Tencent Holdings signed a preliminary agreement with Hyundai Motor to jointly develop autonomous vehicles, according to Qubit.

The cooperation between the two parties is to mainly focus on autonomous vehicle safety and security system development. Hyundai commented that the goal is to develop an autonomous car in 2030. In addition, Tencent plans to explore how it can use WeChat data to develop sufficient models for China.

Tencent highlights three technical capabilities regarding their autonomous vehicles: high precision map, simulation, and data cloud services. While the Internet giant has had strategic cooperation with numerous domestic car manufacturers in the past such as FAW and Geely, it has added a strong player in the automotive industry with its collaboration with Hyundai.

As a new competitor enters this market, how will domestic auto companies, particularly NIO generally fare against this new competitor?

Advance in R&D

According to Deloitte’s 2018 China Domestic Auto Brand White Paper report, domestic auto brands “have made huge breakthroughs in R&D.” NIO Inc., a Tencent-backed Chinese electric car start-up, increased their R&D spending by approximately 54% from 2017 to 2018.

Back in December 2018, Reuters reported that Hyundai Motor’s two R&D vice chairmen offer to resign. This was another obstacle in addition to Hyundai’s “plunge in sales, profits and its share price.”

However, the Seoul-based company announced its plan to “spend approximately USD 40 billion in R&D over the next five years.” The money would be put towards vehicle manufacturing and areas with growth potentials such as mobility services, vehicle electrification, and autonomous driving technology.

According to Deloitte’s report, Chinese auto brands are cautious about shared mobility despite being an important sales channel for new energy vehicles in the future. As this will ultimately “change demand for vehicle R&D and design,” perhaps NIO would gain a competitive advantage against other domestic car companies if they allocated a significant portion of their R&D spending to researching and judging the impact of these sales channels.

Narrow the Quality Gap

As market competition shifts from product to brand, it’s becoming increasingly important to narrow the quality gap. Deloitte also reports that this is where domestic car companies tend to lose against foreign competitors.

As Hyundai partners with Tencent, it gains a huge advantage in gathering data to improve its future autonomous cars and logistics chain efficiency. As mentioned in Qubit, Tencent plans to exploit WeChat’s massive data collection to its advantage. With an MAU of over 1 billion users, Hyundai would undoubtedly obtain valuable information to support their future endeavours in sales and after-sales service.

NIO has formed a strategic partnership with JD Logistics, JD.com’s self-operated logistics service, to offer “delivery-to-vehicle services.” This allowed NIO vehicle owners to receive packages to their vehicle trunk. Additionally, NIO’s “Blue-Sky Alliance” aims to build a strong alliance between carmakers “to share new technologies.”

However, the alliance also extends to technology start-ups as NIO aims to increase the efficiency of its supply chain. As algorithms, big data, IoT, etc., are not yet an integral part of the autonomous driving supply chain, it’s a challenge that should be overcome first before considering after-sales service.

Fearful of Tencent and Hyundai's Partnership?

While it's still going to take some time before Tencent rolls out its first autonomous vehicle. Domestic car companies should be aware of the upcoming competition's advantages and how it plans to enhance its own resources to fight back.