HSBC: Is China's autonomous driving about to usher in the "iPhone 4 moment"?

China's autonomous driving will reshape the global auto market? In a report published on August 7, HSBC analysts Yuqian Jing, Li Yang and others said that China's electric vehicle industry is ready to move to a new stage, and that autonomous driving technology will have the same impact on China's electric vehicles as the iPhone 4 did on Apple and the smartphone market in 2010:> iPhone 4 is widely regarded as a game changer.>> Autonomous driving will also take China's electric vehicles to a new level-we think this is the industry's "iPhone 4 moment". HSBC believes that with the increasing commercialization of electric vehicles, differentiated software will become an important competitive advantage for car companies, and the self-driving function will become the next focus of the market. Due to the high profit margin of the software business, HSBC believes that autonomous driving will bring new revenue opportunities and higher profit margins to car companies, and those with full-stack software capabilities will benefit from this process. In terms of timing, HSBC believes that 2025 will be an inflection point, **when autonomous driving technology will begin to gradually commercialize and become standard for automotive consumers, while also accelerating industry consolidation. **With the recent emergence of cooperation projects between Chinese car companies and European and American car companies, HSBC believes that China has a global leading position in autonomous driving technology, and is generally optimistic about the medium and long-term development prospects of China's smart electric vehicle industry.> On July 26, Volkswagen announced an investment of US $0.7 billion in Xiaopeng Motors. The two companies will cooperate in the development of electric vehicles and autonomous driving software. This is an important milestone. This shows that domestic leading companies can help international brands improve their electric vehicle products, especially in software.>> This is not an example-Audi is working with SAIC, Daimler is working with Geely, and Toyota is working with BYD.>> Xiaopeng Auto, NIO Inc. USD OV, Changan Avita (in cooperation with Huawei) have started to launch a series of high-level autopilot functions. At the same time, at the crucial policy support level, the Ministry of Industry and Information Technology has released more initiatives to support the commercialization of L3 and above autonomous driving. ## Entering the era of smart cars Just as the iPhone 4 has led the mobile phone industry into the era of smart phones, the automotive industry has also ushered in the era of smart cars. HSBC believes that smart electric vehicles will increasingly resemble smartphones in terms of hardware and software integration, and this development will create more opportunities and higher profits:> **With limited repeated costs, software naturally has higher profits. * * In terms of best practices, HSBC uses Apple as the benchmark for smart phones, Toyota as the benchmark for traditional vehicle manufacturers, and Tesla as the benchmark for smart electric vehicle manufacturers. The financial data of these three companies are compared: 1. * * Tesla's operating profit margin (OPM) and net profit margin (NPM) are higher than those of traditional vehicle company Toyota, closer to Apple, reflecting its software capabilities. **2. **Tesla's R & D spending as a percentage of revenue over the past seven years is similar to Apple's and higher than Toyota's, highlighting its investment in software and technology. 3. Tesla's profit margins have continued to improve in recent years, showing the effectiveness of its software transformation. **In addition, the smartphone industry is more concentrated, with stronger software capabilities and operations, which may also indicate that smart electric vehicle companies will also transform and upgrade in this direction. HSBC believes that some leading car brands with in-house software capabilities will have the opportunity to increase software revenue. * *! When it comes to self-driving features, different car companies have different pricing methods-some companies charge a one-time fee for lifetime use, while others use a subscription model. HSBC believes that what matters is not pricing and payment methods, but the value of the self-driving function itself.! ## Turning Point: 2025 HSBC believes that 2025 will be the time node for standardization of automatic driving and the turning point for the transformation of the automobile industry.> Before reaching the inflection point (which we believe will depend on the time required to achieve advanced safety and efficiency), the autonomous driving functions provided may become a key differentiator. We believe that companies that can provide consumers with a better software experience will benefit in terms of sales and brand strength.>> Once the inflection point has passed (we think it may come as early as 2025), self-driving software should become more standardized and less differentiated.>> By this stage, driving a car will take up less time, allowing consumers to pay more attention to entertainment, content and connection.>> In turn, this should accelerate the pace of industry consolidation, as companies that cannot provide the highest quality in-house self-driving software may be squeezed out of the market, and leading manufacturers should gain market share. Although automakers are less concentrated than mobile phone manufacturers, HSBC believes that the development of autonomous driving may drive consolidation in the automotive industry> smart electric vehicle leaders may gain a higher market share than the leaders of the previous era dominated by internal combustion engines. In addition, policy support will push China's electric vehicle industry to a new stage in autonomous driving and continue to lead the world:> On June 20 this year, Xin Guobin, Vice Minister of the Ministry of Industry and Information Technology, said at the State Council's regular policy briefing that he would support the application of L3 and higher-level autonomous driving functions. On July 26, the "Guidelines for the Construction of National Vehicle Networking Industry Standard System (Intelligent Networked Vehicles)" was released.