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Key assisted driving equipment costs 20-40% lower in

China:

study

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BYD, others offer advanced driver-assistance as standard

feature

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Tesla charges 64,000 yuan (nearly $9,000) for FSD in China

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BYD's scale seen as advantage in 'training' assisted

driving

system

By Norihiko Shirouzu

AUSTIN, Texas June 10 (Reuters) - Chinese

electric-vehicle makers led by BYD beat Tesla in the

competition to produce affordable electric vehicles. Now, many

of those same fierce competitors are pulling into the passing

lane in the global race to produce self-driving cars.

BYD shook up China's smart-EV industry earlier this year by

offering its "God's Eye" driver-assistance package for free,

undercutting the technology Tesla sells for nearly $9,000 in

China.

"With God's Eye, Tesla's strategy starts to fall apart," said

Shenzhen-based BYD investor Taylor Ogan, an American who has

owned several Teslas and driven BYD cars with God's Eye, which

he called more capable than Tesla's "Full Self-Driving" (FSD).

It's not just BYD. Other Chinese auto and tech

companies are offering affordable EVs with FSD-like technology

for a relative pittance. China's Leapmotor and Xpeng ( XPEV ), for

instance, offer systems capable of highway and urban driving in

$20,000 vehicles. A slew of Chinese firms are chasing the same

technology, an industry push backed by China's government.

BYD's assisted-driving hardware costs are far lower than

Tesla's, according to analyses performed for Reuters by

companies that dismantle and analyze vehicles for automakers.

The comparisons, which have not been previously reported, show

that BYD's costs to procure components and build a system with

radar and lidar are about the same as Tesla's FSD, which doesn't

have such sensors. That undercuts Tesla's unusual technological

approach, which aims to save costs by nixing such sensors and

relying solely on cameras and artificial intelligence.

The rising competition from Chinese smart-EV players is among

the chief problems confronting Tesla CEO Elon Musk after his

rocky tenure as a Trump administration advisor as he refocuses

on his business empire - as Tesla vehicle sales are tanking

globally. The stakes are made higher by a moment-of-truth

challenge this month in Tesla's home base of Austin, Texas,

where it plans to launch a robotaxi trial with 10 or 20 vehicles

after a decade of Musk's unfulfilled promises to deliver

self-driving Teslas.

Tesla did not respond when reached for comment about its

Chinese competitors. Previously, Musk has described Chinese car

companies as the most competitive in the world.

Chinese competition was one factor driving Tesla's strategic

pivot away from mass-market EVs last year, when Reuters reported

it had killed plans to build an all-new EV expected to cost

$25,000. Musk has since staked Tesla's future instead on

self-driving robotaxis, the hopes for which now underpin the

vast majority of the automaker's stock-market value of

roughly $1 trillion.

Now Tesla faces the same stiff competition on vehicle autonomy

from many of the same Chinese automakers who undercut its

affordable-EV plans. Adding to the challenge are tech firms

including Chinese smartphone giant Huawei, which supplies

autonomous-driving technology to major Chinese automakers. Short

of full autonomy, today's driver-assistance systems offer a

critical competitive edge in China, the world's largest car

market, where Tesla sales are falling amid a protracted price

war among scores of homegrown EV brands.

Tesla is further handicapped by China's regulations preventing

it from using data collected by Tesla cars in China to train the

artificial intelligence underpinning FSD. Tesla has been

negotiating with Chinese officials, so far without success, to

get permission to transfer such data back to the United States

for analysis.

Tesla's competitors in China do benefit from subsidies and other

forms of policy support from Beijing for advanced assisted

driving technology. Their advantages also stem from another

consequential factor: cut-throat smart-EV competition that has

characterized their industry over the past decade. The resulting

EV boom created economies of scale and the industry's tendency

to forgo some profit margins to expand new technologies' market

penetration quickly, leading to lower manufacturing costs.

STREETS OF SHENZHEN

BYD investor Ogan, of Shenzhen-based Snow Bull Capital, has

a front-row seat to China's autonomous-tech battleground. He

recently drove several BYD models equipped with God's Eye, he

said, and didn't have to take over driving in any of them while

traveling the congested streets of Shenzhen, a bustling southern

China megalopolis of 18 million people.

Another notable smart-EV player in China is Huawei, experts

say.

Huawei lends its technology and branding to a half dozen

automakers including heavyweights Chery, SAIC and Changan, and

has lower-profile partnerships with more than a dozen other

carmakers, Huawei representatives said.

Reuters journalists rode in an Aito M9 - a luxury electric

SUV from Seres with Huawei driver-assistance technology - as it

navigated Shenzhen roadways in April. With a driver's hands off

the wheel, the vehicle exited a highway seamlessly into a

congested urban zone, where the M9 proceeded cautiously and

slowed to a crawl as a construction worker appeared like he

might walk into the roadway. At one point the vehicle turned

right and slowly drifted left to avoid two men unloading boxes

from a parked truck. The vehicle then parallel parked itself at

Huawei's Shenzhen headquarters.

Huawei was among several Chinese companies, including

automakers Zeekr, Changan and Xpeng ( XPEV ), that touted progress

towards fully-autonomous cars at April's Shanghai auto show,

even as Beijing announced a new marketing crackdown on terms

such as "smart" and "intelligent" driving in the wake of a

deadly crash in a Xiaomi vehicle involving driver-assistance

technology.

Huawei said it's ready to undergo a new validation regime

being developed by Chinese regulators to certify so-called Level

3 driving systems, meaning they are capable enough to allow

drivers to look away unless notified by the system to take over.

Zeekr, a luxury brand of China auto giant Geely, also plans to

soon sell cars with Level 3 systems.

Tesla has yet to release such an "unsupervised" version of

FSD because its technology needs more training to operate

without a driver's hands on the wheel and eyes on the road.

Tesla plans to launch self-driving robotaxis in Austin this

month. Little is known about its plans. The company has said it

aims to initially deploy between 10 and 20 fare-collecting

driverless robotaxis in restricted geographic areas of the city,

which Tesla has not publicly identified.

'GOD'S EYE' ON THE CHEAP

Chinese EV makers are moving quickly to develop

driver-assistance systems in a market where car-buyers are

demanding them at a faster pace than in other regions, analysts

say. Their ability to do so at lower costs poses the biggest

threat to Tesla's new autonomy-based business model.

BYD buyers can get an FSD-comparable version of God's Eye as

a standard feature in cars priced at about $30,000. The cheapest

FSD-equipped Tesla in China is a Model 3 selling for about

$41,500.

According to an analysis by A2MAC1, a Paris-based tear-down

firm that benchmarks components, the mid-level God's Eye version

most comparable to Tesla's FSD runs on an Nvidia computing chip

with data collected through 12 cameras, five radars, 12

ultrasonic sensors, and one lidar sensor, at a cost of $2,105.

That compares to $2,360 for Tesla's FSD, which uses cameras

without sensors and two AI chips, the firm estimates.

Cameras, radar and ultrasonic sensors are 40% cheaper in

China than comparable devices in Europe and the United States,

A2MAC1 estimates. Lidar sensors cost about 20% less, the firm

says. Sensor costs have fallen because China's EV boom created

economies of scale, said A2MAC1 engineer Elena Zhelondz. The

fierce competition also pushed carmakers and suppliers to accept

lower profits on driver-assistance equipment, she said.

BYD's 22% gross margin will likely fall as it gives away

God's Eye but it will benefit from a vehicle-sales boost, said

Chris McNally, head of global automotive and mobility research

for advisory firm Evercore.

MORE CARS, MORE MILES, BETTER AI

Falling behind the Chinese brands on driver-assistance

technology would compound Tesla's challenges in China, where

it's already losing market share to rivals including BYD, which

sells an entry-level EV for less than $10,000. The growing scale

of BYD and others could also provide a technological advantage:

Racking up more miles on China roads helps train the AI

technology needed to perfect automated-driving systems.

BYD has a "clear and ongoing market-share driving advantage"

over Tesla in gathering such on-road data to refine God's Eye,

Evercore's McNally said, adding that advantage might only

increase as offering God's Eye for free helps sell more BYD

vehicles.

BYD's scale also helps lower costs by providing uncommon

leverage over suppliers. In November, a BYD executive in charge

of passenger-vehicle operations wrote to suppliers telling them

that the automaker sold 4.2 million vehicles last year (more

than double the number of Teslas sold) because of "technical

innovation, economies of scale, and a low-cost supply chain."

The executive noted the new year would likely bring more growth,

but also fiercer competition. Without specifically mentioning

God's Eye, he ended the letter by asking the suppliers for an

across-the-board 10% price cut on all parts and systems starting

on January 1, calling the new year a final "knockout round."

(Reporting by Norihiko Shirouzu in Austin. Additional reporting

by Chris Kirkham in Los Angeles and Zoey Zhang in Shanghai.

Editing by Mike Colias, Brian Thevenot and Anna Driver.)