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China and its US$500 billion Driverless Car Market

Given that China is currently the largest automobile market in the world, it might also eventually be the largest market for autonomous vehicles in the world too. In terms of numbers, China’s market is expected to be enormous. According to McKinsey & Co, China’s autonomous vehicle market alone could amount to US$500 billion by 2030.

Although American companies such as Alphabet Inc. (NASDAQ:GOOGL) lead in technology in the market, Chinese companies have some advantages over their American counterparts that might allow them to gain more market share.

Chinese advantages

Firstly, the Chinese government wants domestic companies to participate in the market so it has put some roadblocks in the way of foreign companies. Only Chinese-registered companies can perform the HD mapping that’s essential for driverless cars, for example. Secondly, Chinese companies have closer connections with many Chinese automakers than American technology companies do.

As a result of the massive potential market and government policies, investing in Chinese companies such as Baidu Inc (NASDAQ:BIDU), Alibaba Group Holding Limited (NYSE:BABA), and Tencent Holdings Limited (SEHK:700) – all of which have a focus on autonomous driving – could be a great way to get exposure to the trend. Let’s take a closer look at the three companies’ autonomous driving efforts.

Baidu

Baidu began research and development on autonomous driving in 2013 and the company has spent billions on those autonomous driving efforts ever since. Beginning in 2017, Baidu has worked on creating its own open source autonomous driving system; Apollo.

Baidu hopes that Apollo will be similar to Android, where it becomes effectively the “brain” of autonomous vehicles while traditional automakers focus on the lower-value add-ons such as branding and manufacturing. Just as Google withholds some services such as Google Play from Android to make money, Baidu plans to reserve some necessary services such as HD mapping to make money.

In terms of its potential, Baidu believes the creation of the high definition maps needed for autonomous driving systems to work properly will be a “much bigger business” in the long run than Baidu’s search business currently.

Since the start of its efforts, Baidu has signed up over 130 partners to gain access to more data and Apollo has grown into one the world’s largest autonomous driving ecosystems. Many regard Apollo as one of the leaders in China’s self-driving technology given that it leads in total test miles driven among mainland companies. Driver data from road testing is considered as critical for developing autonomous driving tech.

Tencent

Although Tencent is associated with gaming and its WeChat “superapp”, the company entered into the autonomous driving race by building a research lab in 2016. It has also tested its own autonomous cars on the road with human backup drivers.

Although it isn’t as far along as Baidu in terms of miles logged, Tencent has a lot more resources than Baidu and it seems determined to take a share of the promising market. It has spent a lot of money buying into car makers like Tesla Inc (NASDAQ:TSLA) – of which it owns a 5% stake – that also do research in autonomous driving.

Tencent has also recently partnered with BMW which will see it provide cloud IT architecture and tools to help support BMW’s automated driving R&D. Cloud computing will likely be a key component of autonomous vehicle functionality due to the need to process the vast reams of data that will enable cars to navigate safely.

Alibaba

Unlike Baidu, it seems that Alibaba is more selective in terms of disclosing its progress with regards to autonomous driving. The e-commerce giant is making headway, however, as in 2018, Alibaba confirmed that it had completed self-driving vehicle tests, just like Baidu and Tencent. Similar to Tencent, Alibaba’s cloud division will likely benefit from the increased processing power needed from the increasing number of autonomous vehicles.

Alibaba also has its own market-leading mapping division, AutoNavi, which it acquired for $1.5 billion in 2014. AutoNavi has dedicated resources to building HD maps.

Foolish conclusion

Although Chinese companies are behind American firms in the race to develop self-driving cars, many mainland Chinese companies will still benefit due to government policies and their own efforts. Of the existing companies in autonomous driving, Baidu is the leader but Alibaba and Tencent have the resources and the determination to narrow the gap.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.