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Most investors know Alibaba (NYSE: BABA) as China's top e-commerce player and cloud platform provider. However, like many other tech giants, it has diversified far beyond its core business. For instance, Alibaba also was the maker of 39% of the smart speakers sold in China last year, giving it the leading share of that nascent market, according to Canalys.
Alibaba's Tmall Genie smart speakers house its AliGenie virtual assistant, which competes against Xiaomi's Xiao Ai, Baidu's (NASDAQ: BIDU) DuerOS, and Tencent's (NASDAQOTH: TCEHY) Xiaowei. AliGenie is tethered to Alibaba's Taobao and Tmall marketplaces, its Alipay payment platform, and other services. It also acts as a hub for a wide range of smart home devices.
Alibaba's Tmall Genie. Image source: Alibaba.
Last year, Alibaba introduced Tmall Genie Auto, a version for connected cars. BMW and Volvo initially agreed to install Alibaba's speakers in their cars, and the company recently added Volkswagen's Audi, Renault, and Honda to its customer list.
Why Alibaba is interested in the auto market
The Taobao, Tmall, and Alipay apps already have massive presences on Chinese smartphones. However, China's smartphone shipments fell 14% last year, according to Canalys, due to the saturation of the market. Alibaba also faces tough challengers in the smart speaker market -- among them, Baidu, which is growing its shipments at a much faster clip than either Alibaba or Xiaomi.
That's why Alibaba is turning toward China's automotive market. The country had 403 million drivers and 322 million motor vehicles (including 235 million cars) in 2018. Auto sales in China declined last year -- the industry's first contraction there in over two decades -- but Accenture estimates that only about 10% of the country's vehicles have standalone data connections to the internet.
Meanwhile, the Chinese government is trying to boost internet penetration rates by forcing its state-backed telcos to lower their data fees and supporting their 5G upgrade plans. China is also aggressively investing in the development of autonomous vehicles. McKinsey estimates that driverless cars could account for up to two-thirds of China's auto market (in terms of passenger kilometers traveled) by 2040.
By making deals that build its smart speakers into connected vehicles today, Alibaba could get a jump on rivals like Xiaomi, Baidu, and Tencent. And as vehicles become autonomous, Alibaba could integrate more services -- like its streaming video platform Youku Tudou or its UC web browser -- into car displays to entertain passengers. Over the long term, Alibaba could even turn driverless cars into "mobile malls" for online purchases.