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Driverless Vehicles Driving the Future of ESG
Investors are lining up for ESG-friendly investments in the transportation sector
In this article, we will examine the advantages and weaknesses of another potential investment option that is increasingly attractive to environment, social, and governance (ESG) investors: the autonomous vehicle (AV) industry in China. This sector has huge implications for the ESG community worldwide as may come to define the very nature of driving safely and economically in the next few decades.
We also will look at the strategies and progress of leading Chinese solution providers, mindful that behind each one is an extensive chain of software, semiconductor, hardware, and vehicle companies working together to support AV driving solutions. It is rare for companies to develop all technologies in-house in this sector.
Advantages of the Autonomous Vehicle Industry in China
- Policy – The government provides both a strong policy support and a framework to facilitate the development of the AV industry in China. The National Development and Reform Commission published a report on smart vehicle development strategy in February 2020, in which it targeted mass production of L3 autonomous vehicles by 2025. In addition, the Ministry of Industry and Information Technology (MIIT) published standards and technical requirements for different levels of autonomous driving in March 2020.
- Infrastructure – China has the longest expressway network in the world, with 149,600km as of 2019, followed by the US with 95,932km.1 We believe that in the initial stage, autonomous driving will be limited to specific areas, and further, that the extensive highway network in China offers a stable environment to roll out autonomous driving.
China had 5G network coverage in almost every major city by the end of 2020, with more than 792,000 5G base stations as of Feb 2021.2 5G has low latency and high bandwidth, which are crucial for building the internet of vehicles network to improve the safety of autonomous driving. The government also has also set a target to build infrastructure for vehicle communication in key highways by 2025.
- Funding – The venture capital/private equity market can provide strong support to leading companies in autonomous driving. According to Qingke Research, total private equity investment in autonomous driving was RMB 594Bn in 2019 (see chart 1).3 By contrast, only nine autonomous driving companies received investments in China in 2014, compared to 35 ones in 2018. We believe China has passed the bubble stage of investment in autonomous driving, and investors are now focusing on high-quality companies.
Weaknesses of the Autonomous Vehicle Industry in China
China still relies on oversea suppliers for core semiconductor components in autonomous driving. Companies such as Nvidia not only provide hardware like the Graphics Processing Unit (GPU) and an in-vehicle artificial intelligence (AI) computer, they also develop the training platforms and software development kits that surround it. The barrier is high in this area, and it can take significant time to develop reliable hardware and a mature development framework.
Key Autonomous Driving Full Stack Solution Providers in China
- Baidu – Apollo platform
There are two parts to Baidu’s positioning in autonomous driving. First, the company aims to provide an open platform for autonomous driving companies, which include 1) a cloud service platform for training and housing data; 2) a software platform; and 3) a hardware/vehicle platform. Second, Baidu also develops its full-stack autonomous driving solutions to launch other services, including robotaxis.
- AutoX – XCU, xFusion, xUrban, xMap, xCloud
AutoX uses an integrated approach to build full-stack technology for autonomous driving. The company also works with auto manufacturers to launch robotaxi and robotruck services.
Pony AI develops autonomous vehicle platforms. Toyota invested US$400m in the company in 2020 to accelerate product development. (Bloomberg 2020).
Tusimple focuses on the development of autonomous trucks. The company partners with Navistar, a US truck company, targeting the launch of an L4 autonomous truck by 2024.
- WeRide – WeRide Go
The company develops full autonomous driving solutions. WeRide test-launched its Roboaxi service (with a safety driver present) in Guangzhou in November 2019. WeRide Go has served 80,000 passengers with a total running distance of 2.6 million km.
Metrics to Gauge Progress in Autonomous Driving Development
The California Department of Motor Vehicles (CDMV) publishes data on companies with permits to conduct autonomous driving testing in that state (chart 3). As most of the top Chinese autonomous vehicle companies also participate in this testing scheme, these data may offer some indication of the progress by different companies. A ‘disengagement’ occurs when the human safety driver interferes. In simple terms, companies with more miles reached per disengagement, and a higher total testing mileage overall, should have a more reliable system. As of [date], Baidu, AutoX, and Pony.ai were among the top five in terms of miles per disengagement. Waymo, which was ranked second, had more than 13 times more testing mileage than Baidu, while AutoX had limited testing mileage.
According to the CDMV, as of February 26, 2020, a total of 64 companies had California autonomous driving test licenses, including full solution providers, component suppliers, technology companies, autonomous driving startups and others. Among these, five companies are allowed to use autonomous vehicles to transport passengers, including Aurora, AutoX, Pony.ai, Waymo, and Zoox, two of which are Chinese firms. Waymo is the only company so far to hold a driverless road test license (with no safety driver required).
60 of these companies conducted testing in 2020. The accumulated mileage of test vehicles of those that achieved road testing in automatic driving mode exceeded 2.9 million miles, an increase of 800,000 miles over the previous year. Six companies tested less than 100 miles, namely Valeo, Box Bot, Telenav, BMW, Tesla, and Ridecell. Two companies had their autopilot road test licenses revoked for failing to submit a disengagement report on time. These were Roadstar.ai and Xmotors.ai of Xpeng Motors North America.
ESG Adoption in AV Sector
The adoption of AVs by ESG investors is still nascent, although interest is clearly trending upward. Still, comparatively few ESG portfolios have substantial AV investments, although this is due largely to safety concerns that have yet to be definitively addressed by the vehicle manufacturers. Otherwise, the AV sector holds many of the same attributes that attract ESG investments that are found in the EV sector.
May 18, 2021
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