Struggling foreign automakers in China are seeking help from local tech giants to stay competitive in the world's largest electric vehicle market, where demand for smart displays, driver assistance software and cutting-edge mapping technology is soaring.
At the recent Beijing Auto Show, China's largest auto show, a number of foreign companies announced technology partnerships, including Nissan's with Baidu and Toyota's with Tencent.
The two Japanese companies are among a number of traditional auto giants that once dominated the Chinese market, but are now struggling to keep up with a new generation of emerging local electric car companies.
"They are well-known conservative companies, but their competencies are not in technology," Tu Li, managing director of Sino Auto Insights, told AFP. "They have tried to invest in cutting-edge technology in automobiles, but this is not developing naturally."
"They are forced to be more open in technology given the direction of the market in China and new entrants -- companies like Xiaomi and Huawei, which have a long history of developing high-tech consumer products," he added.
Today, these companies are locked in a fierce price war with more than 100 Chinese electric vehicle brands, all vying to offer the best prices and most advanced technology to wealthier consumers.
Foreign companies have suffered as a result, Gregor Sebastian, senior analyst and electric vehicle industry expert at Rhodium Group, an independent research firm, told AFP. He added: "Foreign automakers in China in general, but especially Japanese automakers, have taken a big hit in the Chinese market in the last 12 to 18 months."
He explained that they "lost market share rapidly... This is related to intense Chinese competition from manufacturers such as BYD, but also from many emerging electric car companies."
BYD, which has been the undisputed champion of the industry in China in recent years, beat Tesla in global electric car sales in the last quarter of 2023.
- 'Walled garden' -
Today, foreign automakers are forced to find ways to strengthen their position in a market increasingly dominated by a range of low-cost cars equipped with advanced technology.
Smart technology features are among the new requirements to get the upper hand in China's electric car race.
But as geopolitical competition between the United States and China has intensified in recent years, Beijing has tightened restrictions on foreign companies' access to information it deems sensitive, such as advanced information and reams of data generated by domestic cars.
One of the main reasons foreign automakers seek to partner with local technology companies is to benefit from their innovation, which Chinese auto industry CEOs attribute to intense competition in the sector.
But another key reason is access to data.
"We are facing a kind of walled garden scenario here... China wants to be seen as playing by the rules and allowing foreign players access to the market," Daniel Kollar, head of automotive and mobility at consultancy Intralink, told AFP. "In reality, they don't want to give up the security aspect."
The solution is to work with a Chinese partner.
"If you want to offer very advanced mapping solutions in China, you need to work with a local company and then either license their mapping data or enter into a joint venture with them," Sebastian told AFP.
- Eye on the future -
Nissan hailed its deal with Baidu as allowing it to provide "critical information systems and AI-based services to customers in China and abroad."
Toyota said its artificial intelligence agreement with gaming giant Tencent will help it capitalize on Chinese consumers' growing appetite for advanced smart features in the cars it sells in China.
Baidu, for its part, recently began working with South Korean auto giant Hyundai and its subsidiary Kia.
It is precisely Chinese companies that have experience in an area where foreign companies lag behind, said Tu Li of Sino Auto Insights. He continued, "In addition, most automakers are particularly weak in the field of digital technology, which creates an ideal opportunity for Baidu and Tencent to achieve this shift to the field of mobility."
During a surprise visit to Beijing last week, Tesla CEO Elon Musk met with top Chinese officials and received a key security clearance for the company's domestically produced electric vehicles.
That regulatory breakthrough coincided with reports that Tesla had struck a deal with Chinese technology giant Baidu for on-the-go mapping and navigation.
Sebastian said the technology partnerships are driven by a long-term strategy to stay ahead in the Chinese market. "We are talking about the next five to ten years, not the next two or three years. If political relations with China remain stable and do not deteriorate further, [foreign companies] may be able to benefit from Baidu or Tencent for next-generation products in the 2030s," he added.
Tu Li said the potential of artificial intelligence in smart cars could be huge. He explained, "Imagine that the autonomous system in the car has access to all of your historical data, along with your travel and driving data, your shopping habits, and your preferences. This could create opportunities to monetize you based on your habits and information every few minutes."
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