SHENZHEN, March 20 (Reuters) - The chief executive of Chinese autonomous drive startup ZYT says the AI system his company is about to debut is already a better driver than he is on the crowded streets of Shenzhen.

ZYT, a spin-off from Chinese drone maker DJI, will demonstrate what it calls a "mobility foundation model" at the Beijing auto show in April. It's a system CEO Shen Shaojie, 39, describes as a cost-saving departure from the way autonomous drive systems have been built and trained.

Rather than relying on dedicated "modules" to detect cars, pedestrians or traffic lights and training a system based on the geography and traffic patterns of a particular market, the ZYT model can work out how to drive on its own, Shen said in an interview with Reuters.

In addition to video from road driving, Shen said the "foundation" AI system was fed video from drones, robots, household vacuum cleaners, motorcycles and even people carrying a moving camera.

That gives it the ability to operate across vehicle types and geographies in ways that conventional systems tuned for specific road types and conditions cannot, he said. It could also make it useful for controlling the movement of future autonomous robots or other devices.

The rollout comes as China embarks on an effort to embed AI in every corner of its economy under a push by Xi Jinping to develop "new productive forces" that provide a counter to U.S. efforts to limit technologies that also have potential military applications. It also underscores the fast-moving competition to develop AI-powered driving systems by Tesla and a range of Chinese automakers and suppliers, including Xpeng ( XPEV ).

DJI, which retains a stake in ZYT through an affiliate, has been operating under U.S. sanctions because of what U.S. agencies have described as national security concerns.

ZYT's rivals include Huawei's smart driving unit and Momenta. The start-up is vying for the fast-developing market for AI-powered driving, where it also faces competition from Xpeng ( XPEV ) and Tesla among others.

While the technology landscape is changing quickly, "if you can get six months of advantage, that's already a huge thing," Shen said.

ZYT is targeting a Hong Kong listing as early as 2027, Shen said, as it seeks to capitalise on a string of commercial partnerships, including in China's trucking market, and a recent major investment from state-owned automaker FAW Group. "The potential quickest is somewhere sometime 2027," Shen told Reuters.

'WE DON'T KNOW WHAT THE CAR IS THINKING'

The new ZYT AI already outperforms him behind the wheel, Shen said, including navigating narrow roads with oncoming traffic and children near schools in Shenzhen.

"It actually drives better than me," he said.

When he took a test drive, his engineers also delivered a stark reminder of how different it is. "We don't know what the car is thinking," they told him, a sign of how advanced the latest versions of AI had become.

"The model is thinking in its own internal brain."

Shen said ZYT has partnerships with five of the six largest Chinese truck manufacturers, a group that controls more than 98% of the domestic market. In January, the company announced plans for highway-based truck driving systems with three Chinese truck makers, XCMG, SHACMAN and SINOTRUK in the first half of this year.

ZYT's AI model trained on passenger car data was adapted for heavy-duty trucks in about six weeks.

The truck business, Shen said, offers a more compelling financial case than passenger cars because advanced driving systems can generate immediate savings. The ZYT system, for example, he said, can deliver "low single-digit (percentage) savings" on fuel.

Late last year, automaker FAW Group bought a 35.8% stake in ZYT from New Territory, a DJI-linked holding company that retains 34.85% ownership. Shen said the transaction would resolve any compliance issues for customers outside China, because it was no longer majority owned by the drone maker. FAW now owns the largest stake in ZYT.

WORKING ON CHEAPER CHIPS FOR CARS

ZYT's foundation model currently runs on expensive, high-powered computing hardware of the kind found in robotaxis and prototypes, not mass-market cars. ZYT is working to compress it to run on cheaper, mass-market chips, work Shen said is "still ongoing." The first passenger car to use the system is expected in 2027, he said.

VW, whose China partner is FAW, was ZYT's first customer. Xpeng ( XPEV ) is also a VW partner for driving systems with its VLA 2.0 system.

ZYT has established an engineering and compliance presence near Volkswagen's Wolfsburg headquarters, where it has been testing a prototype from FAW's Hongqi brand on European roads.

The United States is not on ZYT's roadmap. "We will keep ourselves away from the market at this moment," Shen said. "The rest of the world is already picking up."