21 April 2020

China ADAS to Self-driving Cars - the Journey Starts

This article was written by Mark Schaub, Atticus Zhao and David Hong 

 

The move towards self-driving cars is relentless and China as the world’s largest auto market and a leader in internet technologies wants to be at the cutting edge of this revolution.

However, there will be a transition from traditional cars to self-driving cars. Automakers will incorporate Advanced Driver Assistance Systems (ADAS) into vehicles in the short term. ADAS will form a bridge to fully self-driving cars.

On March 3, 2017, IHS Markit, the leading automobile market intelligence firm, published its latest ADAS Applications and Sensors Report[1]. This report noted that the global ADAS market is set to explode and surpass 302 million units annually in 2022 – which would be a nearly 200% increase over the 2016 numbers. This growth is mostly driven by advances in sensors technology that can be combined to provide better automated driving and includes aftermarket ADAS solutions for existing vehicles.

The importance of sensor technology is also shown by Intel’s acquisition of Mobileye for USD15.3 billion — the largest ever acquisition of an Israeli hi-tech company.[2]

Mobileye is the leading supplier of software that enables ADAS and already has partnerships with some of the world’s largest automakers.[3] The acquisition illustrates not just that hi-tech computing and internet companies have automotive ambitions but also the importance of ADAS for autonomous driving. ADAS is one of the fastest-growing sectors in the automotive field in recent years[4] and is considered by most commentators to be an essential milestone towards automated driving.

However, even if self-driving cars will not be standard in the very near future the safety applications of ADAS will be. One example is that the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) has mandated that by May 2018 all new vehicles weighing less than 10,000 pounds and sold in the United States must have ADAS installed rear visibility technology.[5] In addition, the NHTSA also announced that 20 automakers, representing more than 99 percent of the U.S. auto market, had committed to making automatic emergency braking systems standard for nearly all vehicles by September 2022.[6]

Accordingly, ADAS is no longer mere decoration but rather a very real disruptive force for the auto industry.

What is ADAS?

ADAS is generally understood to be systems developed to automate/adapt/enhance vehicle systems for safer and better driving. It is also sometimes known as level 1 autonomous driving. These include safety features designed to avoid collisions and accidents by offering technologies that alert the driver to potential problems or avoid collisions by implementing safeguards and taking over control of the vehicle.[7]

ADAS features include adaptive cruise control (ACC), forward collision warning (FCW), automatic emergency brakes (AEB), pedestrian protection system, lane departure warning (LDW), intelligent speed adaption (ISA), alcohol drug ignition interlock, automotive night vision, blind spot monitor and driver drowsiness detection.

These are all laudable features for safe driving but to make this possible ADAS requires vision and range sensors that are able to accurately make situational assessments and implement actions. Common sensors for ADAS include video, radar, LIDAR[8], ultrasonic and infrared (IR). ADAS takes many forms with some features built into cars or available as add-on packages. There are also aftermarket solutions available such as Mobileye’s aftermarket warning-only system that can be retro-fitted to any existing vehicle.[9]

PRC legal regime for aftermarket ADAS

Although market, demand and the technology for ADAS is in place in China and manufacturers are ready to introduce such systems the widespread adoption has been slowed by the sluggish pace of regulations.

Providing ADAS as an aftermarket solutions raises a number of legal issues under the current PRC legal regime.

As mentioned above, ADAS has two core features. One is to warn (e.g. LDW, the systems will warn the driver when the vehicle begins to move out of its lane unless a turn signal is on in that direction on freeways and arterial roads) (“Warning Function”) and the other is to control (e.g. AEB, where systems may automatically apply brakes to assist to prevent or reduce the severity of an impending forward crash with another vehicle) (“Controlling Function”). 

Aftermarket solutions refer to solutions provided by ADAS products (e.g. video camera and range sensors or independent devices) that are installed or retro-fitted onto existing vehicles (e.g. sensors installed on the front, side or top of a vehicle) to provide these two ADAS core features of Warning Function and/or Controlling Function (“Aftermarket Solutions”). 

As the technology is innovative it is natural that the legal regime has difficulty in keeping up – the PRC legal regime is no exception. Under current PRC law, Aftermarket Solutions for ADAS will likely face both legal barriers as well as liability issues.

Vehicles Refitting Restrictions under PRC Law

In China, motor vehicle ownership is tightly controlled and requires registration in order to obtain a license plate and driving certificate. In addition PRC law prohibits changes to a vehicle without permission and also requires updating of the registration if certain features of a car are altered.

The current regime does allow some limited retrofitting to be carried out without registration. Alterations that can be done without registration include installation of front and rear anti-collision devices on small cars or installation of tertiary items to freight vehicles, such as water tanks or tool boxes.

Whether the installation of ADAS products or retro-fitting of a vehicle for the Warning Function and Controlling Function in Aftermarket Solutions is compliant will depend on whether such installation or retrofitting constitutes a refitting under PRC law and if so whether such refitting falls within the scope of refitting permitted by law.

At present, the key issue to determine whether an installation or retrofit falls within the ambit of a refitting is whether it would change the registered structure, construction or features of the vehicle. However, this is quite a broad description and open to interpretation as to what constitutes “structure, construction or feature” of a vehicle. No detailed implementation guidance has been provided. As such, enforcement and interpretation will likely continue to be inconsistent and vary from place to place.

Based on our discussions with various vehicle administrative authorities, we understand that whether the installation or retrofitting of the Warning Function in Aftermarket Solutions will constitute a permitted refitting will largely turn upon whether such installations or retrofitting changes the appearance of the vehicle. However, a change in technical parameters or performance may also be a factor considered by the authorities.

In contrast, the compliance of the Controlling Function in Aftermarket Solutions lies in whether the installation or retrofitting will change the performance and technical parameters of a vehicle. We understand that in practice most vehicle administrative authorities have concerns that retrofitting a vehicle with a Controlling Function will alter the vehicle’s performance and parameters and may lead to safety problems.

For these reasons PRC law imposes strict requirements in respect of refitting of vehicles. This explains that although China is a huge market vehicle refitting is a semi-underground business in China.

It is expected that detailed implementation guidelines and regulations will continue to lag behind the technological advances. As such Aftermarket Solutions providing either Warning Function and/or Controlling Function will likely continue to face legal barriers under current PRC law.

Liability

In addition to the legal issues which retard the development of the legal market for ADAS products, ADAS companies also face various types of product, tort and administrative liability.

Controlling Function may increase liability as compliance for such products will be based on whether the installation or retrofitting changes the performance and technical parameters of the vehicle. Both common sense and our discussion with the competent authorities demonstrate that the installation of any Controlling Function product is likely to change the performance and technical parameters of the vehicle. Accordingly, administrative liability is likely to extend to both the owner of the vehicle and the installer of the Controlling Function products.

Both Warning Function and Controlling Function products may give rise to product and tort liability. The designer or developer will face product quality liability so as to ensure the design or development of any such products is free from defect. This is particularly so in the case of the development of systems (software). The manufacturer will face strict liability for product quality and defects and the seller is also potentially jointly and severally liable along with the manufacturer. Installers of such products will also face liability if the defect is due to the installation. It should also be noted that in case of a traffic accident it may be that one or more of the above entities may be liable.

The implementation of Warning Function and, in particular, Controlling Function products will result in significant product liability exposure for both physical products and software as consumer protection and safety will be paramount issues for this new technology. However, one of the key legal issues will be determining the exact nature of the defect and apportioning liability appropriately.

The Way Forward – PRC Legal Trends

The scene seems set for rapid technological developments to revolutionize the automotive industry in a way similar to other products such as mobile phones.

It seems clear that a major trend will be a transition from cars with advanced features to truly smart cars. It is likely that part of this trend will be that smart cars equipped with ADAS will become increasingly popular with the ultimate goal being intelligent automobile technology that allows for fully self-driving cars. This technology will go far beyond computer assisted driving.

China seems to be aware of both the challenge and the opportunity. “Made in China 2025”[11] includes intelligent and connected cars as a key development goal. Further Made in China 2025 specifies that China will master technologies relating to intelligent assisted driving and establish preliminary autonomous R&D systems and support production systems for intelligent and connected cars by 2020. Beyond this China has also announced its intention to master technologies for automatic driving, establish a complete autonomous R&D system, build a supportive production system and encourage industrial clusters of intelligent and connected cars. All these goals have the overriding ambition of being able to have a fully upgraded, world class Chinese automobile industry by 2025.

 

As mentioned above, one issue retarding the growth of ADAS in China is that the automotive refitting market for ADAS is currently conducted on a semi-underground basis due to unclear interpretation and enforcement of regulations.

The Chinese authorities’ attention to the development of the smart car in China can also be seen in the joint issuing in April 2017 of the Auto Industry Mid and Long Term Planning. This plan was jointly issued by powerful departments such as the Ministry of Industry and Information Technology, National Development and Reform Commission and Ministry of Science and Technology. The plan stresses that China will strengthen its efforts in the break-through key technologies in respect on intelligent and Internet-connected cars and will also take various measures to foster such developments. These measures include organizing pilot areas, improving testing and assessment systems and updating laws and regulations. In addition, under this initiative, by 2020, the inclusion of DA (Driver Assistance), PA (Partial Automatic Driving) and CA (Conditional Automatic Driving) systems for new cars are slated to exceed 50% and inclusion of Networking Driver Assistance System are expected to reach 10%. The Networking Driving Assistance System will also lead towards the goal of developing intelligent transportation cities. By 2025, the inclusion of DA, PA and CA systems on new cars will reach 80% and 25% of these cars will be considered substantially or fully automatic driving cars.

 

 

[1] http://www.ihssupplierinsight.com/shop/product/5002716/adas-applications-and-sensors-report

[2] http://intelandmobileye.transactionannouncement.com/https://techcrunch.com/2017/03/13/reports-intel-buying-mobileye-for-up-to-16b-to-expand-in-self-driving-tech/

[3] http://www.mobileye.com/about/

[4]http://www.itsinternational.com/categories/location-based-systems/news/adas-fastest-growing-sector-in-automotive-field/

[5] https://www.nhtsa.gov/press-releases/nhtsa-announces-final-rule-requiring-rear-visibility-technology

[6]https://www.nhtsa.gov/press-releases/us-dot-and-iihs-announce-historic-commitment-20-automakers-make-automatic-emergency

[7] https://en.wikipedia.org/wiki/Advanced_driver_assistance_systems

[8] Light Detection And Ranging

[9] http://www.mobileye.com/about/

[11] It is a PRC national 10-year action plan issued in March 2015 which is designed to transform China from a manufacturing giant into a world manufacturing power.

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We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

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