Mercedes-Benz will develop smart driving cars for global markets equipped with Hesai's lidar sensors, a person with direct knowledge said, the first time a foreign automaker has sought to use such Chinese-made technology for models sold outside China.

It coincides with an increase in trade tensions as the US intensifies efforts to restrict the adoption of Chinese components and software solutions in vehicles developed by global automakers.

At the same time, German automakers that are big contributors to the ailing German economy, are anxious to be as competitive as possible.

The person, who declined to be named because the matter is private, said Mercedes had deliberated for months over the decision because of legal and geopolitical risks.

It eventually chose Hesai, China's largest lidar maker, because of its lower costs and its ability to produce at scale, the person added.

Mercedes did not immediately respond to a request for comment.

Hesai, whose competitors include US-based Luminar, on Monday announced an "exclusive multi-year" contract to supply its lidar products to a European automaker it described only as leading but did not name.

Lidar uses lasers to produce three-dimensional images of a vehicle's surroundings to help navigation around obstacles. The sensors are a component of many self-driving systems automakers are developing.

Hesai's Chief Financial Officer Andrew Fan told Reuters on Tuesday in an interview after its quarterly earnings that it was a commercial decision by the partner. He also declined to name the company.

"I assume the automaker has to find alternatives that can be comparable to Hesai's products on performance and price but the result is there is none," Fan said.

European makers have used Hesai as a lidar supplier for their models sold in China, he added.

Hesai has been expanding two production lines in China to achieve an annual capacity of more than 2 million units this year to meet the rising demand, Fan said.

It is also setting up production lines overseas with a target to launch them as early as next year to serve its clients out of China concerned about tariff and logistics risks, Fan said. He declined to say where the overseas factory will be located.

Demand for lidar is increasing in the highly-competitive Chinese market as automakers increasingly offer smart features on affordable models.

On Monday, Leapmotor (9863) started sales of its B10 SUV with an advanced smart driving feature from US$17,950 (HK$140,000).

The car is equipped with Hesai's ATX lidar, which cost around US$200 each, less expensive than safety belts and air bags, Fan said.

REUTERS

Mercedes to develop smart cars for global markets with China's Hesai lidar