Global carmakers are racing to leverage local Chinese technology, particularly smart in-car functions and advanced driver assistance systems, to sharpen their competitive edge in the world's largest and also fiercest auto market.

"A number of carmakers have become more proactive in embracing China's R&D and technological strengths. We saw them acknowledge the current competitive advantage that Chinese companies hold," said Paul Gong, an automotive industry analyst at UBS.

German carmaker BMW said on Sunday that it is integrating Chinese AI model DeepSeek into vehicles sold in China, with the feature to be available from the third quarter of this year.

"Artificial intelligence is a prime area for future cooperation and perfectly demonstrates how we are building out our local anchoring," said Oliver Zipse, chairman of the board of management of BMW Group.

The carmaker said DeepSeek will become standard across its latest China-made Neue Klasse models that are expected to roll out in 2026 from its production base in Liaoning province.

BMW has also unveiled two China-exclusive AI agents for the Neue Klasse models, "Car Genius" and "Travel Companion", in partnership with Alibaba.

The first, working as a digital manual, answers questions about the car itself, such as how to activate one function or another, while the other can offer tips on destinations and plan trips.

Mercedes-Benz unveiled its long-wheelbase CLA last week at the Shanghai auto show, which features the Doubao large language model from ByteDance.

This allows its in-car virtual assistant to offer more interactive, local features such as searching for restaurants or streaming digital content.

"Together with our local team and partners, we aim to offer the best-fit products to Chinese customers at China speed and to the Mercedes-Benz standard," said Oliver Thoene, a member of the board of management of Mercedes-Benz Group AG.

Driver assistance systems, which are better known as smart driving, are another area that overseas carmakers are highlighting in their cooperation with local Chinese companies.

Sino-German joint venture FAWAudi unveiled its A5L sedan at the Shanghai auto show, which is the first gasoline-powered model in China to have the driver assistance system from Huawei. Its electric Q6L e-tron SUVs will feature the system as well.

Li Fenggang, executive vice-president of FAW-Audi Sales Co, said Audi approached Huawei five years ago for cooperation.

"We realize that Chinese customers want such technology. As a premium brand, we wanted to work with the best partner in this field, which is Huawei," said Li.

Another Chinese smart driving company Momenta announced on Thursday it had reached deals with six major auto brands, primarily overseas ones, including GM's Buick and Cadillac, Toyota and Honda.

Honda said it will "leverage Chinese technologies to swiftly deliver products that meet the expectations of customers in China", saying that technological innovations in the areas of electrification and intelligence are advancing rapidly.

Volkswagen, the most popular overseas brand in China, has gone even further by investing in local smart driving company Horizon Robotics in 2022.

The deal, which is Volkswagen's largest single investment in China, allowed it to have a stake in the startup and also to build a joint venture with the company.

The products developed by the joint venture, Carizon, will be available in Volkswagen models in China from 2026.

"We are in deep collaboration with Horizon Robotics and other Chinese tech leaders to ensure our products meet the unique demands of the Chinese market," said Stefan Mecha, CEO of Volkswagen China Passenger Cars Brand.

Ola Kaellenius, chairman of the board of management of Mercedes-Benz Group AG, sees a growing role for China beyond the domestic market. "We see this (R&D in China) as a source of inspiration not just to delight the customers in China but to use what we learn and innovate here also for the rest of the world," he said.

UBS auto analyst Gong said China's role has evolved over the past years for global carmakers.

"China has evolved from a market with potential to the largest and most profitable market, then into the most competitive manufacturing hub, and gradually into a training ground and fitness center — and now, into a 'brain', the core of research and development," he said.