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    Stocks making the biggest moves premarket: Hormel, Ciena, GameStop and more

    Check out the companies making headlines before the bell:
    Hormel (HRL) – Hormel added 1.7% in premarket trading after beating top and bottom-line estimates for its latest quarter. The company behind the Spam, Dinty Moore and Jennie-O food brands backed its earlier full-year sales guidance and also said its moves to mitigate inflation and supply chain issues were proving effective.

    Designer Brands (DBI) – The footwear and accessories retailer reported better-than-expected profit and revenue for its latest quarter and raised its full-year profit outlook, although it cut its comparable-sales growth outlook. Designer Brands shares jumped 3.7% in the premarket.
    Lands’ End (LE) – The apparel retailer’s shares slid 10.2% in the premarket after the company reported a quarterly loss of 7 cents per share, 3 cents smaller than anticipated, but revenue fell short of Wall Street forecasts. It also issued a full-year earnings forecast of 60 cents to 88 cents per share, mostly short of the 87-cent consensus estimate.
    Ciena (CIEN) – The networking equipment maker earned an adjusted 50 cents per share for its latest quarter, 4 cents short of consensus, while revenue came in below estimates. Ciena said demand remains strong but supply chain challenges are resulting in increased uncertainty. Ciena fell 2.3% in premarket action.
    GameStop (GME) – GameStop rose 1% in premarket trading after posting a sales increase for its latest quarter as more people shopped in its stores, although it also saw its losses widen.
    Hewlett Packard Enterprise (HPE) – Hewlett Packard Enterprise fell a penny shy of estimates with adjusted quarterly earnings of 44 cents per share, while the enterprise computing company’s revenue was slightly short of Wall Street forecasts. The company said its profit margins are holding up well in the face of inflation and supply chain disruptions. The stock fell 4.9% in the premarket.

    MongoDB (MDB) – MongoDB surged 8.6% in the premarket after reporting an unexpected quarterly profit and revenue that topped analyst forecasts. The database platform provider’s sales surged 57% compared with a year earlier.
    Chewy (CHWY) – Chewy reported a quarterly profit of 4 cents per share, compared with consensus forecasts of a 14 cents per share loss. The pet products retailer also reported better-than-expected revenue and stood by its prior outlook. Its stock soared 19.6% in premarket trading.
    PVH (PVH) – PVH rallied 4.1% in the premarket after the apparel company reported better-than-expected quarterly sales and profit. The company behind brands like Tommy Hilfiger and Calvin Klein said it was negatively impacted by supply chain and logistics disruptions as well as Covid-related lockdowns in China.

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    First time on a yacht? Avoid these 7 amateur mistakes

    While most of the travel industry struggled to get back on its feet, the yachting industry had a different problem during the pandemic: serving everyone wanting to charter a boat.
    Like the rise in private jet travel during the pandemic, charter demand remains “extremely strong,” said Crom Littlejohn, chief commercial officer of the yacht brokerage company Northrop & Johnson. He said he expects interest to remain this way “for the foreseeable future.”

    But it isn’t the same people who have always traveled via sea, he said.
    “A big percentage of our business is first-time charters,” said Littlejohn. “They’ve had the ski vacations … they want to try something different.”

    Destinations with an increase in summer yacht bookings

    South of France
    Croatia
    Caribbean 
    Galapagos Islands 

    Source: Northrop & Johnson

    Insiders share with CNBC the seven common mistakes of those new to the industry.

    Mistake #1: Hard-shell luggage

    There are several reasons to leave hard-shell suitcases at home, said Littlejohn.

    In the same way that they scuff hotel room walls, hard suitcases can damage the fine finishes on yachts, he said.
    “Things bounce and hard things might mar the surfaces,” said Littlejohn.

    Military personnel carry Prince Philip’s garment bags to the Royal Yacht Britannia in Lancashire, England, in August 1989.
    Tim Graham | Tim Graham Photo Library | Getty Images

    Then there’s the issue of storing suitcases that don’t collapse. “You can imagine how much [luggage] ten people or 12 people on charter could bring if they were bringing hard luggage,” he said. “It takes an additional room to store it.”
    “The more soft-sided duffel bag type luggage, the better for storage and moving around the boat,” he said.

    Mistake #2: High heels

    Soft-soled shoes are more appropriate than high heels, said Littlejohn, but “we’re going to ask you not to wear the shoes on board period.”
    Travelers are free to pack high heels for land excursions, he said, but even in the south of France – where nightlife is often a big part of the charter — cobblestone roads may make comfortable shoes a better option, he said.

    Attendees take off their shoes before boarding a yacht in Miami, Florida, on Feb. 16, 2017.
    Scott McIntyre | Bloomberg | Getty Images

    But rules on shoes can depend on the yacht owner, said superyacht influencer Denis Suka, who is known as The Yacht Mogul online.  
    If guests are uncertain about a yacht’s shoe policy, they can keep an eye out upon boarding, said Suka. Look for “pairs of shoes [at] the entrance,” he said. That means shoes aren’t allowed on the boat.
    As for what to pack, Suka recommends “keeping it light” with clothes that have “summer vibes,” calling this part of the rules “that are pretty much set in stone.”

    Mistake #3: Not giving way on the passerelle

    Passengers should board the passerelle — the walkway that is used to get on and off a yacht — one at a time, said Marcela de Kern, a business consultant for the yachting company Onboard Monaco.
    “It’s quite fragile,” she said. “If you board at [the] same time, it can break,” she said, adding this can create “massive” problems in ports in Greece and Croatia, where it’s especially hard to get from yacht to port.

    Professional soccer football player Cristiano Ronaldo and partner Georgina Rodriguez board a yacht on June 1, 2018 in Marbella, Spain.
    Europa Press Entertainment | Europa Press | Getty Images

    “The one leaving the yacht has priority, so if you are boarding and someone else is coming down, you should wait and let them get down first,” said de Kern.
    Celebrities like the Kardashians have “no yacht etiquette,” she said, citing a recent video of them disembarking close together, one clad in high heels, from a yacht in Portofino.

    Mistake #4: Not planning for extra expenses

    New entrants to the industry shouldn’t spend their entire budgets on the charter rate.
    “Then you have the rest of your expenses,” said Littlejohn. “With VAT taxes and beverage and food … dockage and fuel, you’re going to add another 75-100% to the cost of that charter.”

    Weekly charters with Northrop & Johnson range from $32,000 to $490,000, plus expenses, according to a company representative.
    “There are charters happening in all the price ranges,” he said. He advised working with a broker who is familiar with the boat size and location that travelers want to book.
    Without a broker, travelers new to the industry “might end up paying more for a yacht instead of having a better one for the same price,” said Suka.
    Brokers can match clients with the right crews too, said Suka. That’s important because travelers and crew members can spend time together for days, if not weeks, at a time, he added.
    “It’s not cheap to charter a yacht, so [clients] have to get the very best out of it,” he said.

    Mistake #5: Not connecting with the crew

    Getting to know the captain and the crew is the best way to receive top-notch service, said Suka.  
    When the “yacht is docked then the crew will definitely give you the best tips [on] what to do and where to [go],” including “restaurants, coffees or other attractions because they know the area very well.”

    Denis Suka, aka “The Yacht Mogul,” advised those new to charters to “feel just as its your own yacht.”
    Source: The Yacht Mogul

    If all goes well, travelers may charter the same yacht again, so it’s all the more reason to establish a good relationship with the crew at the beginning, he said.
    Onboard Monaco’s de Kern advised travelers to greet the crew at the beginning of the trip.
    “Ask for their names, shake their hands and show some respect for the captain on board,” she said.

    Mistake #6: Scheduling too many activities  

    Don’t pack the days with activities, said Littlejohn.
    For land excursions, he advised planning no more than one two-hour inland trip per charter week.
    “Most of the folks are probably spending half of the day on board the boat, playing with water sports … and enjoying the boat itself,” he said. Then the other half of the day maybe spent going on an excursion, take the tender out. You might go in and explore … the lands and the islands.”
    Then it’s back to the boat for “a wonderful evening aboard,” he said.

    Mistake #7: Waiting to book

    Littlejohn recommends booking “as early as you possibly can.” He said to start looking anywhere from six months to one year out.
    Northrop & Johnson is already making bookings for the Christmas of 2023, he said. Booking this early isn’t uncommon for the bigger, more expensive boats, he said, but since the pandemic, “we’re seeing it in the mid-range as well.”
    But there are still some last-minute charters available for this summer, he said.   More

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    A curious breed of financing vehicle illustrates a dilemma for China’s policymakers

    China’s local-government financiers have a complex identity. Tasked with developing land and doing public works, they act on behalf of, and with approval from, city and provincial authorities. Yet at the same time they represent large companies, known as local-government financing vehicles (lgfvs), which have the ability to raise billions of dollars from global investors. The thousands of lgfvs around the country owed an estimated 53trn yuan ($8.3trn, equivalent to 52% of annual gdp) in debts last year. Conflicts of interest have naturally arisen for the bosses of these hybrid firms. In some cases they have been caught giving chummy private companies lucrative stakes in government projects. Others have used their official status to guarantee bank loans for friends. In Sichuan province a government financier was recently found to have lent out state funds to private firms at rates as high as 20% a year. In Hunan province a boss was caught charging companies that work with the government consulting and paperwork fees. Such practices might fly in the private sector—but not with anti-corruption investigators.The central government is taking new interest in such dodgy dealings. More than 40 high-ranking officials at lgfvs have been put under investigation or detained since the start of the year. The Ministry of Finance has warned provincial authorities about the risks associated with corruption in the quasi-state sector. The renewed attention on graft at lgfvs betrays growing concerns about the role the companies play in generating economic growth, along with the piles of debt they have amassed in the process.lgfvs are a uniquely Chinese problem. Invented in the 1990s to get round rules that banned local governments from raising debt, the companies became one of the most important sources of economic growth over the past two decades, as they carried out vast numbers of public projects. Their status as non-government entities allowed them to borrow heavily from investors in China and abroad. One of the oddities of lgfvs is that it is city and provincial authorities that are on the hook for those debts. But lgfvs’ borrowings are not included in official government budgets, making it hard to gauge risk.The latest scrutiny brings with it two complications. For a start, it comes at an awkward moment. The economy has been hit hard by recent lockdowns to contain covid-19. In response, China’s leaders have announced plans for infrastructure spending this year to help achieve a lofty gdp-growth target of 5.5%. lgfvs would typically play a key role in funding and contracting much of the building activity across the country. But the crackdown on corruption and other restrictions means that managers will be less likely to take risks. Normally this would be considered a good thing. This time, however, an unwillingness to take on new projects could come at the cost of precious gdp growth at a time when the Communist Party can ill afford it.Moreover, tighter oversight has had the unintended effect of exposing lgfvs to currency risk. The firms must gain regulatory approval to issue bonds within China. Greater scrutiny over their use of funds has led to onshore-debt issuance by lgfvs falling by 22% in the first four months of 2022, compared with the same period last year. This has pushed the companies into the riskier offshore market: dollar-bond issuance by lgfvs soared by about 150% during the same period, according to Pengyuan, a rating agency. But few of these companies earn dollar revenues, making it harder to repay the bonds. A default would send a shock wave through the bond market. Such dangers explain why Beijing’s technocrats want to reduce the importance of lgfvs, especially as local governments can now issue bonds directly, reducing the need for fiddly workarounds. For as long as the growth target is in peril, though, lgfvs will be going nowhere. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

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    China’s dilemma over a curious breed of financial firm

    China’s local-government financiers have a complex identity. Tasked with developing land and doing public works, they act on behalf of, and with approval from, city and provincial authorities. Yet at the same time they represent large companies, known as local-government financing vehicles (lgfvs), which have the ability to raise billions of dollars from global investors. The thousands of lgfvs around the country owed an estimated 53trn yuan ($8.3trn, equivalent to 52% of annual gdp) in debts last year. Listen to this story. Enjoy more audio and podcasts on More

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    The return of the inventory cycle

    Remember the Great Moderation? This refers to the period before the global financial crisis of 2007-09 during which there was a marked fall in the volatility of gdp growth in rich countries. Explanations for it ranged from wiser monetary policy (yes, really) to globalisation. In fact, much of it was down to something more mundane: smaller inventories. One authoritative study found that more than half the improvement in the stability of rich-world growth was explained by diminished inventory cycles.The classic stockbuilding cycle, in which inventory changes add to the momentum of gdp on the way up (through over-ordering) and on the way down (through stock clearances), is showing signs of a revival. Some big American retailers, notably Walmart, have reported large increases in stocks. In part this is the result of errors in forecasting demand. But it also reflects an increase in the desired level of inventories. As just-in-time production gives way to just-in-case stockpiling, the scope for greater volatility in gdp, and in corporate earnings, is increasing.To understand why inventories are rising again, it helps first to understand why they fell. Improvements in computing mean that firms have more detailed and timelier information about demand from consumers. Such changes made large precautionary stockholdings redundant. A related factor is carrying cost. Interest rates were high in the 1980s, when businesses first began to favour leaner inventories. And a dollar in stock is a dollar that cannot be used profitably elsewhere. Accompanying this was the widespread adoption of just-in-time manufacturing, with its emphasis on flexible supply.For the leanest companies, inventory consists of whatever FedEx or ups is carrying for them. Or it did until recently. The tech-and-trade wars between America and China challenged assumptions about the security of supply. The pandemic (and now the war in Ukraine) upset them completely. The pattern of demand suddenly shifted as locked-down consumers could not spend on dining out or live entertainment; instead they spent more on goods that could be ordered online and delivered to their door. Meanwhile shortages of workers and of key inputs, notably semiconductors, meant that some orders could not be fulfilled. Businesses lost sales for want of inventory. Logistical snafus became a board-level discussion.The result, inevitably, has been an overcorrection. Having lagged behind spending, inventories got ahead of it. The share prices of Walmart and Target fell sharply in mid-May when the two retailers revealed they had been left with large stocks of unsold goods, after misjudging the strength of demand. Even the mighty Amazon has been blindsided, as the e-commerce share of retail sales, which exploded in the pandemic, has fallen back towards its pre-covid trend. The cyclical effects of all this will have to be reckoned with. Some retailers may be holding the wrong stock for the time of year. They will either have to store it, mark down prices to clear it quickly, or move it on to discount retailers that specialise in selling out-of-season stock. Inflation will be lower than it would otherwise have been. Some companies that have over-ordered will cut back on purchases to allow stock levels to adjust to the trend in spending. Albert Edwards of Société Générale, a French bank, reckons that the pain will be felt more in China, as “demand for Chinese imports gets hit hard just when the Chinese authorities are struggling to revive their moribund economy”.Yet there is something more profound at play. Just-in-time production assumes a largely frictionless world—of open borders, predictable demand and low transport costs. This can no longer be relied upon. Inventory is a form of insurance against unexpected delays. And though insurance is costly, company bosses seem willing to pay for more of it. The trade-off between efficiency and self-insurance, between just-in-time and just-in-case, has shifted markedly towards the latter. And larger inventories imply greater scope for inventory cycles in the future.There is a paradox here. The more companies seek to self-insure by holding more stocks, the more volatile gdp (and thus corporate earnings) is likely to become over time. American retailing might thus be offering a preview of a particular future—of jumpier revenues and more frequent profit warnings. The Great Moderation is going into reverse. Read more from Buttonwood, our columnist on financial markets:Is China “uninvestible”? (May 21st)Why Italy’s borrowing costs are surging once again (May 14th)Who wins from carnage in the credit markets? (May 7th)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

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    Should China spend more on infrastructure?

    Rarely can so much have been used by so few. During Shanghai’s long lockdown, which mercifully eased this week, the city’s impressive infrastructure stood in splendid isolation from most of the citizens it is meant to serve. The metro (all 831km of it) was eerily quiet. The two airports, which handled 120m passengers in 2019, operated at 99% below their normal level. The famous mag-lev train neither magnetised nor levitated. Six-lane highways provided an ocean of road space for handfuls of scooters. China is renowned for creating “ghost cities”: new, sparsely populated districts that gradually come to life as people move into them. Shanghai’s lockdown reversed this process, turning a lively metropolis into something undead. This surreal underuse of existing infrastructure notwithstanding, the government’s best hope for reviving the economy is to add more of it. Much more. Spending on transport, water conservation and renovating old neighbourhoods will be a “strong driving force” for the economy, helping to employ China’s 290m migrant workers, said Li Keqiang, the prime minister, in an emergency teleconference with thousands of local officials on May 25th. The government will also “vigorously” promote 102 “major projects”, listed in the country’s five-year plan, such as flood prevention, ultra-high-voltage power lines and four-lane expressways—including one to a city in Yunnan renamed Shangri-La.If Omicron resurges, recurring lockdowns may prevent China spending its way out of trouble this year. But even if everything goes to plan, a successful stimulus will raise a deeper question. Does China need all that additional infrastructure? Or will the extra spending leave behind superfluous “white elephants”, as undisturbed by human traffic as the airports, roads and railways of locked-down Shanghai?The question is tricky to answer, because infrastructure in China is hard to measure or even define. The definition used by the National Bureau of Statistics (nbs) often leaves out areas such as gas and electricity, as well as social sectors like education and health care. Worse, the official investment figures, designed with central planners in mind, are not consistent with modern national accounting. Nor, owing to shifts in classification and reporting thresholds, are they consistent with themselves over time. As Carsten Holz of the Hong Kong University of Science and Technology once noted, if one intended to make this data “as unusable as possible, one could probably not do a better job than the nbs does”.In a paper published by the World Bank in 2020, Richard Herd nonetheless estimates that China’s stock of infrastructure and government capital rose from 64% of gdp on the eve of the global financial crisis in 2007 to 107% in 2016 (the most recent figure in his paper). This new prominence of infrastructure (and housing) in Chinese investment may help explain the country’s productivity slowdown over the past decade. Another measure by the imf adds up all the investment undertaken by China’s central and local governments. According to this method, the stock of public capital was even larger: 151% of gdp in 2019, among the highest shares in the world. Both of these measures compare the scale of China’s infrastructure with the size of its gdp. This convention makes some sense: a bigger economy needs a larger backbone to support it. Conversely, a small economy, where people are few in number or limited in their means, can fit into a smaller infrastructural frame. If few people can afford cars, flights or smartphones, a country will have less need of roads, airports and 5g towers. According to this logic, infrastructure is a kind of “input” that should be sized according to the scale of production. But gdp is not the only relevant comparison. Indeed, saying that a country’s infrastructure should be kept in proportion to its gdp is tantamount to saying that poor countries should have poor infrastructure. Some common components of infrastructure are more like amenities than inputs to production. A cleaner environment, a faster bus trip or a more comfortable train journey are things people of all income levels can appreciate. On this view, what matters is the amount of infrastructure per person, regardless of their income.Sadly, China’s infrastructure is less impressive when compared with the size of its vast population. For example, it has 120km of motorways per 1m people, compared with 179km in France and 326km in America. And it has 106km of railway per 1m people, compared with 236km in Britain and over 400km in Germany. China’s metro lines are more than 20 times as long as those in France. But China’s population living in cities (of over 500,000 people) is also more than 20 times as large. China also has only 4.4 intensive-care beds for every 100,000 people, according to some estimates, compared with 14 in America—a catastrophic shortage of medical infrastructure that helps explain its lack of tolerance for covid outbreaks. Indeed, there are 37 economies in the imf’s database that have a higher stock of public capital per person than China. Presumably those economies do not think that their extra infrastructure is entirely superfluous. The longer road to Shangri-LaCritics of China’s proposed infrastructure stimulus worry that it will crowd out other, more productive forms of spending. But in China’s covid-wracked economy, other spending is unusually weak. Without government help, the level of demand might not be enough to fully employ the country’s labour and capital, including its existing infrastructure. A recession can impose the same kind of compulsory idleness on an economy as a lockdown. The time and energy that China’s workers will devote to extending power networks, waterways and roads to Shangri-La might otherwise be lost to the economy for ever. Wasteful spending is a curse in China. But underspending can be the most elephantine waste of all. ■Read more from Free Exchange, our column on economics:How economic interdependence fosters alliances and democracy (May 28th)How to unleash more investment in intangible assets (May 21st)The world needs a new economic motor. Could India fit the bill? (May 14th)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

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    From EV batteries to coffee: Ideas about recycling and nature are changing how firms do business

    IOT: Powering the digital economy

    “We are talking about the energy transition, but it is … a prerequisite of a much bigger transition, which is the ecological one,” Andrea Illy, chairman of illycaffè, says.
    Business practices connected to the idea of a circular economy have gained traction in recent years.
    For Dickon Pinner, senior partner and co-leader of McKinsey Sustainability, nature is “like the balance sheet of the planet.”

    A hot cup of coffee is the perfect start to the day for millions of people around the world. But when taking that first sip, it’s easy to forget how much work goes into bringing it to the table.
    From the farmers cultivating and harvesting coffee plants, to milling and roasting, many crucial and labor-intensive steps are involved in coffee production. Like all industrial processes, it often uses a lot of land, water and energy.

    This means there’s an increasing amount of scrutiny surrounding the sustainability of the journey from bean to cup — something that hasn’t gone unnoticed by the bosses of the some of the world’s biggest coffee companies.
    “We need to change our development model,” Andrea Illy said at the World Economic Forum earlier this month, referencing the “extractive model” of the present and past.
    The chairman of Italian coffee giant Illycaffe, who was talking in broad terms, said the current system was depleting natural resources and producing an “infinite” amount of residues.
    These were “polluting and accumulating in the biosphere, eventually suffocating it and preventing the biosphere to self-regenerate,” he added.
    “The idea is we need to shift this model and create a new ‘bio-mimic’ model, working like nature, using only renewables … possibly solar.”

    “We are talking about the energy transition, but it is … a prerequisite of a much bigger transition, which is the ecological one,” Illy also told CNBC’s Steve Sedgwick on the panel at WEF.

    Read more about energy from CNBC Pro

    Illy’s argument feeds into the notion of the circular economy. The idea has gained traction in recent years, with many companies around the world looking to operate in ways that minimize waste and encourage re-use. 
    Also speaking on the WEF panel was Maria Mendiluce, CEO of the We Mean Business Coalition. She stressed that ideas connected to circularity were not restricted to food production.
    “I don’t think we have exploited, fully, the power of [the] circular economy — also in the industrial systems,” she said, adding that now was “the right moment to do so.”
    Mendiluce went on to discuss the rare materials required for the transition to a more sustainable economy, with specific reference to original equipment manufacturers, or OEMs, such as automakers.

    More from CNBC Climate:

    “If you talk to the OEMs, [the] circular economy is front and center on the strategy, because we need to recycle these materials — cobalt, nickel, etcetera — to be able to provide the batteries for the future,” she said.
    Slowly but surely, companies are developing processes to recycle materials used in technologies crucial to the energy transition.
    Last November, for instance, Swedish battery firm Northvolt said it had produced its first battery cell with what it described as “100% recycled nickel, manganese and cobalt.”
    And a few months earlier, in June 2021, General Electric’s renewables unit and cement giant Holcim struck a deal to explore the recycling of wind turbine blades.
    Returning to the theme of how the natural world could influence business practices, Dickon Pinner, senior partner and co-leader of McKinsey Sustainability, described nature as “like the balance sheet of the planet.”
    “There are so many dependencies of the real economy on nature that many companies [and] governments have not yet fully realized,” he said. “The interdependence is … so great.” More

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    Self-driving car companies' first step to making money isn't robotaxis

    When it comes to revenue, robotaxi apps show companies are still heavily subsidizing rides. For now, the money for self-driving tech is in software sales.
    Investment analysts from Goldman Sachs and Nomura point to opportunities in auto software itself, from in-car entertainment to self-driving systems.
    Last week, Chinese self-driving tech start-up WeRide said it received a strategic investment from German engineering company Bosch to produce an assisted driving software system.

    A WeRide robotaxi with health supplies heads to Liwan district on June 4, 2021, in the southern Chinese city of Guangzhou.
    Southern Metropolis Daily | Visual China Group | Getty Images

    BEIJING — While governments may be wary of driverless cars, people want to buy the technology, and companies want to cash in.
    It’s a market for a limited version of self-driving tech that assists drivers with tasks like parking and switching lanes on a highway. And McKinsey predicts the market for a basic form of self-driving tech — known as “Level 2” in a classification system for autonomous driving — is worth 40 billion yuan ($6 billion) in China alone.

    “L2, improving the safety value for users, its commercial value is very clear,” Bill Peng, Hong Kong-based partner at McKinsey, said Monday in Mandarin translated by CNBC. “Robotaxis certainly is a direction, but it doesn’t [yet] have a commercialization result.”
    Robotaxi businesses have made strides in the last several months in China, with Baidu and Pony.ai the first to get approval to charge fares in a suburban district of Beijing and other parts of the country. Locals are enthusiastic — Baidu’s robotaxi service Apollo Go claims to clock roughly more than 2,000 rides a day.
    But when it comes to revenue, robotaxi apps show the companies are still heavily subsidizing rides. For now, the money for self-driving tech is in software sales.

    Lucrative tech

    Investment analysts from Goldman Sachs and Nomura point to opportunities in auto software itself, from in-car entertainment to self-driving systems.
    Last week, Chinese self-driving tech start-up WeRide said it received a strategic investment from German engineering company Bosch to produce an assisted driving software system.

    The goal is to jointly develop an L2/L3 system for mass production and delivery next year, Tony Han, WeRide founder and CEO, told CNBC. L4 designates fully self-driving capability under specific circumstances.
    “As a collaborator, we of course want this sold [in] as many car OEMs in China so we can maximize our [revenue and] profit,” he said, referring to auto manufacturers. “We truly believe L2 and L3 systems can make people drive cars [more] safely.”
    In a separate release, Bosch called the deal a “strategic partnership” and said its China business would provide sensors, computing platforms, algorithm applications and cloud services, while WeRide provides the software. Neither company shared how much capital was invested.
    The deal “is very significant,” said Tu Le, founder of Beijing-based advisory firm Sino Auto Insights. “This isn’t just a VC that sees potential in the overall market and invests in the sector.”
    He expects the next step for commercialization would involve getting more of WeRide’s technology “bolted on the partner OEM’s products in order to get more pilots launched in China and experimenting with paid services so that they can tweak business models and understand the pricing dynamics and customer needs better.”

    WeRide has a valuation of $4.4 billion, according to CB Insights, with backers such as Nissan and Qiming Venture Partners. WeRide operates robotaxis and robobuses in parts of the southern city of Guangzhou, where it’s also testing self-driving street sweepers.
    CEO Han declined to speak about specific valuation figures. He said that rather than needing more funds, his main concern was how to reorganize the start-up’s engineers.
    “Because Bosch is in charge of integration, we have to really spend 120% of our time to help Bosch with the integration and adaptation work,” Han said. WeRide has yet to go public.

    The China stock play

    For publicly listed Chinese auto software companies, Goldman’s thematic picks for autonomous driving include ArcSoft and Desay SV.
    An outsourcing business model in China gives independent software vendors more opportunities than in the United States, where software is developed in-house at companies like Tesla, the analysts said. Beijing also plans to have L3 vehicles in mass production by 2025.
    “Auto OEMs are investing significantly in car software/digitalization to 2025, targeting US$20bn+ of obtainable software revenue by decade-end,” the Goldman analysts wrote in mid-March.

    Read more about electric vehicles from CNBC Pro

    They estimate that for every car, the value of software within will rise from $202 each for L0 cars to $4,957 for L4 cars in 2030. For comparison, the battery component costs at least $5,000 today. By that calculation, the market for advanced driver assistance systems and autonomous driving software is set to surge from $2.4 billion in 2021 to $70 billion in 2030 — with China accounting for about a third, the analysts predict.
    In September, General Motors announced it would invest $300 million in Chinese self-driving tech start-up Momenta to develop autonomous driving for GM vehicles in the country.
    “Customers in China are embracing electrification and advanced self-driving technology faster than anywhere else in the world,” Julian Blissett, executive vice president of General Motors and president of GM China, said in a release.
    Correction: This story has been updated to correct the currency conversion figure for the estimated size of the self-driving tech market.

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