Alibaba and the e-car treasure: The tech giant wants a piece of the pie

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Episode seven of a ten-part series in which heise/Autos looks at the Chinese car market. There, Chinese electric car producers - some of them strongly supported by the so-called Communist Party - are just warming up in order to soon roll up the domestic and international markets with a lot of momentum and a colorful bouquet of state-of-the-art cars. This is likely to have consequences for German car manufacturers, whose largest single global market has been China for several years.

On the one hand, this will foreseeably change the picture on German and European roads, but it will also have repercussions for German producers and their sales in China, the world's largest single market.

It's the sheer size that amazes at tech giant Alibaba. When the group went public in 2014, it raised $21.8  billion. More than Google, Facebook and Twitter combined when they went public. When investor Yahoo decided to sell its eleven percent stake in 2019, that flushed 40 billion U.S. dollars into its coffers. Alibaba is now represented in almost all areas of Chinese online commerce. Now the group is smelling profits in the automotive sector - and is pushing into this niche.

Alibaba is a household name for many Europeans. It is something like the Amazon of China, but much more. For example, Alibaba also has its own payment system, Alipay. Customers of the subsidiary Ant Financial can do online banking or apply for microloans. This company alone is considered the world's most valuable start-up, with a company value of around 150 billion US dollars. In addition, there are subsidiaries that offer online card services, cloud computing and online auctions. In short, Alibaba is one of the most powerful tech giants in the world.

A tech giant seeks new profits

This giant wants to enter the automotive industry, because the advance of electric cars, increasing digitization and connectivity are opening up completely new value creation opportunities here. The traditional manufacturers simply lack the know-how to exploit them. Enormous investments would be needed for Volkswagen, BMW or Mercedes to be able to compete on equal terms with Alibaba in the software sector. VW is trying it with Cariad. So far, at least, the success has been quite manageable.

Speaking to the newsletter service Table.Media, market observer Ferdinand Dudenhöffer summed it up this way: "Car manufacturers can think twice about how they want to enter this new world. Some claimed they can acquire the competencies on their own. Others prefer to buy them in because the investment and learning costs are relatively high."

German manufacturers cooperate with Alibaba

German manufacturers are currently trying to do both. Both BMW and Volkswagen have Alibaba in their cars. At BMW, the aim is to provide support for connectivity. The two companies also jointly operate a technology center in Shanghai. The aim is to discover promising start-ups that could help BMW bring innovative products to market. Or Alibaba, for that matter. At Volkswagen, Alibaba is helping with autonomous driving and also connectivity. The collaborations have all only come into being since 2019.

Alibaba has been working with SAIC since 2016. Some vehicles run Alibaba's YunOS operating system and are equipped with Alibaba's digital and intelligent map material. In addition, there are cameras and software for voice control and connectivity. In addition, Alibaba has partnered with SAIC to create the IM Motors brand, a manufacturer of premium electric sedans and SUVs. In addition, the tech giant has stakes in countless companies, all of which work as suppliers in the automotive industry. From the software company DeepRoute, which produces artificial intelligence for autonomous driving, to navigation and map providers.

Digitalization business worth billions

Increasing digitization has transformed the car market in China. "The market for e-cars is at a point where other arguments count for customers. Above all, the software and connectivity solutions. These can be played out favorably across all vehicles and model series," Alexander Will, Senior Expert at McKinsey in Shanghai, explains to Table.Media, for example. This is a huge market opportunity for Alibaba. The business could work in such a way that customers buy a (cheap) car and add individual functions as needed. Heated seats only in winter, navigation only for vacation trips, and autonomous driving only for a long haul business trip.

Dennis Schwedhelm, Senior Expert at the McKinsey Center for Future Mobility, explains: "On the one hand, this is about additional revenue, for example through entertainment or insurance, and on the other hand about cost savings, for example through predictive maintenance of vehicles. Our estimate is that there's a triple-digit billion amount of value in this area by the end of the decade that can be realized by more than just automakers." But that requires software that can be played out across all model ranges. And computing power that won't be overwhelmed in a few years when several updates have been applied.

(fpi)