China Carmakers Launch into the Smartphone Market

In September, China Carmaker NIO officially unveiled its first NIO Phone at the 2023 NIO Innovation and Technology Day, with three different models priced between CNY 6,499 and CNY 7,499 (US$900 and US$1000). It joins a growing number of China carmakers such as Xpeng and Li Auto (in cooperation with OPPO) that have leveraged smartphones to explore ways to enrich the automotive ecosystem.

China Carmakers want to shape their ecosystems by offering smartphones to ensure the interaction between phone and digital cockpit systems is seamlessly integrated to create a differentiated user experience. Through a well-integrated digital ecosystem, automobile manufacturers can learn more about user preferences to meet the hidden, yet crucial, needs of their vehicles' target users.

By 2023, Canalys expects the penetration rate of L2+ advanced driver assistance systems (ADAS) in China to reach 4.7%. With the gradual clarification of regulations for L3 and above high-level ADAS functions in China, 2025 is expected to be a turning point as L3 penetration is expected to reach 4.6%. As vehicles shift to higher levels of driver assistance, the digital cockpit user experience must evolve to match the shifting user scenarios where drivers are driving less and may engage with other activities or devices. The introduction of a smartphone, a high-frequency touch-point device, into the EV ecosystem can help carmakers understand the intricate needs of drivers as driving behavior changes with increasing autonomy levels. When smartphone apps and services are tightly integrated with cockpits, users can unlock digital lifestyle features in key areas such as productivity and entertainment that may be limited by the digital cockpits of today.

Compared to the high cost and R&D time for introducing new features built into vehicles, carmakers can incorporate smartphone features and achieve similar levels of user experience through cockpit connectivity integration, smartphone app, and mobile services, which will effectively reduce the R&D cost, time, and trial-and-error cost.

Getting into the smartphone business means carmakers have to compete with major smartphone players such as Apple, Huawei and other market incumbents. The global smartphone industry is highly competitive and carmakers urgently need clear advantages to stand a chance at competing or even just winning over the carmakers’ target audiences. Initially, the sales volume of smartphones and vehicles is a different order of magnitude, so reasonable cost control will be challenging. However, as consumers’ mobile lifestyles increasingly include traveling in highly connected vehicles, integration between the smartphone and vehicles will further emphasize ecosystem-driven features inside and outside of digital cockpits. Carmakers producing smartphones will become a trend in China, and if successful, this will be replicated in global markets.