China has granted new autonomous-driving permission to electric vehicle (EV) maker Xpeng and a mainland joint venture of Volkswagen, intensifying the commercialisation race between China’s autonomous driving firms and US company Tesla.

Xpeng would now be allowed to conduct “demonstration operations” of its Yoyo driverless taxis in the capital city of southern China’s Guangdong province under a licence officially granted recently, the company said on social media on Monday. The licence, which allows the robotaxis to carry paying passengers, is regarded as a final major test for fleet operators before winning regulatory approval for commercial operations.

The permission would allow Xpeng to gather “real-world operational validation” and help refine a “replicable service system”, the firm said, adding that its experience would lead to “subsequent provision of comprehensive solutions to global partners and the exploration of large-scale commercial deployment”.

Xpeng, regarded as a Tesla challenger, said that its Yoyo robotaxi delivered level 4 (L4) autonomous driving capabilities. Standards organisation SAE International defines L4 as vehicles that can operate without human intervention within specific, mapped environments or conditions.

Meanwhile, Volkswagen (Anhui) Automotive Company won a Level 3 autonomous driving road test licence in Hefei, in eastern China’s Anhui province, the German carmaker announced on Monday. The joint venture between Volkswagen and JAC Automobile Group had already begun real-world road testing and data collection for the technology of conditionally automated driving in the city.

Autonomous driving has become a new battlefield between leaders in China and the US. Dominating the global market, companies in the two countries were operating commercial robotaxi services in 11 and 10 cities, respectively, as of March, according to a May report from the International Energy Agency.

China’s Ministry of Industry and Information Technology has set a 2030 goal of mass application of vehicles with autonomous driving capabilities.

In Guangzhou, Xpeng’s robotaxis will join those of previous licensees including autonomous driving technology start-ups Pony.ai and WeRide, as well as Baidu and Guangzhou Automobile Group.

Tesla aims to launch its Cybercab robotaxis by the end of this year, but robotaxi services are not expected to be a significant contributor to the US giant’s revenue until 2027.

Meanwhile, Xpeng is pressing ahead with its robotaxi business overseas. The firm was in discussions with several leading European ride-hailing platforms, chairman and CEO He Xiaopeng said at the motor show in Paris earlier this month.

He has been a vocal advocate for skipping from the currently prevailing partial driving automation, or L2, directly to L4. He said in March that the transitional step would pose challenges to hardware, software and regulations.

Squeezed by a subsidy pullback and intensified domestic competition, Xpeng’s first-half net loss widened by 173 per cent year on year to 3.1 billion yuan (US$465 million).

The global robotaxi sector was on track to become a US$1 trillion market by 2040, according to a Morgan Stanley research note published in July, with Chinese players like Baidu, Xpeng and WeRide primed to be regional front-runners alongside global leaders Tesla and Waymo.

Backed by lower hardware costs, rapid advances in artificial intelligence and clearer regulations, the bank expected robotaxi services to be able to cover the operating costs of vehicles by 2028, setting the stage for scaled commercial operations by 2030.