China is the world’s fastest growing automotive market and the high growth in vehicle sales in the country is driving the growth in connected in-vehicle telematics and infotainment systems fitted in cars. ABI Research forecasts that almost one in two cars sold in China by 2018 will be supplied with either an embedded, or hybrid OEM-fitted telematics and infotainment system.

Although the penetration of telematics and in-car infotainment services is very low at present, it is expected that more than 20 OEMs will launch services in China during the next 2-3 years to address the growing consumer demand for connectivity. However, these OEMs, particularly the foreign companies, face significant financial and strategic challenges in deciding which companies to partner with along the value chain.

“China is a unique, complex, and highly regulated market and strong partnerships are required with leading Chinese players who can provide access to the host of obligatory licenses required to operate in China,” comments principal analyst, Gareth Owen.

In terms of innovation, China is still playing catch-up and relies mostly on the expertise of foreign companies to design systems for the Chinese market. “However, as the Chinese telematics and infotainment market grows, it is inevitable that Chinese manufacturers will develop their own technology and launch domestically developed infotainment systems. There are already several examples of this,” continues Owen.

While in-vehicle telematics seems very appealing to Chinese consumers, there are some critical factors that need to be overcome in order to drive significant market growth in service revenues. Top of the list is establishing a successful business model. As with elsewhere in the world, the percentage of renewals on OnStar, Toyota G-Book, and SAIC Inkanet is very low which makes it difficult for these services to be profitable.

“Although luxury brands such as BMW and Audi position their connected services as a way to improve customer relationships and to differentiate their brands, rather than as a way of developing new revenue streams, the majority of OEMs are experimenting with different strategies in a bid to improve re-subscription rates and ultimately achieve profitability,” adds Owen.

These findings are part of ABI Research’s Automotive Infotainment Research Service which provides analysis of key developments and trends in the marketplace and quantitative information via its extensive car infotainment database.