China’s driverless car start-ups expect large-scale commercialization of self-driving taxis in 2023 as the country’s technology giants vie to get a lead in the autonomous vehicle race. 

A number of so-called “robotaxi” projects have popped up in the world’s second-largest economy over the past two years, with the companies involved eyeing creating viable autonomous ride-hailing businesses.

“Robotaxis is the premier market for self-driving cars,” Jianxiong Xiao, CEO of autonomous car technology firm AutoX, told CNBC in an interview. 

AutoX, a company backed by e-commerce giant Alibaba, develops hardware and software for cars that makes them driverless. It is one of the many Chinese firms that has launched a robotaxi project. Last month, the company opened its robotaxi service to the public in Shanghai, where it is headquartered. Users can book a ride through the Amap app, which is owned by Alibaba.

China has the potential to become the world’s largest market for autonomous vehicles, according to McKinsey. The consultancy forecast driverless cars to account for as much as 66% of the kilometers traveled by passengers in 2040. That could generate market revenue of $1.1 trillion from mobility services and $900 billion from sales of autonomous vehicles by that year. 

With the market set for explosive growth, competition is heating up.

WeRide is another start-up developing driverless car technology and launched a robotaxi project in the southern city of Guangzhou at the end of last year. It has since expanded and users can also now hail a ride through Alibaba’s Amap app. 

WeRide’s self-driving fleet of more than 100 vehicles and has clocked up around 2.7 million kilometers of open road testing, CEO Tony Han told CNBC. This is not solely for the robotaxi pilot. 

Ride-hailing firm DiDi, search giant Baidu and start-up Pony.ai are among the other players who have working public robotaxi projects. 

While autonomous ride hailing is still in its infancy and these robotaxis still have to have a safety driver in the cars, the Chinese government has been pushing the development of the technology. Cities have been granting licenses for these robotaxi projects to happen. 

With the technology progressing quickly, companies are looking to create sustainable business models. As well as selling or licensing their technology to carmakers, robotaxis are one near-term revenue driver.

As the hardware costs of autonomous car technology fall, automation could replace drivers and create a viable business model. 

“Robotaxi is using machine to replace human labor,” Han told CNBC in an interview. “(The) price of hardware is dropping by 20% to 30% every year. Human labor on the other hand with the development of China economy and with the ageing of society … is hijacking.”

“(In the) range of 20 year or 30 years we can make the taxi driver as some job that existed only in history … like a typist.”

Han predicts that large-scale application of robotaxis will take place between 2023 and 2025. He added that WeRide will start to make money from the business in 2025. 

Meanwhile, AutoX’s Xiao said he expects commercial usage, with no safety driver, to generate income by 2022 at the earliest but possibly in 2023, depending on regulation. 

Xiao argues robotaxis make sense over traditional taxis because it eliminates the cost of the driver. 

“We definitely see the robotaxi as the biggest market (for autonomous cars). At the same time it’s the most easily commercialized market,” Xiao told CNBC. 

But there are still some challenges ahead. 

“Although technology is extremely important and I think in the future if we really want to make robotaxi a reality or just a routine transportation method, we have to make sure our roads are built to a higher standard,” Han said. 

He argued roads need to be designed in a way that is more supportive to driverless cars. Robotaxi projects are run in one district of a city, usually a newly-developed area. Han said that when the government sees how safe and reliable the transport is, they will be convinced to improve roads and infrastructure in other parts of the cities. 

“I think this is marathon, (there is) still a long way to go,” Han said.