The big picture. The intelligent connected vehicle (ICV) industry is linked to a broader story – China’s desire to become a technological superpower by investing in 5G and semiconductors. It’s already a big market and growth will accelerate as autonomous driving functions become more mainstream. This report looks first at the big picture – the level of policy support, the mass production of autonomous vehicles within five years, and how ICV technologies are being standardised through co-ordination among different industries. This means traditional electronic systems will no longer be fit for purpose, prompting wholesale change in the architecture of vehicle software. China’s share of the ICV market is expected to grow from 31% in 2020 to 56% in 2025. We think the rise in the value of software’s contribution is still underappreciated.

The view at ground level. We then drill down to look at how the three software companies covered in this report generate their revenue today, and how the revenue breakdown is likely to change in the next three years as heavy investment in R&D starts to pay off and more advanced ICV products and services become commercially viable. They are now positioned to benefit  from advances in software-related infrastructure, development and testing tools, platforms, applications, data services, as well as roadside and on-board equipment. Initiate coverage. Thunder Software (Buy), TransInfo (Buy), and NavInfo (Hold) have distinct competitive advantages in their respective fields. They are still at the investment stage and all three have spent heavily on R&D and have support from digital heavyweights – Alibaba has a stake in TransInfo, Tencent invests in NavInfo, and Thunder Software has co-operation agreements with Qualcomm. Our forecasts differ from consensus by quite a large margin – well above for Thunder Software, but well below for TransInfo and NavInfo.