Exclusive-Musk pushes China data plan to boost Tesla’s AI ambitions By Reuters

Fanny Potkin

SHANGHAI/SINGAPORE (Reuters) – Tesla (NASDAQ:) is said to be moving forward with plans to boost global development of its self-driving systems using data from China that can be processed within the country as part of Elon Musk’s strategic shift. To someone who has knowledge of the business.

As part of this effort, Tesla has been developing plans to build a data center in China to train the algorithms needed for more fully self-driving cars, according to two people who spoke on condition of anonymity.

Until recently, Tesla had been focused on securing approval from Chinese regulators to transfer data generated by electric vehicles in China out of the country for its “fully self-driving (FSD)” system, according to the two people and additional knowledgeable people. of the problem.

It was unclear whether Tesla would proceed with both options – data transfer and local data centers – to process China’s self-driving data, or develop a parallel plan as a hedge.

Tesla’s efforts highlight the speed of the electric car maker’s shift to invest in innovation in AI amid slowing EV demand and increasing competition.

The automaker’s effort to develop artificial intelligence (AI) for driving by making the most of data from Chinese cars comes as the U.S. government attempts to crack down on the transfer of AI technology from U.S. companies to China.

Tesla has failed to offer a full version of the FSD, which costs nearly $9,000 in China.

With both companies under pressure from Chinese rivals such as BYD (SZ:), an expanding FSD market in China would boost the automaker’s sales and profits.

Tesla did not respond to a request for comment.

Establishing a data center in China for FSD development would require Tesla to work with a Chinese partner, the two sources said. There are also potential hardware sourcing issues.

Nvidia (NASDAQ:) has discussed acquiring graphics processing units for data centers in China, according to one of the people briefed on the discussions. U.S. sanctions bar Nvidia and its partners from selling their most advanced chips in China.

Nvidia declined to comment on whether it had spoken with Tesla.

Tesla’s campaign to make more use of China’s data began in earnest last month when Musk met with officials, including Premier Li Qiang, on a whirlwind trip to Beijing.

Two sources said Musk sought smooth permission for Tesla’s data transfer during his meeting with Lee. The possibility of Tesla investing in data centers in China has also increased.

Musk also discussed the possibility of Tesla licensing its FSD system to a Chinese EV maker, one of the sources said. Musk said in April that Tesla was discussing FSD licenses with other “major” automakers, without naming them.

China’s State Council Information Office did not respond to a request for comment.

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China, the world’s largest automobile market, has the largest number of sensor-equipped cars capable of collecting data in congested cities with complex traffic patterns, making the data generated there valuable to automakers and AI providers.

Musk has previously expressed opposition to China-based data centers, arguing that transferring data to the U.S. is the most efficient option, two of the people said.

Tesla has been storing data collected from its Chinese electric vehicles in Shanghai since 2021. During that time, Tesla’s China team has been seeking approval from Chinese regulators to move data out of China, two sources said.

Under a one-year pilot project, companies in Shanghai’s Lingang district, where Tesla’s factories are located, will be able to transmit certain data without additional security assessments, Reuters reported on Friday.

Some analysts believe Musk is trying to make China a stepping stone for autonomous driving, in the same way that Tesla’s investment in the Shanghai Gigafactory in 2019 helped it grow into a mass-market electric car maker.

“If Tesla launches FSD in China and uses Chinese data to train its algorithms, it will definitely be a milestone,” said Yale Zhang, managing director of Automotive Foresight, a Shanghai-based consulting firm.

“China has played a key role in expanding Tesla’s EV production through its Shanghai factory, which in turn will play a key role in expanding the mass adoption of autonomous driving technology,” he said.

Many industry experts expect it will be several years before fully self-driving cars become commonplace, but estimates vary widely.

The driver assistance features currently available in China are “Level 2” systems. That means you need a driver ready to take over. Tesla’s FSD and the less advanced Autopilot option are also Level 2 systems that require an attentive driver.

A fleet of more fully automated vehicles operated by Baidu (NASDAQ:), China’s largest search engine operator, and self-driving startup Pony.ai will operate in a limited testing area.

However, Chinese EV manufacturers, including BYD, have made autonomous driving and advanced driver assistance systems a priority. Mercedes and BMW (ETR:) have been granted licenses to test a Level 3 system that would allow drivers to take their hands off the steering wheel and have a wider view of the road in China.

At least five car manufacturers – Hyundai (OTC:), Mazda; toyota (NYSE:), Volkswagen (ETR:) and Nissan (OTC:) – have received approval to move some data out of China, but not for data used to train AI systems, according to their lawyers. Media reports and analysts.

Penalties for violating China’s data privacy law, which came into effect in 2021, are a major risk to data operations, a group representing foreign companies in China has said.

In a call with investors after announcing Tesla’s quarterly results last month, Musk said Tesla should be viewed more as an AI company when asked about competition from Chinese electric vehicle manufacturers.

He said he was confident Tesla’s FSD system “will work pretty well without modification in almost all markets.” Musk said it would work better with “country-specific” training.