In its quest to gain the lead in emerging technologies, China has sped ahead on a vital component for the vehicles of the future. Light Detection and Ranging (Lidar) systems, which use lasers to remotely sense the features of an environment with a high degree of precision, are a core element in autonomous vehicles and have been embraced by Chinese companies.

This week, The Wire looks at the strategic importance of Lidar, profiles the leading companies involved in developing the technology, and highlights its potential as a flashpoint in U.S.-China tech competition in the years to come.

LASER-POWERED CARS

Lidar was first developed in the United States as an aerospace technology in the 1960s. As navigation systems became more sophisticated in the decades that followed, it became more widely used in mapping and robotics. Today, auto companies are increasingly using Lidar sensors to serve as the “eyes” of their autonomous vehicles.

“Lidar gives you a very high-definition 3D map of the surroundings of the vehicle,” says Brunno Moretti, senior vice president of product and commercial operations at Cepton, Inc., a Silicon Valley-based developer of lidar-based solutions. “It can detect obstacles like pedestrians, cars, and other hazards with very high fidelity and confidence of what they are.”

By 2028, the automotive Lidar market is expected to be worth $4.5 billion globally, with passenger car usage accounting for $4 billion, according to market research and strategy consulting firm Yole Intelligence. In 2022, the global Lidar market was worth a mere $317 million.

“The clear push is from Chinese OEMs [original equipment manufacturers], where they’re heavily integrating Lidar into their cars, especially new OEMs that are making EVs,” says Pierrick Boulay, senior analyst for lighting and advanced driver assistance systems (ADAS) at Yole Intelligence.

Adoption of Lidar sensors is closely tied to the auto industry’s transition towards new technology, including autonomous driving features and electric vehicles, which both have higher penetration in China compared to Western countries.

“Chinese consumers are much more open and willing to try new technology, whether it be levels of autonomous driving, as well as what we call intelligent cockpit technology,” says Stephen Dyer, co-leader of the Greater China practice at consulting firm AlixPartners.

Tesla, whose chief executive, Elon Musk, has been dismissive of Lidar, represents a notable holdout against its adoption. In its place, the company uses a set of mounted cameras that form part of its Autopilot system.

“Lidar is a fool’s errand, and anyone relying on Lidar is doomed,” Musk said at a press conference in 2019. “Doomed! Expensive sensors that are unnecessary.”

Musk increasingly appears to be an outlier. Lidar is fast becoming the industry standard, not only for automotive technology companies aspiring towards fully autonomous vehicles, but also for traditional automakers introducing various degrees of automation in their new models. By 2025, one in ten new cars being sold globally will have autonomous capabilities in some driving situations, according to a forecast by Counterpoint Research.

Lidar can track people, cars, traffic, and what’s busy at any certain time. This kind of information could be falling into the hands of an adversary state like China, which is extremely concerning.

Brunno Moretti, senior vice president of product and commercial operations at Cepton, Inc., a Silicon Valley-based Lidar developer

“Today, the cost of Lidar is between $800 to $,1000 per sensor, depending on the sales volume and the country where you are,” says Boulay from Yole Intelligence, adding that there is still room for more cost reductions as Lidar becomes more widely adopted and economies of scale kick in.

CHINESE CHAMPION

Chinese company Hesai Technology is the world’s leading automotive Lidar provider, with a 47 percent global market share in 2022, according to Yole Intelligence. Hesai launched a successful initial public offering in the United States in February 2023 during which it raised $190 million with a market capitalization of $2.6 billion. The company said it planned to use the proceeds to invest further in manufacturing, research and development, as well as potential strategic acquisitions.

In its IPO prospectus, Hesai credited its success to its in-house manufacturing process, which it says has been instrumental in its ability to achieve a level of production volume that few of its peers in the Lidar industry have matched. In November 2022, the company obtained a 700 million yuan (US$98.4 million) line of credit to expand its manufacturing facility in Shanghai. Hesai has employed 227 people in production and supply chain roles as of 2022.

However, the company’s growing profile in the U.S. has also triggered controversy. In June, Senator Ted Budd (R-NC) expressed concern over the Department of Defense awarding a $50 million contract to self-driving truck company Kodiak Robotics as part of an effort to automate future U.S. Army ground vehicles. Kodiak had earlier partnered with Hesai to integrate Lidar sensors on the company’s trucks.

“The interface of Chinese Lidar with Kodiak’s software raises serious concerns about the integrity of the software solutions that Kodiak may provide to the Army,” Budd wrote in a letter to Assistant Secretary of Defense for Industrial Base Policy Laura Taylor-Kale.

“All of our products are classified as EAR99, meaning they are not suitable for military applications,” said Hesai CEO David Li in a statement to The Wire. EAR99 is a classification of consumer goods that do not require an export license in most situations, according to U.S. Department of Commerce regulations. Hesai added that many examples of military use cited in Budd’s letter predate the company’s founding.

Hesai has also faced accusations of intellectual property infringement. In April this year, California-based Lidar firm Ouster filed a complaint against Hesai with the International Trade Commission (ITC), a federal agency that investigates unfair trade practices. Earlier this month, the ITC ruled that the dispute should be resolved through arbitration. A separate infringement case remains pending in Delaware courts, which Ouster says it intends to restart. 

“Hesai’s Lidar products are independently developed, based on years of research and engineering investment, not stolen IP,” the company said in a statement after the ITC’s October decision.

Despite this, lobbying efforts continue in the U.S. from Lidar companies alarmed by alleged unfair competition from China and national security concerns.

“Lidar can track people, cars, traffic, and what’s busy at any certain time. This kind of information could be falling into the hands of an adversary state like China, which is extremely concerning,” says Moretti from Cepton.

Hesai says that its Lidar sensors are “not capable of storing images or wirelessly communicating them.” The company also shared compliance assessments with The Wire carried out by two independent testing firms, TÜV Rheinland and Dekra, which concluded that Hesai’s sensors can neither store data nor transmit it outside the vehicle.

Chinese Lidar companies now face the prospect of being added to the Department of Defense’s (DoD) so-called Section 1260H list, a regularly updated list of companies that the U.S. government identifies as contributors to China’s military-civil fusion policy: that is, commercial entities that supply products or services to the People’s Liberation Army. Both the PLA and the U.S. military use Lidar technology to support their unmanned ground and aerial vehicles, according to the Congressional Research Service.

The DoD is due to report to Congress by next March on actions it has taken to update the Section 1260H list with Chinese Lidar companies. Although being named on the list would not by itself lead to a ban on operating in the U.S., being designated as a company with ties to the PLA could trigger restrictions on Americans investing in that company’s publicly traded shares.

Hesai says that its agreements with new customers prohibit the sale of its Lidar to the military. The company added that the DoD’s 1260H list does not apply to it because its lidar technology does not contribute to China’s military-civil fusion policy.

“The Chinese government and the Chinese Communist Party have had absolutely no intervention in Hesai’s operations or management,” the company says.

For the U.S., curbing perceived unfair competition from China is only one step; analysts say the government needs to do more to narrow the lead China has gained in adopting new technologies.

“With EVs, the United States is getting there; they’re finally getting into gear,” says Moretti. “But when it comes to ADAS features where Lidar comes in, there is more work to be done.”

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