From China’s rapid electric vehicle adoption to the rise of
robotaxis, humanoids, and flying vehicles, our analysts Adam
Jonas and Tim Hsiao discuss how AI is revolutionizing the global
auto industry.
Read more insights from Morgan Stanley.
----- Transcript -----
Adam Jonas: Welcome to Thoughts on the
Market. I'm Adam Jonas. I lead Morgan Stanley's Research
Department's efforts on embodied AI and humanoid robots.
Tim Hsiao: And I'm Tim Hsiao, Greater China
Auto Analyst.
Adam Jonas: Today – how the global auto
industry is evolving from horsepower to brainpower with the help
of AI.
It's Thursday, August 21st at 9am in New York.
Tim Hsiao: And 9pm in Hong Kong.
Adam Jonas: From Detroit to Stuttgart to
Shanghai, automakers are making big investments in AI. In fact,
AI is the engine behind what we think will be a $200 billion
self-driving vehicle market by 2030. Tim, you believe that nearly
30 percent of vehicles sold globally by 2030 will be equipped
with Level 2+ smart driving features that can control steering,
acceleration, braking, and even some hands-off driving. We expect
China to account for 60 percent of these vehicles by 2030.
What's driving this rapid adoption in China and how does it
compare to the rest of the world?
Tim Hsiao: China has the largest EV market
globally, and the country’s EV sales are not only making up over
50 percent of the new car sales locally in China but also
accounting for over 50 percent of the global EV sales. As a
result, the market is experiencing intense competition. And the
car makers are keen to differentiate with the technological
innovation, to which smart driving serve[s] as the most effective
means. This together with the AI breakthrough enables China to
aggressively roll out Level 2+ urban navigation on autopilot. In
the meantime, Chinese government support, and cost competitive
supply chains also helps.
So, we are looking for China's the adoption of Level 2+ smart
driving on passenger vehicle to reach 25 percent by end of this
year, and 60 percent by 2030 versus 6 percent and 17 percent for
the rest of the world during the same period.
Adam Jonas: How is China balancing an
aggressive rollout with safety and compliance, especially as it
moves towards even greater vehicle automation going
forward?
Tim Hsiao: Right. That's a great and a
relevant question because over the years, China has made
significant strides in developing a comprehensive regulatory
framework for autonomous vehicles. For example, China was already
implementing its strategies for innovation and the development of
autonomous vehicles in 2022 and had proved several auto OEM to
roll out Level 3 pilot programs in 2023.
Although China has been implementing stricter requirements since
early this year; for example, banning terms like autonomous
driving in advertisement and requiring stricter testing, we still
believe more detailed industry standard and regulatory measures
will facilitate development and adoption of Level 2+ Smart
driving. And this is important to prevent, you know, the bad
money from driving out goods.
Adam Jonas: One way people might encounter
this technology is through robotaxis. Now, robotaxis are gaining
traction in China's major cities, as you've been reporting.
What's the outlook for Level 4 adoption and how would this
reshape urban mobility?
Tim Hsiao: The size of Level 4+ robotaxi
fleet stays small at the moment in China, with less than 1
percent penetration rate. But we've started seeing accelerating
roll out of robotaxi operation in major cities since early this
year. So, by 2030, we are looking for Level 4+ robotaxis to
account for 8 percent of China's total taxi and ride sharing
fleet size by 2030. So, this adoption is facilitated by robust
regulatory frameworks, including designated test zones and the
clear safety guidance. We believe the proliferation of a Level 4
robotaxi will eventually reshape the urban mobility by
meaningfully reducing transportation costs, alleviating traffic
congestion through optimized routing and potentially reducing
accidents.
So, Adam, that's the outlook for China. But looking at the global
trends beyond China, what are the biggest global revenue
opportunities in your view? Is that going to be hardware,
software, or something else?
Adam Jonas: We are entering a new
scientific era where the AI world, the software world is coming
into far greater mental contact, and physical contact, with the
hardware world and the physical world of manufacturing. And it's
being driven by corporate rivalry amongst not just the terra cap,
you know, super large cap companies, but also between public and
private companies and competition. And then it's being also
fueled by geopolitical rivalry and social issues as well, on a
global scale. So, we're actually creating an entirely new
species. This robotic species that yes, is expressed in many ways
on our roads in China and globally – but it's just the
beginning.
In terms of whether it's hardware, software, or something else –
it’s all the above. What we've done with a across 40 sectors at
Morgan Stanley is to divide the robot, whether it flies, drives,
walks, crawls, whatever – we divide it into the brain and the
body. And the brain can be divided into sensors and memory and
compute and foundational models and simulation. The body can be
broken up into actuators, the kind of motor neuron capability,
the connective tissue, the batteries. And then there's
integrators, that kind of do it all – the hardware, the software,
the integration, the training, the data, the compute, the energy,
the infrastructure. And so, what's so exciting about this
opportunity for our clients is there's no one way to do it.
There's no one region to do it.
So, stick with us folks. There's a lot of – not just revenue
opportunities – but alpha-generating opportunities as well.
Tim Hsiao: We are seeing OEMs pivot from
cars to humanoids and the electric vertical takeoff in the
landing vehicles or EVOTL. Our listeners may have seen videos of
these vehicles, which are like helicopters and are designed for
urban air mobility. How realistic is this transition and what's
the timeline for commercialization in your view?
Adam Jonas: Anything that can be
electrified will be electrified. Anything that can be automated
will be automated. And the advancement of the state of the art in
robotaxis and Level 2, Level 3, Level 4+ autonomy is directly
transferrable to aviation. There's obviously different
regulatory and safety aspects of aviation, the air traffic
control and the FAA and the equivalent regulatory bodies in
Europe and in China that we will have to navigate, pun intended.
But we will get there. We will get there ultimately because
taking these technologies of automation and electronic and
software defined technology into the low altitude economy will be
a superior experience and a vastly cheaper experience. Point to
point, on a per person, per passenger, per ton, per mile
basis.
So the Wright brothers can finally get excited that their
invention from 1903, quite a long time ago, could finally,
really change how humans live and move around the surface of the
earth; even beyond, few tens of thousands of commercial and
private aircraft that exist today.
Tim Hsiao: The other key questions or key
focus for investors is about the business model. So, until now,
the auto industry has centered on the car ownership model. But
with this new technology, we've been hearing a new model, as you
just mentioned, the shared mobility and the autonomous driving
fleet. Experts say it could be major disruptor in this sector.
So, what's your take on how this will evolve in developed and
emerging markets?
Adam Jonas: Well, we think when you take
autonomous and shared and electric mobility all the way – that
transportation starts to resemble a utility like electricity or
water or telecom; where the incremental mile traveled is maybe
not quite free, but very, very, very low cost. Maybe only; the
marginal cost of the mile traveled may only just be the energy
required to deliver that mile, whether it's a renewable or
non-renewable energy source.
And the relationship with a car will change a lot. Individual
vehicle ownership may go the way of horse ownership. There will
be some, but it'll be seen as a nostalgic privilege, if you will,
to own our own car. Others would say, I don't want to own my own
car. This is crazy. Why would anyone want to do that?
So, it's going to really transform the business model. It will, I
think, change the structure of the industry in terms of the
number of participants and what they do. Not everybody will win.
Some of the existing players can win. But they might have to make
some uncomfortable trade-offs for survival. And for others,
the car – let’s say terrestrial vehicle modality may just be a
small part of a broader robotics and then physical embodiment of
AI that they're propagating; where auto will just be a really,
really just one tendril of many, many dozens of different
tendrils. So again, it's beginning now. This process will take
decades to play out. But investors with even, you know,
two-to-three or three-to-five-year view can take steps today to
adjust their portfolios and position themselves.
Tim Hsiao: The other key focus of the
investor over the market would definitely be the geopolitical
dynamics. So, Morgan Stanley expects to see a lot of what you
call coopetition between global OEMs and the Chinese suppliers.
What do you mean by coopetition and how do you see this dynamic
playing out, especially in terms of the tech deflation?
Adam Jonas: In order to reduce the United
States dependency on China, we need to work with China. So,
there's the irony here. Look, in my former life of being an auto
analyst, every auto CEO I speak to does not believe that tariffs
will limit Chinese involvement in the global auto industry,
including onshore in the United States.
Many are actively seeking to work with the Chinese through
various structures to give them an on-ramp to move onshore
to produce their, in many cases, superior products, but in U.S.
factories on U.S. shores with American workers. That might lead
to some, again, trade-offs.
But our view within Morgan Stanley and working with you is we do
think that there are on-ramps for Chinese hardware, Chinese
knowhow, and Chinese electrical vehicle architecture, but while
still being sensitive to the dual-purpose AI sensitivities
around software and the AI networks that, for national
security reasons, nations want to have more control over. And I
actually am hopeful and seeing some signs already that that's
going to happen and play out over the next six to 12
months.
Tim Hsiao: I would say it's clear that the
road ahead isn't just smarter; it’s faster, more connected, and
increasingly autonomous.
Adam Jonas: That's correct, Tim. I could
not agree more. Thanks for joining me on the show
today.
Tim Hsiao: Thanks, Adam. Always a
pleasure.
Adam Jonas: And to our listeners, thanks
for listening. Until next time, stay human and keep driving
forward. If you enjoy Thoughts on the Market, please leave
us a review wherever you listen and share the podcast with a
friend or colleague today.
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