Jean Liu, president of the Chinese ride-hailing service Didi Chuxing, which Google recently invested US$1 billion. Photo / Michael Short
Jean Liu, president of the Chinese ride-hailing service Didi Chuxing, which Google recently invested US$1 billion. Photo / Michael Short
Apple's unprecedented decision to throw $1 billion into a Chinese ride-hailing firm last week may seem like a head-scratcher. Why cars? And why not invest that money here in the United States?
But this move was no accident. Not only is it a sign of Apple's growing interest in transportation - a rapidly changing industry, thanks to groundbreaking technologies such as automation - but it is also a bet on a country that wants to zip past the United States in the development of the cars of the future.
China has moved with surprising speed to prepare for the next generation of automotive technology. Government officials recently unveiled a draft proposal that would let fully driverless cars onto highways by roughly 2020, and on city streets by 2025. And unlike the United States, which features a criss-crossing jumble of federal, state and local automotive regulation, China's more centralized approach to governance could allow Beijing to leapfrog Washington on the technology.
Although rates of Chinese car ownership are still a fraction of the United States' at fewer than 200 cars for every 1,000 people, the sheer size of China's population means that pollution, congestion and traffic fatalities all pose potential threats to the country's economic future.
More than 260,000 people died on Chinese roads in 2013, according to the World Health Organization, compared to 34,000 in the United States. Traffic jams in some parts of China have been known to stretch on for days; one record-setting backup in 2010 even has its own Wikipedia entry.
As rumors continue to swirl about Apple's eventual expansion into making automobiles, it will be crucial for the company to understand what the biggest car market on Earth thinks about how to get around.
Apple chief executive Tim Cook hinted at the importance of this task in an interview with Reuters on Friday - saying that the investment in Didi Chuxing, China's version of Uber, represented "a chance to learn more about certain segments of the China market."
Apple's backing of the ride-hailing company makes sense for a host of reasons.
The blossoming partnership could insulate the US tech giant from a global slowdown in iPhone sales. It may lead to even greater visibility for Apple in China, something it has spent years pursuing even as the country has frustrated other foreign tech companies. And the deal could help Apple understand how to build better online services, an area where the company has had mixed success but is increasingly exploring with ventures such as Apple Pay and Apple Music. (Besides, the vast majority of Apple's $233 billion in cash and securities is parked overseas. Investing that money in the United States would come with a hefty tax bill.)
The learnings from China can be applied here in the US and other industrialized nations.
Through the deal, Apple is expected to gain access to highly valuable data on the 11 million trips a day made through Didi. That information will be immensely useful, not only for Apple's traditional business selling phones and computers in China, but also for its attempts to design a vehicle that could someday appeal to drivers around the world, analysts say.
"This valuable data is critical to all manufacturers interested in developing a fully autonomous future," said Tony Lim, an analyst at Kelley Blue Book. "The learnings from China can be applied here in the US and other industrialized nations."
The car industry, along with tech companies such as Google and ride-hailing firms such as Uber, believes that taking human drivers out of the equation will reduce congestion and save lives. By shifting to fleets of automated vehicles, executives argue, drivers can cut down on the human error that accounts for well over 90 percent of car crashes. Virtually every major car manufacturer is researching self-driving capabilities, and some are striking partnerships with ride-hailing firms to study new forms of car usage. In the United States, General Motors has invested half a billion dollars in Lyft as part of its research into vehicle automation.
China must take the lead from the European Union, Japan and the US... And it isn't just a matter of commercial advantage.
Chinese officials in business and government are embracing driverless cars, too.
In April, the country performed its first long-distance test of two self-driving cars made by a local company, Chang'an Automobile. The cars ran on public highways, covering the nearly 1,250 miles from Chongqing to Beijing in four days. That same month, Volvo announced it would soon put as many as 100 of its prototypes on Chinese public roads.
Some of China's biggest and most popular indigenous firms, such as Baidu and Alibaba, are investing heavily in self-driving car technology. Baidu is expected to begin testing its own prototypes in the United States this year, in a challenge to Google. Chinese car companies have also been hiring engineers from Western companies, siphoning talent from the likes of Google and Daimler.
Ambitious and multifaceted as China's plans may be, it's still not enough for some Chinese automakers who want to see Beijing's regulations loosened more.
"China must take the lead from the European Union, Japan and the US," said Li Shufu, chairman of the Hangzhou-based automotive conglomerate Zhejiang Geely (which also owns Volvo), in a recent op-ed. "And it isn't just a matter of commercial advantage."
