Bill Russo, Managing Director of Gao Feng Advisory Company, describes the disruptive developments happening in the automotive industry as it transforms from “automotive” product manufacturing and sales towards “automobility” digitally-enabled solutions.
Few observers of the evolution of the automotive scene have had a better vantage point than Bill Russo. With more than 30 years in the industry — half of that time as an auto executive with experience in China and Asia — Russo nowadays heads up the Automotive practice for Gao Feng Greater China, working as the company’s senior representative in Shanghai. We spoke with Bill recently for our third installment of our Q&A series to get his take on the impact of autonomous driving and the emergence of smart vehicles on the roads.
Q: How will the driving experience change in the Autonomous Age?
A: The potential is there for a complete redefinition of what we mean by transportation, both in terms of comfort and convenience. With the advent of autonomous driving, we’re talking about a transition from a device where we really had to focus on the road — because we were the brains of the car — to where we can focus on other things. That is time given back to us that will allow us to do other things because we won’t have to monitor what’s going on with the vehicle itself.
Q: Thinking back to how the public reacted to other major technology shifts in transportation, such as trains or commercial aviation – To what extent were these shifts driven by the user-convenience factor?
A: When you look back in history, the greatest inventions by humans — the wheel, the bicycle, the steam ship, the train, the airplane — they all exist to give us the ability to travel over increasingly greater distances. Over time, each invention added more convenience and more new features to make the experience of mobility much more enjoyable and less painless. And as each of these solutions became commercially viable and affordable, they did so by offering users a benefit versus whatever preceding form of transportation they had favored up to that point―a benefit for which they were willing to pay.
Q: How important was the pace of technological progress?
A: It’s not about creating a technology for the sake of having the technology; it’s about providing a more comfortable and convenient way for people to travel the distances that we travel each day. They have to provide a tangible benefit for people to be willing to pay and use the new mode of transport. For example, trains reduced the amount of time that it took to travel across the country from months to days. The commercial airplane reduces that same time to a matter of hours. We can circle the world in a jet in little more than a day. Not so long ago, in historical terms, that journey took people years in a boat and they may not even have lived to tell the story.
Q: Where do cars fit in the historical narrative?
A: The car became a primary means for the average person to satisfy their daily needs for mobility. We’ve designed city and transportation networks that were basically designed for vehicular transportation. In the 21st century, we’re seeing a phenomenon — particularly in emerging markets in Asia — where there are now very densely populated urban centers. That urbanized context is not really well suited for the car that we know today. Today’s cars are designed really for highway transportation. So in an increasingly urbanized world, we’re going to experience the next evolution of convenience and mobility which I think will be an autonomous mobility solution.
Q: Will perceptions of autonomous driving vary by country due to local conditions?
A: Absolutely. First of all, comfort and convenience are solutions to mobility “pain points” and the degree to which people experience pain points varies greatly based upon where they live. Mobility pain is much higher in densely populated cities, like New York or Paris or Delhi — and virtually all major cities in China. A city like Beijing experiences gridlock several times a day. And the driving experience in a highly urbanized country like China can be horrific. You can spend an hour going less than 10 miles in a car. So the joy of being behind the wheel and driving is not really there. It’s a big difference from the driving experience of getting out on the open highway. New forms of electric and autonomous mobility―like the advent of on-demand mobility where a user pays only for the time they are in the car, rather than owning it 24/7 and using it only seldom — will be a common solution to address the mobility pain points in many places.
Q: What does it mean when we have autonomous vehicles on the road that are designed from a user-centric perspectiveas opposed to the current driver-centric mindset?
A: With autonomous cars, we will be able to transform travel time into productive time — especially for longer distance commutes. There’s the potential to participate in the digital ecosystem, offering users in autonomous cars access to services and content that they can consume while mobile. Convenience services could include infotainment or watching news or doing emails and conference calls. The car thus becomes a connected rolling space that transports us to places where we live, work, and play.
Q: As autonomous technology removes the drudgery of mundane tasks associated with driving, how does that reshape how we relate to vehicles?
A: Vehicles will have the intelligence to diagnose the situations that they’re in and make the more complex decisions that human beings today make. That not only reduces the pain points of driving, it also is going to make the overall experience more convenient, safer, and enjoyable for the occupants.
With autonomous driving, we’re arriving at a point where we can define a new paradigm that refocuses how the passenger conducts and uses their transportation time. Observing what happens outside of the car, for instance, moves from being a requirement to a choice. You don’t have to look outside the window any longer. You can — if that’s what you want to do. But you really don’t have to concern yourself with what you see outside. It’s like being an airline passenger looking out the window. You can look out the window but do you really need to?
Think about the “cockpit” space that’s now allocated in vehicles for the purpose of giving drivers information they need to make decisions. You can repurpose all of that from a driver-passenger perspective to a connected user perspective. You will be able to provide people display space that allows them a more productive use of information that they may need to go about their day. While the purpose of the car doesn’t change — it’s still a transportation system — this new concept of how to offer a convenience-oriented autonomous vehicle to the occupant(s) is different.
About Nissan Motor Co., Ltd.
Nissan is a global full-line vehicle manufacturer that sells more than 60 models under the Nissan, Infiniti and Datsun brands. In fiscal year 2015, the company sold more than 5.4 million vehicles globally, generating revenue of 12.2 trillion yen. Nissan engineers, manufactures and markets the world’s best-selling all-electric vehicle in history, the Nissan LEAF. Nissan’s global headquarters in Yokohama, Japan manages operations in six regions: ASEAN & Oceania; Africa, Middle East & India; China; Europe; Latin America and North America. Nissan has been partnered with French manufacturer Renault since 1999 and Mitsubishi Motors since 2016 under the Renault-Nissan Alliance.
I co-authored this article with my colleague Edward Tse, CEO of Gao Feng Advisory Company
On August 1st, Didi Chuxing (Didi)and Uber China announced a plan to merge their businesses in China, effectively placing Didi in control of their combined ride-hailing business for the China market. This deal has attracted a great deal of attention since the announcement, raising a number of critical questions which we address in this article, including:
Did the China government play any role in the merger?
Can foreign tech companies compete in China?
Did Uber China win or lose?
Could Uber China ever have become a dominant player in China if it decided to press ahead?
What will this deal mean to Uber and Didi’s global strategies?
China has become the epicenter of a disruptive wave of digital innovation, and the rapidly evolving landscape of partnerships for mobility services is a clear indication of this. For sure, we can look forward to even more exciting developments in the future.
After a prolonged price war for ride-hailing customers, Chinese market leader Didi Chuxing and its biggest rival Uber merged on Monday. Now, passengers are worried this will mean a quick end to heavily discounted trips.
Shanghai native Ma Yanyan, 29, rides with either Uber or Didi to work every day. She told Sixth Tone that she has noticed Uber is sending fewer coupons to its users. “As a consumer, I’m very realistic,” she said. “I’ll go back to taking taxis once Uber raises its prices.”
Wang Mengyan, 25, is a frequent user of ride-hailing apps, and she is afraid the merger will mean higher prices. “As a consumer,” she told Sixth Tone, “we want to see competition between Didi and Uber so that we can enjoy the best discounts.”
Yang Mengyi, 28, told Sixth Tone she spends about 150 yuan (about $22) on Didi every week, but that she thought the merger wouldn’t have much of an impact. “Taxis will always be another option,” she said, adding that she prefers cabs because they are more strictly regulated.
Online, many net users echoed Yang’s opinion, saying that if prices rise too high, they will just go back to using regular taxis. News of the merger — and the possible end of discounted fares — has cab drivers delighted.
Chen Yugang, a taxi driver in the northern coastal city of Tianjin, expressed his relief after Monday’s news. He told Sixth Tone that he used to earn about 5,500 yuan per month before the emergence of car-hailing apps. His current monthly income has decreased to less than 3,000 yuan. “Why would passengers take a cab and pay me 20 yuan when they can ride with Uber for as low as 5 yuan?” he said.
Chen said that companies like Uber have disturbed the market, and he hopes the merger will bring consumers back to traditional taxis.
Bill Russo, an automobile consultant at Gao Feng Advisory Company in Shanghai, told Sixth Tone he estimates pricing may move somewhat higher after the merger, but that “it can’t be much higher for the simple reason that ride hailing services need to compete with taxis.” He added that, to Uber and Didi, the real purpose of the merger isn’t to increase prices, but to decrease costs in the form of incentives given out to passengers and drivers in order to win market share.
Full-time Shanghai-based Uber driver Xing Zhiwei told Sixth Tone that the news of the merger has him concerned. “In less than a year, the allowance for 12 rides has dropped from 150 yuan to 40 yuan,” said Xing, adding that he fears such driver subsidies will drop even further.
Zhuang Chunhui, a communications manager for Uber China, told Sixth Tone on Tuesday that the incentive policy for drivers will not change after the merger. She said that the amount of subsidies varies in different cities at the different times. “The discounts we offer to our users will also change from time to time,” she added, “but this has nothing to do with the merger either.”
Wang Mingze, a public relations manager for Didi Chuxing in Shanghai, said the merger will enable the company to increase the efficiency with which it accepts orders, and that this “can eventually increase the drivers’ incomes.” As for passengers, Wang said price is just one part of the service. “What’s more important is whether users can book the car and enjoy a comfortable ride whenever they want,” he said.
Two of China’s biggest household brands have teamed up to create what they call “the world’s first mass-produced car on the internet.”
E-commerce giant Alibaba and SAIC Motor, the country’s biggest car manufacturer, will launch the Roewe RX5 on Wednesday, a sports utility vehicle (SUV) featuring smart technology from Alibaba’s operating system YunOS. First unveiled at the Beijing Auto Show in April this year, the RX5 is reportedly YunOS’ first auto partnership.
YunOS was created in 2011 and is used by several prominent Chinese smartphones brands, including Meizu and Duowei.
In April, Alibaba said YunOS was the third-biggest operating system (OS) in the world with 40 million users as of 2015, adding that it would soon replace Apple’s iOS as the second biggest in the mainland, according to local media reports at the time. Google’s Android remains China’s most popular OS.
Connectivity, electric power and autonomous driving were the three principal themes for the auto market as it increasingly merged with the internet industry, Bill Russo, managing director at Gao Feng Advisory Company, told CNBC’s “The Rundown“.
The RX5 is a clear example of how car makers are employing big data to improve driver’s daily needs and mobility habits.
SAIC and Alibaba have promised that the car’s data capabilities would transform stressful driver experiences, such as negotiating traffic or undertaking maintenance, into enjoyable moments.
“The RX5 will be able suggest alternate routes in the case of road closures or traffic as well as a more personalized experience in the car,” Russo said.
Already the world’s largest car market, China is set to become a key adopter of these trends, but there’s already heavy competition to win the hearts of mainland consumers.
In fact, the real rivalry in the car market was no longer between car makers, Russo said.
“It’s a battle for the connected-car operating system,” he said, pointing to YunOS, iOS and Android Auto as examples.
When it came to China, Alibaba and SAIC’s biggest competitor was Apple, he added.
Apple’s investment in Didi was a strategic move to position a potential Apple car in China, Russo continued, noting that while Google had invested in Uber, it was not a threat because the search engine remains blocked in the mainland.
On May 13, Apple announced a USD 1 billion investment in China’s leading on-demand mobility (ODM) service, Didi Chuxing (Didi). Didi’s legal name in Chinese means “little orange”, and an internal announcement made to Didi’s employees literally welcomed the apple to the orange family.
To understand the logic of this investment, it is important to first understand the popularity and explosive growth of such services in China – along with the role that Didi plays inside the expanding ecosystems of its largest investors, Tencent and Alibaba.
Originating from separate taxi-hailing services in 2012, Didi is now a one-stop mobility solutions provider that provides a variety of services including taxi-hailing, private-car hailing, on-demand bus, peer-to-peer ride-sharing, designated driver and test driving. Didi currently has 14 million registered drivers, completing over 11 million rides per day in over 400 cities across China. With over 87 percent share of the Chinese private car-hailing market, Didi is far larger than all the other ODM service providers in China, including Uber.
As a global leader in smart connected device technology, Apple has been exploring opportunities to expand the reach of its iOS ecosystem. It is an “open secret” that Apple is working on its own vehicle program, code-named Project Titan, investing billions in R&D and poaching talent from leading automakers including Tesla, General Motors and Ford. As a manufacturer of intelligent devices, Apple is a “serial disruptor” of industries ranging from media to telecommunications, and views smart transportation as a key target.
The logic of this collaboration is quite evident: the premier global smart device maker (Apple) has set its sights on disrupting transportation in partnership with the dominant mobility services platform (Didi) in the world’s largest car market with the largest number of mobile internet users. Through this partnership, Apple and Didi will have the opportunity to shape the connected mobility ecosystem for China as well as the rest of the world.
A Collaboration Model for Connected Mobility Innovation
The traditional owner-centric business model of the car industry is being disrupted by shared ODM services. As a result, we have witnessed the rapid emergence of a user-centric business model served by mobility services platforms dominated by Uber and Didi. Apple’s investment in Didi will ensure that they will be able to access China’s dynamic internet and mobility ecosystem.
Apple gains a Chinese partner not only with a strong mobility services brand, but also with a proven market sensing capability and keen understanding of how to address mobility pain points. Apple can leverage this to launch a car that delivers the perfect connected mobility user experience, and this can be leveraged both inside and outside of China. Didi will benefit from being affiliated with the world’s premier smart device company, and also gains a major global strategic partner to help penetrate into overseas markets and compete globally with Uber.
While not the primary motivation, Apple’s investment in Didi can also help foster goodwill in China, signaling a willingness on the part of Apple to collaborate with leading Chinese companies. The importance of maintaining such goodwill was underscored recently when Chinese regulators shut down access to some of Apple’s online media stores, triggering concerns among investors. In addition, Didi expects to turn a profit next year and eventually list their shares, which could provide Apple with a fast return on their capital investment.
The recent loss of momentum in Apple’s profit growth and share price performance has raised concerns among investors that the Apple may not be able to recover its shine. The deal with Didi brings hope that Apple can disrupt the auto industry in the world’s largest auto market.
From Connected Mobility to Connected Lifestyle
However, connected mobility is just one segment of the larger “connected lifestyle” opportunity. The convergence of disruptive technologies such as autonomous driving, artificial intelligence and virtual reality will have the power to transform our everyday lives.The implications of this go far beyond mobility, which is just one of the spaces where we will be connected through a smart device or platform.
Cars will increasingly become smart, connected, electronic and autonomous – and increasingly accessed through a mobility service. A logical interpretation of Apple’s strategy is that it views the car as a “third place” after home and office where people are connected to the internet. Its investment in Didi should be viewed as a strategic opportunity for Apple to capture a larger share of a mobility user’s time online, thereby generating recurring revenue. By creating a more personalized mobility solution, Apple also hopes that the users of such a mobility service would eventually prefer an Apple hardware platform when they are on wheels.
More than just a taxi-hailing service, Didi is a technology-enabled platform. With advanced algorithms to match supply and demand, surge pricing and real-time route optimization, Didi is efficiently moving people and things by maximizing the utilization rate of vehicles. More importantly, with big data and machine learning capabilities, Didi’s competitive advantages are constantly evolving and being reinforced.
Like WeChat and Alipay, Didi has emerged as one of the few “Super Apps” holding a vital part of Chinese consumers’ daily connected lifestyle. These Super Apps typically start by addressing a major pain point and eventually evolve into ecosystems of connected lifestyle services for potentially billions of users.They possess valuable “big data” on a user’s mobility patterns that are of high commercial value.
“Apple + Didi” vs. “LeEco + Yidao”
In fact, the “Apple + Didi” model is already being experimented by LeEco, a leading Chinese internet media company founded (as LeTV) in 2004. Last year, LeEco purchased a 70 percent stake in another Chinese car-hailing app Yidao Yongche. LeEco is also the principal investor in Faraday Future, a U.S.-based electric vehicle startup that is featuring a “subscription model” where users can enjoy the flexibility and convenience of mobility on-demand without having to own the vehicle. Apple’s recent monthly paid iPhone subscription program indicates that they may already be considering such a business model for other smart devices.
The usage-based model effectively eliminates the problem of up-selling features to individual owners by allowing the businesses that generate revenue from the device to cover the cost for adding the technology.
LeEco’s vision is to cover all aspects of consumer’s connected lifestyle by establishing an extensive business portfolio with mobile internet, e-commerce, sports, internet finance, entertainment and others. It is rapidly building a vertically-integrated ecosystem comprised of “Content, Devices, Platforms and Applications” offering premium user experience across multiple screens (i.e. mobile, tablet, computer, cinema, TV and cars).
Disrupt or Be Disrupted
Going forward, we expect to see increasing levels of co-opetition, and more cross-border, cross-industry collaborations:
Co-opetition: Google is an early investor in Uber while Baidu is a strategic investor in Uber China. Alibaba is a major investor in Didi. Meanwhile, Ant Financial Services Group, Alibaba’s affiliate that runs Alipay and other financial services, has partnered with Uber to enable Alipay globally. Apple’s deal with Didi could potentially challenge both Uber and Google. In addition, Didi is a member of an “anti-Uber alliance” including Lyft in the U.S., Grab (formerly GrabTaxi) in Southeast Asia, and Ola in India. With Didi’s aspiration to become a global company, Apple could eventually extend strategic partnerships to other companies in the alliance as well.
Cross-border: China (Beijing) and U.S. (Silicon Valley) will be the leading innovation hubs for connected mobility and beyond. The Chinese government is keen to promote electric vehicles adoption and digital transformation to improve urban mobility and address environmental issues. China could leapfrog and become the epicenter for connected mobility innovation on a global scale, with its massive population serving as a fertile ground for technology commercialization, as well as connected lifestyle. Permutations and combinations of cross-border alliances for connected lifestyle will create tremendous value for Chinese internet users as they trade-up for better products and services.
Cross-industry: The boundary between automotive and internet technology industries will become increasingly blurred. General Motors, as one of the most forward-looking incumbents, has formed a strategic partnership with Lyft, acquired self-driving start-up Cruise Automation and established a new business division named Maven to experiment with new mobility services. Other automakers are also catching up by piloting ODM services, including Daimler’s Car2Go, Ford’s Go!Drive and Ford Pass, BMW’s DriveNow, and Audi On-Demand. We have already seen emerging “disruption clusters” in China, including (1) LeEco, Faraday Future, Aston Martin and Yidao Yongche, (2) Future Mobility, Tencent and Foxconn, (3) NextEV, Tencent and JD.com, and (4) Alibaba and SAIC.
A Partnership to Reimagine Mobility
China is at the epicenter of a disruptive wave of automotive innovation and beyond. The mobility experience is being redefined with innovative usage-based business models. Incumbents and new players must re-evaluate their connected mobility strategies with a new lens for delivering the perfect connected mobility experience. Past success in the old automotive game is not a guarantee for future success. In fact, one would surmise that past legacy could often become a barrier for swift and innovative moves going forward. It is time for the leading companies from China and Silicon Valley to join forces to re-imagine mobility and the marriage between Apple and Didi could offer the promise of doing just that.
The Future of Mobility: China’s Automotive Industry in the Age of Disruption
The traditional automotive industry, where technology innovation has primarily been focused on powertrain and safety systems, must now contend with new forms of mobility services that are transforming the manner in which we experience the product. The particular conditions of urbanization, an ever-expanding middle class population, pollution, and congestion are uniquely challenging in China, which may create opportunities for innovative new mobility solutions for China.
The conventional hardware-centric, sales-driven, asset-heavy and ownership-based business model with sporadic customer interactions is now competing with a connected, on-demand, and often personalized mobility experiences. This new form of “connected mobility” is driving new technologies in the world of navigation, analytics, driver safety, driver assistance and information virtualization.
China’s automotive industry is at the forefront of disruption as the driving forces are much more apparent in China than that in the rest of the world: Urbanization. A Growing Middle Class. Pollution. Grid Lock.
How are these factors shaping the auto market in China? What solutions are being developed to ease mobility “pain points” in China? How do you see these solutions impacting and shaping our everyday lives today and in the future? How will this impact the structure of the industry going forward?
Innovations such as these, originating from both traditional OEMs and new mobility solutions platforms, many of whom are Chinese, could pave the way to a an entirely new business model for China’s auto industry.
Topics for discussion:
Defining the disruption in the China context – What are the disruptive trends in the world of mobility?
Big picture view of the competitive landscape – What does the new competitive landscape look like and how will it evolve?
How should incumbents respond? Disrupting or being disrupted? – What new internal capabilities are required? How to work with local start-ups: compete or collaborate?
China for the world – Will China lead to world’s development and innovation in Connected Mobility?
Ms. Jean Liu, President, Didi Chuxing
Mr. Hubertus Troska, Member of the Board of Management, Daimler AG; Chairman & CEO, Daimler Greater China
Mr. Matt Tsien, President & CEO, General Motors China
Mr. Carsten Isensee, EVP of Finance, Volkswagen China
Mr. Bill Russo, Managing Director, Gao Feng Advisory Company
For the early part of the 21st century, China has been the growth engine of the global automotive industry. Despite a recent slowdown, China will surpass 25 million units in annual car sales in 2016 and has become the battleground for dominance of the global auto industry.
Several driving forces, which are particularly evident China, are disrupting the status quo of the automotive industry:
The unique context of China’s urban transportation challenge, the high rate of adoption of mobile device connectivity, combined with the rapid and aggressive introduction of alternative mobility solutions.
Disruptive new entrants into the mobility solutions competitive landscape, who draw insights about customers based on their online behaviors and mobility habits in order to offer a diverse pool of new revenue-generating solutions.
The confluence of these forces are changing the landscape of how mobility needs can be served in a rather fundamental way, touching off a wave of experimentation among both traditional automotive and new mobility solutions providers.
The Origins of Disruption
Disruptive business models typically originate from outside the core set of industry players. Traditional Original Equipment Manufacturer (OEM) business models rely on selling products through an established business-to-consumer (B2C) channel, often through an intermediary sales partner that is either owned or franchised to represent the OEM brands in the marketplace. Consumers pay to own the asset outright.
The entry point for disruption is through the “pay-per-use” service-based business model. While this channel has existed for some time in the form of services managed through centralized professionally managed fleets (rental car companies, taxi and chauffeur services), digitally disruptive companies such as Uber, and China’s Yidao Yongche and Didi-Chuxing (created from a merger between rival mobility services from Alibaba and Tencent) have gained rapid and widespread market acceptance.
Once an entry point is established, these services-centric Information and Communications Technology (ICT) disruptors are able to leverage their big data and analytics capabilities to gain insight on consumers and their mobility patterns and behaviors. Essentially, these disruptors view connected mobility services as a natural extension of their ecosystem platform and are viewing the traditional services and perhaps even the OEM hardware business as a way of expanding their ecosystem. Serving the “Mobility on Demand” market is merely the point of entry for an entire suite of Internet-based mobile connectivity services which may include navigation, route planning, e-commerce, vehicle repair and maintenance, usage based insurance, and other very lucrative “owner services” which are very important to today’s OEM business.
ICT disruptors are leveraging connected mobility services as a means to disintermediate the value chain of the automotive industry and capture a profitable services ecosystem. OEMs are at risk of their business model being relegated to a high-risk, asset-intensive, commoditized, business-to-business (B2B) channel for delivering hardware to the profitable ecosystem of the mobility services providers.
Reimagining Personalized Mobility
The motivation for many ICT disruptors to invest and compete in this market is to unlock the services revenue that encircles each user. It is not the mobility service itself that justifies the investment, but rather all the things that we (and our cars) do when mobile. Making such experiences feel more and more “personalized” to our individual needs and lifestyles, which become apparent based on our mobility habits, will ensure the loyalty of the user to the service provider’s ecosystem.
ICT disruptors are leveraging their core value propositions to deliver a more personalized mobility solution. These disruptors may not see the car industry as their destination, but are rather “travelling through mobility”. They view mobility services as a channel for enrollment of users into their broader ecosystem-based platform offering a range of other services. Chinese ICT disruptors aiming at this “personalized mobility” solutions space include LeEco, Future Mobility, and NextEV.
The table below offers a glimpse of how major Chinese players aim to leverage their core while expanding to and beyond mobility as a service. Beyond manufacturing smart, connected, electric vehicles or building technology-enabled infotainment systems and mobility services, these visionary companies are reinventing the mobility experience as a whole. Moreover, they are reimagining mobility as a transaction between a user and an ecosystem services provider, which stands in stark contrast with the traditional model of a transaction between an owner and a manufacturer.
It is important to keep in mind that as cars become mobility service platforms, the technology on board will become more sophisticated and tailored to the individual end-user’s needs. ICT disruptors may in fact decide to contract out the actual production of vehicles to an ecosystem partner, with an end-game of earning recurring revenue by providing car owners with data products and Internet services. While some tech companies may profit from selling hardware, the main focus is on the services that flow through the hardware.
Disruptions typically originate from outside the traditional industry players, which is clearly illustrated in this case. We are approaching an inflection point where the deployment of personalized mobility solutions will expand exponentially and thereby alter the competitive landscape and business models of several adjacent industries.
Over the past few years we have witnessed how ICT disruptors have pioneered new business models and are in the process reimagining mobility as a service. The emergence of Chinese disruptive mobility solutions players such as Didi Chuxing and LeEco, with their innovative ecosystem-based strategic approach, offers clear evidence that something new is happening. This, coupled with the Chinese government’s determination to push new-energy vehicles and build a sustainable transportation infrastructure, demonstrates the potential for China to become the major breeding ground for automotive innovation.
Tech disruptors including AppleAAPL +0.12%, GoogleGOOGL +0.50%, LeEco, NextEV, and others may be garnering the most attention, but as we have observed, they are typically “travelling through mobility” as a means to enroll users into their broader service ecosystems. On the opposite flank, traditional OEMs, who will not easily cede their over 100-year dominance in the auto industry, are pivoting into mobility services.
New players will inevitably join this emerging landscape of competition. Alliances are also being formed among new and traditional players seeking to access complementary strengths and seize a competitive advantage.
The battle will likely be won by those who understand the true potential of connected mobility services and thereby deliver value to the user in the most personalized, convenient, comfortable, and cost-effective manner. It is a battle where profits will be won by offering differentiated mobility-related services through a hardware platform that is most suited to the lifestyle of its end user.
Success will accrue to those companies that are best able to reimagine mobility in the context of a place like China: where mobility needs are uniquely challenging, where innovative mobility experiments are being driven by entrepreneurial activity, and where dreams of exponential business growth become reality.
I am the Managing Director and the Automotive Practice leader at Gao Feng Advisory Company based in Shanghai. With 15 years as an automotive executive, including over 11 years of experience in China and Asia, I have had the pleasure of working with multi-national and local Chinese firms in the formulation and implementation of their global market and product strategies. I was previously the Vice President of Chrysler North East Asia, responsible for the business operations for the Greater China and South Korea markets. In addition, I have 12 years of experience in the electronics and IT industry, having worked at IBM Corporation and Harman International.
The author is a Forbes contributor. The opinions expressed are those of the writer.
Chinese Internet giant LeECO Holdings Ltd unveils its internet electric battery driverless concept car ‘LeSEE’, during a launch event in Beijing, on April 20, 2016
Beijing: Chinese manufacturers and internet giants are in hot pursuit of their US counterparts in the race to design driverless cars, but the route to market is still littered with potholes.
While Google has been working on autonomous vehicles for at least six years, with the likes of BMW, Volvo and Toyota in its wake, more recently Chinese businesses have entered the race, from internet search giant Baidu to manufacturer Changan.
Last week, ahead of the Beijing Auto Show opening on Monday, two self-driving Changan cars made a mountainous 2,000 kilometre (1,200 mile) journey from Chongqing in the southwest to the capital in the country’s first long-distance autonomous vehicle test.
Another Chinese internet giant, LeECO, is also venturing into autonomous technologies, unveiling Wednesday in Beijing an electric car that can park itself and be summoned to its owner’s location via smartphone.
And late last year Baidu tested China’s first locally designed driverless vehicle, a modified BMW, with a 30 kilometre ride through the streets of Beijing.
Despite China’s relatively late entry to the field, analysts believe the country could become a key market for driverless vehicles thanks to a more favourable regulatory and consumer environment.
The Boston Consulting Group (BCG) forecasts that global sales of driverless cars will reach 12 million by 2035, with more than a quarter sold in China.
Vehicles which automatically adjust their routes in response to real-time traffic information could solve chronic gridlock in China’s major cities, BCG’s Xavier Mosquet told AFP.
“If they believe this would ease traffic, Chinese authorities will do all they can to promote the development of this technology and then its use,” he said.
Public concerns over the safety of driverless cars are far lower than elsewhere, according to a survey by Roland Berger consultants in 2015, which found 96 per cent of Chinese would consider an autonomous vehicle for almost all everyday driving, compared with 58 per cent of Americans and Germans.
In a country notorious for accidents, the promise of better safety through autonomous technologies could also be appealing.
The ultimate prize, say analysts, will be when mass transport firms such as taxi-hailing giant Uber, or its Chinese rival Didi, can deploy huge fleets of robot taxis.
“The real payoff for truly driverless technology will come when cars on the road are no longer owned by people, but are owned by fleet management services,” said Bill Russo, managing director of the consultancy firm Gao Feng.
“That’s where you want to think about taking the driver out of the equation. Mobility on demand is hugely popular here.”
In the Roland Berger survey, 51 per cent of Chinese car owners said they would prefer to use robot taxis rather than buy a new vehicle themselves, compared with 26 per cent of Americans.
With a ready market, China may soon become the top location for companies to refine driverless technology.
Swedish manufacturer Volvo, owned by China’s Geely since 2010, this month announced plans to test drive up to 100 of its vehicles on Chinese roads this year.
Changan, a partner of Ford, is set to roll out commercial autonomous vehicles for motorways from 2018, while mass production of driverless city cars is projected to begin in 2025.
‘Does the car choose?’
Baidu, meanwhile, says it will launch self-driving buses by 2018, which will operate on fixed routes in select cities in China.
Like Google, the internet giant already owns detailed road maps and has experience in electronic security, and a company spokeswoman told AFP it had had “very positive feedback” from the government.
But analysts are more cautious, predicting slow-moving autonomous vehicles will not appear in towns until at least 2020.
Production costs were still too high to make a robot taxi fleet viable, BCG’s Mosquet said.
“There are still many questions to be resolved” before fully autonomous vehicles can be put into public use, said Jeremy Carlson, a senior analyst for IHS.
He pointed to “chaotic traffic situations” on roads shared with cyclists and pedestrians, and less-than-adequate infrastructure.
Technology will be the first to see solutions, he said, but that still left regulation and issues around liability and insurance to be addressed.
For some, there are moral dilemmas as well.
“If you have someone jumping out in front of an autonomous car, does the car have to choose between killing that person, or swerving and crashing and killing the passenger?” asked Robin Zhu, senior analyst at Sanford C. Bernstein.
“If your car could choose to kill you, would you get in it?”
The traditional automotive industry, where technology innovation has primarily been focused on powertrain and safety systems, must now contend with new forms of mobility services that are revolutionizing mobility needs. The conventional hardware-centric business model is being superseded by an emerging connected, on-demand, and personalized mobility services business model. Many Russell Reynolds Associates’ clients are top industry players contending intersection of the Automotive and Internet industries where innovations is rapidly shaping the future of mobility.
This event was a collaboration between Russell Reynolds Associates and Gao Feng Advisory Company (www.gaofengadv.com), a pre-eminent strategy and management consulting firm with roots in China. Gao Feng has been helping clients solve their toughest business and management issues — issues that arise in the current fast-changing, complicated and ambiguous operating environment. The topic of this session is one of the most challenging issues facing the automotive industry, and China is rapidly becoming the incubator for disruptive business model innovations focused on mobility. However, most firms are at a loss about where to find the best talent to drive their disruptive ideas on innovation and transformation.
The discussion was focused on the future of mobility in China, and the implications for leaders who must cope with the disruptions in the China market. The event was held on 31 March 2016 in Shanghai China. This event series is designed to bring senior executive representatives of the China Automotive industry together to hear from and interact directly with the leaders in disruptive innovation and mobility transformation.
Topics for discussion:
Defining the disruption in the China context – What are the disruptive trends in today’s mobility world?
Helicopter view of the competitive ecosystem – What is the chaotic landscape look like and how will it evolve?
How should incumbents respond? Disrupting or being disrupted? – What are the internal capabilities to build? How to work with local start-ups?
China for the world – Will China lead to world’s development and innovation in Connected Mobility?
Mr. John Larsen, Director, Smart Mobility, Ford Motor Company Asia Pacific
Dr. Markus Seidel, Vice President, BMW Group Technology Office China
Ms. Christina Xie, Senior Director, Strategy Department, Didi Chuxing
Mr. Jack Cheng, Co-Founder, Executive VP, NextEV
Mr. Kevin Harris, Co-Founder, Russell Reynolds Associates
Mr. Bill Russo, Managing Director and Automotive Practice Leader, Gao Feng Advisory Company