracy, the business’s revenue prospects may not be so bright.

“It’s a three-tier capital structure,” said the CEO of a Chinese delivery van company. “GAC invested in Veride, Veride invested in On-Time and On-Time and in turn purchased services from Veride. In other words, no revenue is being generated.”

Whether this pessimistic outlook is true remains to be seen, but WeRide is at least exploring other means of raising capital. In August, it got Beijing’s green light for its plan to go public in the US, a path now under increasing scrutiny from the Chinese government, which fears that cross-border data transfers mandated by US authorities threaten national security. can cause.

other routes

Finally, there’s Pony, which at the time of writing still holds the crown as the most valuable robotaxi company in China. With a history of conducting R&D in the Bay Area, it appears to be most aligned with its US counterparts in the breadth of its self-driving ambitions. It is also trying to diversify its income sources after its IPO plans fell through after failing to win support from Chinese regulators.

Pony chose the path of self-driving trucks and first started this effort at home. But an internal shuffle last year combined its trucking and passenger car units, leading to the departure of several key trucking managers. Since then, Pony has been relying more on forming joint ventures to continue its logistics exploration.

As commercial and funding activities become challenging domestically, some robotaxi upstarts are exploring overseas markets. Both Pony and Veride have expanded to the Middle East, which is seen by entrepreneurs as a relatively untapped market with friendly regulations and ample funding, like China 10 years ago. Pony raised $100 million from Saudi Arabia to put AVs on the country’s roads, while Veride secured the first AV testing permit in the neighboring UAE.

China’s robotaxi trailblazers have yet to prove that their new monetization model works. As funding runs out and losses mount, next year will likely be a hit or miss for their self-driving dreams.

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