What if your next drivers were Chinese robots?

What happened

On 10 February, BYD unveiled its "God's Eye" advanced driving assistance system (ADAS), something competitor Tesla improperly markets as an "autopilot". The system will feature three different tiers:

• The entry-level (God's Eye variant C) relies on 12 cameras and 17 radar sensors. Available on all BYD-branded vehicles, including the CNY70'000 Seagull, it will work only on highways.
• The mid-level (variant B) integrates also one lidar sensor and will enable city driving. It will be mostly available on premium brands Denza and Fang Cheng Bao.
• The top level (variant A) will be available for BYD's luxury Yangwang brand. It integrates 3 lidar sensors on top of the cameras and radar sensors, and comes with significant more computing power.

Each variant will be powered by an architecture called "Xuanji", featuring a common arrangement of hardware, both cloud and local AI capabilities, networking, data capture, sensors, and actuation systems. This architecture will connect to DeepSeek R1 to improve its capabilities, demonstrating the intrications and the power of the Chinese tech ecosystem.

Impact on our Investment Case

China tech strikes again

Only a few weeks after the DeepSeek announcement, which sent shockwaves through the AI hardware ecosystem, China strikes again and surprises the world. BYD’s founder notably claimed that the system was able to achieve over 1’000 kilometers of autonomous driving without human intervention, as well as a 99% success rate when used to park autonomously. These claims will, of course, need to be verified by independent testing, but are, on paper, quite impressive. Even more impressive is the claim that the mid and top tiers can drive in cities, something that the current state-of-the-art system, deployed by Mercedes Benz Group, cannot do, being limited to level 3 assistance (conditional automation, i.e., the driver must be able to assume control when prompted) on highways.

Efficiency as the mother of all battles

As with DeepSeek, the major breakthrough is materialized by the large cost optimization compared to cutting-edge solutions developed in Western economies. As mentioned above, the state-of-the-art technology available to consumers is sold by a premium carmaker, Mercedes. If BYD’s claims are verified, an entry-level car would be able to match these capabilities, which is an impressive feat.

Self-proclaimed autonomous driving champion, Tesla, is miles behind. Its technology is limited to level 2 autonomy, i.e., it requires the driver’s constant vigilance and attention. More importantly, the company is desperately trying to reduce the cost of its system, going as far as cutting all sensors but cameras – to not much avail, since the latest earnings showed that gross margins seemed to have found a ceiling.

Although BYD’s technology may suffer from the same kind of problems on entry-level vehicles, it managed to pack an impressive amount of hardware on a tight budget and appears to have beaten Tesla at its own game. In this regard, both BYD and Tesla’s valuations will probably have to adjust to reflect this new reality, which might prove unpleasant for the latter’s shareholders.

Fighting on all fronts

Tesla is trying to find solace out of the consumer market, having largely focused the narrative on its incoming robotaxis. However, the company is facing the presence of Alphabet’s Waymo, which has been steadily developing its technology for over a decade and has already launched commercial services in some major cities (e.g., Los Angeles, San Francisco).

Furthermore, another Chinese heavyweight has also been playing the long game in this segment: Baidu. The company has been steadily developing similar services in China on top of its Apollo platform, and is following the familiar cost-optimization playbook, with its sixth generation of robotaxi reportedly costing CNY200’000, i.e., less than the public price of Waymo’s vehicles before the costly modifications necessary to enable autonomous driving features.  

Our Takeaway

Geopolitical games will probably prevent BYD and Baidu from becoming successful in the U.S. But both companies have demonstrated the use of a common playbook to achieve technology breakthroughs that may enable commercial dominance in the rest of the world. At the very least, the Chinese technology ecosystem can no longer be ignored. Our lasting conviction is that it is clearly underestimated and undervalued, offering an appealing investment opportunity. Chinese equities account for an average of ~8% across our strategies, with a peak at ~30% for our Sustainable Future strategy. BYD and Baidu are, respectively, long-term holdings of our Sustainable Future and AI & Robotics strategies. BYD also takes a prominent place in our latest China-focused strategy, which aims to capitalize on this conviction fully by replicating a proprietary Chinese technology index leveraging our knowledge in the field and our investment process.