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On August 20, due to difficulties in launching its most advanced driver assistance function in the Chinese market,TeslaIn with ChinaElectric VehiclesThe company is lagging behind in a race with local manufacturers that have begun selling vehicles that can cruise autonomously on city streets.

China is Tesla's largest market outside the United States. The company hopes that local drivers will widely use the software called "Full Self-Driving" (FSD) to achieve fully automatic driving from starting point to destination. Although the system can operate independently, the driver still needs to be ready to intervene at any time. Tesla CEO ElonMuskTesla Inc’s Elon Musk predicted last month that Chinese regulators would approve the features, which are already allowed in the United States, by the end of this year.

But according to people familiar with official thinking, the Chinese government has not yet approved Tesla's latest driving technology due to concerns about Tesla's software causing accidents in the United States and data security issues. At the same time, the company has not yet obtained permission to transfer Chinese car owner data to US servers to train its AI models. The uncertain prospects for approval have prompted Tesla to consider further investment in computer and other infrastructure in China.

At the same time, some ChinesecarManufacturers have received government permission to offer driver-assistance features that are not only more advanced than what Tesla can offer in China, but also cheaper. Last month, Xpeng launched nationwide a driver-assistance system that can cruise city streets and respond to traffic signals. Xpeng says its system is powered by artificial intelligence.

Other Chinese companies, including Huawei and Li Auto, offer similar driver-assistance features in hundreds of Chinese cities.

If Tesla gets approval for its FSD service in China, it may initially be limited to a few cities such as Shanghai, according to people familiar with the matter. This is in line with the normal practice of Chinese regulators: local companies are usually required to pilot their services in limited areas first.

Tesla's assisted-driving software currently available in China costs about $4,500, while Chinese rivals typically charge less or offer their software for free to car buyers. Analysts say the price difference makes Tesla's software less attractive to Chinese car owners.

Zhang Yu, general manager of Shanghai-based consultancy Automotive Foresight, said bluntly when comparing the assisted driving features currently available to Chinese drivers: "Tesla is lagging behind in China!"

Tesla did not respond to a request for comment. The company pointed out on its official China website that it needs to accumulate billions of kilometers of driving data and obtain relevant regulatory approvals before offering advanced features in the U.S. market to Chinese consumers.

The development of self-driving cars is crucial to Musk and Tesla. "Anyone who doesn't believe Tesla will solve the driverless problem should not own Tesla stock," he said in the latest earnings call.

Some Chinese automakers have also acknowledged that Tesla's advanced software could outperform their own if it is approved. Gu Junli, a former technical executive at Tesla and Xpeng Motors, said at an artificial intelligence conference in July that Tesla is as much as two years ahead of Chinese companies in driver assistance technology.

Sluggish sales

Tesla’s sales in China, which accounted for 20% of its revenue in the first half of this year, are falling, as are those of other U.S. and European automakers. Tesla’s share of China’s new energy vehicle market fell to 6.8% in the first half of this year from 9.5% a year earlier, according to the China Passenger Car Association.

Tesla said that version 12 of its FSD driving software uses artificial intelligence and learning tools that mimic the neural network of the human brain, and is frequently updated with new sub-versions. This version has been available to American drivers since the beginning of this year. In most cases, the vehicle can drive itself, including on city streets, without manually turning the steering wheel or stepping on the accelerator, but Tesla still warns drivers that they must be ready to take over control at any time. In contrast, Chinese regulators have not yet allowed car companies to offer systems that allow hands-free driving.

Tesla has adopted a new software architecture based on artificial intelligence, abandoning the previous complex rules programming that tried to pre-set every situation the car might find itself in. The company announced in March that its latest system was trained by learning from millions of video clips, replacing hundreds of thousands of lines of computer code.

At the same time, Chinese automakers are also actively developing and training their own artificial intelligence models. Similar competition in electric vehicles has helped Chinese automakers reach the global forefront.

UBS analyst Gong Min pointed out: "The beauty of this market is that because of the diversity of participants and fierce competition, it promotes more trial and error, which accelerates the progress of the entire industry."

Green light

During his visit to Beijing in April, Musk won initial support for Tesla's FSD promotion plan, significantly boosting the company's stock price and paving the way for Tesla to begin testing vehicles and collecting data required for regulatory approval. In May, Shanghai authorities allowed Tesla to transfer data from Chinese test vehicles to the United States on a limited basis, but the video data must not contain faces or license plate numbers.

According to people familiar with the matter, Tesla is currently testing a small fleet of vehicles equipped with the latest driving software in Shanghai and is preparing to conduct trials in Hangzhou and Beijing. In addition, Tesla is actively seeking permission from China to transmit data from ordinary road vehicles (not just test vehicles) to the United States, and has discussed how to filter sensitive data. However, the future prospects are still unclear.

Faced with the challenge, Tesla considered an alternative plan - building a data center in China to train driving software under Chinese road conditions. However, this plan is not simple. Tesla is studying whether it can purchase the most advanced Nvidia chips to power this artificial intelligence effort, but the United States currently restricts the export of these chips to China.

In the United States, federal regulators have investigated hundreds of accidents, including some fatal ones, involving Tesla vehicles using earlier driver-assistance software. In December, Tesla recalled more than 2 million vehicles to add more alerts and controls to increase driver vigilance. People familiar with the matter said the accident reports had a significant impact on Chinese regulators' review of Tesla's technology.

Tesla's AI driving system has attracted additional attention from Chinese regulators, mainly because of concerns that the system may not be able to effectively cope with China's complex traffic environment without sufficient local road training. China's unique driving conditions, such as the changing road conditions in small cities, dense bicycle and pedestrian activities, are different from the training conditions in the United States, which has exacerbated the concerns of regulators.

After experiencing Tesla's latest features in California in June, He Xiaopeng, founder of Xpeng Motors, said he was impressed, but also pointed out: "The road conditions in Chinese cities are much more complicated than those in the United States, about ten times more complicated." (Xiaoxiao)