Loading summary
Transcript22 lines
- [00:00]
A
In case you missed it today, we're bringing you a special encore release of a recent episode. We'll be back tomorrow with a brand new episode. 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.
- [00:16]
B
And I'm Tim Shao, Greater China Auto Analyst.
- [00:20]
A
Today, how the global auto industry is evolving from horsepower to brain power with the help of of AI it's Thursday, August 21st at 9am in New York.
- [00:32]
B
And 9pm in Hong Kong.
- [00:36]
A
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% of vehicles sold globally by 2030 will be equipped with Level 2 plus Smart Dr. Features that can control steering, acceleration, braking and even some hands off driving. We expect China to account for 60% of these vehicles by 2030. What's driving this rapid adoption in China and how does it compare to the rest of the world?
- [01:13]
B
China has the largest EV market globally and the countries the EV sales are not only making up over 50% of the new car sales locally in China, but but also accounting for over 50% of 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 serves as the most effective means. This, together with the AI breakthrough enables China to aggressively roll out level two urban navigation on autopilot. In the meantime, Chinese government support and cost competitive supply chain also help. So we are looking for China's adoption of level 2 plus smart driving on passenger vehicle to reach 25% by end of this year and 60% by 2030 versus 6% and 17% for the rest of the world during the same period.
- [02:13]
A
How is China balancing an aggressive rollout with safety and compliance, especially as it moves towards even greater vehicle automation going forward?
- [02:22]
B
Right, that's a great and 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 approved several auto OEMs to roll out level 3 pilot programs in 2023. Although China has been implementing stricter requirements since early this year, for example banning the terms like autonomous driving and advertisement and requiring stricter testing, we still believe more detailed industry standard and regulatory measures with facilitated development and adoption of level 2 smart driving and this is important to prevent the bad money from driving out goods.
- [03:15]
A
One way people might encounter this technology is through robo taxis. Robo taxis 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?
- [03:30]
B
The size of level 4 plus or robo taxi fleet stays most at the moment in China with less than 1% penetration rate. But we've started seeing accelerating rollout of robotaxi operation in major cities since earlier this year. So by 2030, we're looking for level four robotaxis to account for 8% of China's total taxi and ride sharing fleet size by 2030. So this adoption is facilitated by robust regulatory frameworks, including designated tester 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, we. What are the biggest global revenue opportunities in your view? Is it going to be hardware, software or something else?
- [04:37]
A
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 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, 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.
- [06:16]
B
We are seeing OEMs pivot from cars to human noise and the electric vertical takeoff and the landing vehicles or even evotos. Our listeners may have seen videos of these vehicles which are like helicopters and are designed for open air mobility. How realistic is this transition and what's the timeline for commercialization in your view?
- [06:41]
A
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 robo taxis and level 2, level 3, level 4 plus autonomy is directly transferable to aviation. There's obviously different regulatory and safety aspects of aviation, 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 a few tens of thousands of commercial and private aircraft that exist today.
- [07:54]
B
The other key question 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 might just mention the sheer mobility and 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?
- [08:24]
A
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 our relationship with the 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 your 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 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 a two to three or three to five year view can take steps today to adjust their portfolios and position themselves.
- [09:59]
B
The other key focuses of the investor or 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 cooperation and how do you see this dynamic playing out, especially in terms of the tech deflation?
- [10:23]
A
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 US factories on US 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 know how 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 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.
- [11:36]
B
I'll say it's clear that the road ahead isn't just smarter, it's faster, more connected and increasingly autonomous.
- [11:46]
A
That's correct. Tim, I could not agree more. Thanks for joining me on the show today.
- [11:50]
B
Thanks ad and always a pleasure and to our listeners.
- [11:54]
A
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.
- [12:09]
C
The preceding content is informational only and based on information available when created. It is not an offer or solicitation nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.