Tech companies, including Google, Alibaba and Baidu plus smartphone vendors ranging from Apple, Xiaomi, Huawei and others, are aggressively making plans to ensure they get a foothold in the future of the intelligent vehicle market. Tech vendors not only aim to get their hands on users' in-car behavior and vehicle data, but are also actively positioning themselves as Tier-1 suppliers (Huawei and Baidu for example) or outright building cars (such as Xiaomi). Car makers are acutely aware of how their share of the pie could be taken away if they do not react swiftly.

With smartphones being the center of consumers' digital lifestyles, it is no surprise that some car makers in China are exploring opportunities to make smartphones. NIO made the biggest splash as William Lee, CEO of NIO, cited the company is planning to make smartphones for its users, which the company intends to keep iterating annually. Geely, via Xingji Technology – one of its subsidiaries – has acquired a majority stake in Meizu, one of the struggling boutique smartphone vendors in China. While the acquisition of Meizu was mainly driven by the need to build a better digital cockpit and ecosystem, Geely and its brands are expected to leverage Meizu and the related businesses to pursue greater ventures in smartphones and telecommunication.

It is about car makers regaining greater control over the digital user experience

The connected car has always been seen as an extension of the smartphone, as evidenced by the popularity of smartphone mirroring systems such as Apple Carplay, Android Auto and Baidu CarLife. However, the digital cockpit means the in-car environment is emerging as the 'third space' in the new mobility era. Chinese car makers are now attempting to leverage smartphones as an extension of the intelligent vehicle ecosystem, helping to realize new ecosystem-driven features and use cases related to intelligent driving and living. However, it is risky to pass the development of smartphones, and the core platform features to third-party developers due to goal misalignment issues. Often not in pursuit of exponential growth, developers and platform service providers ignore the user experience and the intended results that car makers initially set out to achieve.

It is a good time for capable car makers to enter the smartphone market, not because of the market demand but due to slowing smartphone innovation. Beyond foldable displays and camera technology advancements, smartphone vendors are investing outside their core competencies to grow their extended ecosystems by introducing more devices and AI services. Car makers in China stand a good chance of getting a headstart in introducing unique innovations supported by seamless integration between smartphones and vehicles beyond in-car entertainment and navigation. Use cases that help in intelligent user scenarios that enhance security, driving safety, charging efficiency, and overall car-ownership, are significant in helping to usher in the new mobility era.

Car makers need to secure long-term commitments

Car makers intend to position their devices to attract high-paying customers with high expectations willing to try new things. Not only lacking the brand power within the smartphone market, they will also start with a much smaller target audience pool within their respective current users and prospective buyers.

Car makers must get ready to invest and work on increasing the chances of becoming a viable substitute to lure users away from established smartphone brands. They need to produce smartphones with unique selling points tied firmly to the car brand, which are able to stand up against existing smartphone brands. Ensuring software and feature maturity that is on par with offerings from Apple, Huawei, Xiaomi and others is the least car makers need to achieve before they can win high consumer praise. The shorter product lifecycles of smartphones and the faster pace of the industry will pose challenges but provide good lessons to car makers in understanding how consumer technology works.

For emerging Chinese car makers struggling with profitability, it is challenging to keep investing long-term in smartphone production since the business is unlikely to promise good returns quickly. The cut-throat competition in the market will punish half-hearted vendors who produce sub-par devices.

Car makers who fail to prioritize smartphones in their strategies and fail to realize the future intelligent driving experience highly depends on the smartphone, are likely to give up after two or three iterations.

Plenty of options for car makers to explore

While tech companies seek opportunities in the connected vehicle market as potential revenue and growth drivers, it is much more arduous for car makers to achieve the same with smartphones. From the car maker’s point of view, smartphones are best positioned as an ecosystem play, with the initial stages focusing on feature and business model exploration. Once the device lineup becomes essential to the user experience, car makers can then look into extracting profits from sales of hardware, software and services.

If encouraging users to replace their main phone is challenging, car makers can win users from a secondary phone angle since many consumers are no strangers to owning and carrying multiple phones due to some particular killer use cases. For example, the smartphone can be bundled as a perk of a tech package upgrade. Vendors must clearly inform users about the features they gain while using the smartphone with the car and the accompanying services (subsidized or paid) to avoid surprises. The key is to allow curious users to start building habits with sticky features unique to the car maker's combination of devices and services. While most vendors aim to set a high bar, it is more important for car makers to set the right consumer expectations for their first smartphone.

A smartwatch is also a viable option for less ambitious Chinese car makers. Smartwatches are gaining in popularity, but only a small subset of Chinese smartphone owners use wearables. When paired with a vehicle, smartwatches can realize many smart features ranging from smart car keys to remote start, climate control and more. These are new features that appeal to users seeking a refreshing experience. However, car makers must ensure robust health and fitness tracking features, preferably by partnering with an established partner within the wearable space. After all, health and fitness tracking features are the most critical reasons most people keep using a smartwatch.