China's trade data posted overnight showed scant evidence of the Sino-US trade war with exports steady and imports on the rise. It is likely too early for the US tariffs to skew the data much yet, however, and another drop in Chinese equities shows that the situation is far from resolved.
Article / 16 September 2015 at 1:30 GMT

Race for the smartest car takes on a new urgency

China Watcher / Shanghai
  • Baidu is with BMW, Alibaba with manufacturer SAIC and Tencent with NextEV
  • The companies will be able to learn more about their users – and their lives
  • If 2015 is the year of O2O, 2016 looks to be the year of the internet-connected car

By Neil Flynn

Throughout this year, I have written several reports on the growing smart car ecosystem business in China, which will see tech firms investing heavily into developing their own internet-connected vehicles. Tencent unveiled its new connected vehicle platform Tencent Automotive Services.

This is essentially the basis of Tencent’s vehicle operating system, where drivers will have access to their Tencent accounts within their vehicle. This will include navigation, news, security and weather, as well as access to social media accounts such as WeChat and QQ. In addition, it will use technology from its taxi-hailing app Didi in order to improve in-car navigation.

Looking at the BAT trio’s involvement in the internet-connected car business, Tencent is actually slightly behind its rivals. Baidu partnered with BMW to produce semi-autonomous vehicles, while Alibaba is working with domestic manufacturer SAIC to produce an Internet-connected vehicle that will reportedly be released in 2016.

These two partnerships where announced last year, but Tencent has recently stated that it is working with a Shanghai-based electric car maker NextEV, which produces Le Mans-style race cars. NextEV is set to release an electric supercar in 2016, which will likely be equipped with Tencent’s in-car technology.

Of the BAT trio, I am least confident about Tencent’s partnership, simply because there is a much larger market for BMWs and SAICs, whereas Tencent’s proposed electric supercar, and that of LeTV, are targeting a very niche market where in-car technology isn’t the typically major selling point.

The smart car market is a natural progression point for the BAT trio, because on top of their smartphone and smart home ecosystems, the trio has a dominant position in navigation services in China.

 Not so futuristic anymore: China's BAT trio will be at the forefront of smart car
evolution with their dominant position in navigation services. Photo: iStock

This is key to the smart car ecosystem business, because in addition to drivers wanting to be able to access the best navigation systems while driving, companies will be able to actively learn more about their users, and ties in to the concept of connecting every aspect of a user’s life.

For example, Tencent’s smartphone apps, such as the popular WeChat messaging app, allow the firm to collect a whole range of data on each user, such as the topics and content that they follow, the music that they listen to, and what food they order.

The smart home ecosystem takes this further because Tencent can know when the user is typically at home, and the media content that they tend to watch. These two ecosystems cover almost every aspect of the user’s life, because if they aren’t at home, they are likely to be using their smartphone.

However, the one remaining part of a user’s life when they aren’t at home and not using their smartphone is while driving. Bringing the Tencent ecosystem into the car will allow the firm to be able to collect gigabytes of data on where the user goes. All of this data will be used to not only tailor advertising for each user, but to help Tencent to improve its existing services and developing new features, because on demand and user behavior.

BAIC’s investment has implications for LeTV

Chinese state-owned car manufacturer BAIC announced that it has set up a Silicon Valley R&D centre and has taken a majority stake in the electric vehicle engineering firm Atieva, which has previously worked on electric vehicles such as the Tesla Roadster and the Audi R8 eTron.

BAIC is planning to use Atieva to develop their own electric vehicles and eventually autonomous vehicles, and forecasts producing 200,000 electric cars by 2020, with 30% being exported out of China.

This will potentially have implications on the LeTV electric supercar project with Aston Martin, because LeTV is also a shareholder in Atieva. It is likely that both firms will use technology from Atieva to produce their own vehicles, although it is now looking less likely that the two firms will collaborate.

With major tech firms and large car manufacturers forecast to release a product for the Internet connected automotive market in 2016, there will be pressure on firms to meet their targets.

However, it has become apparent that with 2014 being the year of mobile ecosystems, and 2015 being the year of O2O, 2016 looks set to be the year of the internet-connected car.

-- Edited by Adam Courtenay

Neil Flynn is a China watcher based in Shanghai. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.

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