Audi Turns to Connected Cars in China

May 25, 2015

German luxury-auto maker Audi AGis betting on connected cars in China to attract and keep customers as demand for high-end cars wanes.

The company on Sunday unveiled its latest offerings, including the world premiere of a concept supercar, the Audi R8 e-tron, that features autonomous-driving technology the company says will free up drivers to browse the Internet while in transit.

China is expected to be a significant market for high-end cars equipped with such technology, the company said.

“The connected car is a must,” Rupert Stadler, Audi’s chief executive, said Sunday evening at an event ahead of the CES Asia consumer-electronics show.

Audi on Friday announced plans to integrate Baidu Inc.’s CarLife technology in cars sold in China and to develop a high-speed data module with Huawei Technology Co.

Mr. Stadler said Audi would roll out its connectivity strategy in China “very heavily” this year, adding that he was convinced it would be a crucial factor in building market share.

China is Audi’s largest market. Last year, it sold nearly 580,000 cars there, up almost 18% from the previous year. In the first four months of this year, growth in demand for Audis in China fell to 5.2%, which was slightly greater than growth in the broader premium segment.

Dietmar Voggenreiter, the president of Audi China, said Sunday that the economic downturn, and especially the flat real-estate market, were “heavily influencing” the premium auto market, but he added that he had confidence in the long-term potential of the luxury-car market in China.

The ability to respond fast to Chinese consumers’ demands, including for connected cars, will be important for success, Mr. Voggenreiter said.

China also has one of the world’s highest rates of connected mobile devices, with more than 500 million smartphone users.

Chinese car buyers also tend to be younger than those in more mature markets. The average age of an Audi driver in China is 36 years. By contrast, average customers in the U.S. and Europe are in their 50s.

“That means new developments like technologies are exactly right to launch, to test out, to sell here in China,” said Michael-Julius Renz, president of the Audi sales division of parent Volkswagen AG’s Chinese joint venture with FAW Group. “Here, China could be the benchmark for the rest of the world,” he added.

Challenges unique to driving in China may accelerate development of such technologies in comparison with other markets.

For example, China suffers from some of the worst congestion and pollution in the world. Ford Motor Co.’s China chief, John Lawler, said such “pain points” will spur demands for connectivity in China. “Necessity drives innovation,” he said.

Audi’s Mr. Stadler said because of traffic congestion in Shanghai some drivers could spend two hours a day stuck in traffic. “With piloted driving, we give them that time to make use of and this is important,” he said.

Chinese consumers also appear more willing than buyers in other top car markets to switch brands in search of better connectivity. A survey by consultancy McKinsey & Co. found that about 40% of Chinese car buyers would be willing to switch car brands if another offered an important connectivity feature exclusively,—twice the global average.

Audi faces competition from other luxury brands wooing Chinese through digital offerings.

BMW AG’s ConnectedDrive can run popular Chinese third-party applications such as music apps Baidu Ting and Douban FM, as well as popular social apps such as Sina Weibo.

In April, luxury-sports-car maker Aston Martin Lagonda Ltd. announced a tie-up with Chinese online entertainment company Letv as part of the British company’s broader push to incorporate high-end Chinese technology into its vehicles.

Chinese car companies and others from outside the automotive industry are also in the connected car race.

SAIC Motor Corp., China’s largest car maker by sales, and e-commerce company Alibaba Group Holding Ltd.jointly set up a one billion yuan, or roughly $160 million, fund to develop connected cars in March.

Baidu, has said it is developing its own systems that would automate some parts of driving, such as parking. Internet company Tencent Holdings Ltd.is teaming up with Taiwan’s Hon Hai Precision Industry Co., also known as Foxconn Technology Group, and a Chinese partner to produce smartcars.

Companies such as Shanghai-based Pateo Group Co., a wireless communications and car-connectivity provider, have set out to produce a Chinese-made smartcar. Dubbed Project N, the company is looking to start commercial production in 2018, with an expected price range of 350,000 yuan to 600,000 yuan.

Paul Gao, head of McKinsey’s automotive team in Asia, said that given the mobile-penetration rate in China and its very different social-media landscape, Chinese customers have different expectations for connected cars and foreign solutions may not work in that market. He said China will account for between 20% to 30% of an estimated €180 billion ($198 billion) car-connectivity market by the end of this decade.

Compared with foreign auto makers, Mr. Gao said Chinese companies tend to be a lot faster in coming out with products, which they update frequently. “I definitely do not believe foreign car makers are ahead—at least not by much,” he said.

Source: The Wall Street Journal