This paper qualitatively and quantitatively reviews and compares three typical tyre–road friction coefficient estimation methods, which are the slip slope method, individual tyre force estimation method and extended Kalman filter method, and then presents a new cost-effective tyre–road friction coefficient estimation method. Based on the qualitative analysis and the numerical comparisons, it is found that all of the three typical methods can successfully estimate the tyre force and friction coefficient in most of the test conditions, but the estimation performance is compromised for some of the methods during different simulation scenarios. In addition, all of these three methods need global positioning system (GPS) to measure the absolute velocity of a vehicle. To overcome the above-mentioned problem, a novel cost-effective estimation method is proposed in this paper. This method requires only the inputs of wheel angular velocity, traction/brake torque and longitudinal acceleration, which are all easy to be measured using available sensors installed in passenger vehicles. By using this method, the vehicle absolute velocity and slip ratio can be estimated by an improved nonlinear observer without using GPS, and the friction force and tyre–road friction coefficient can be obtained from the estimated vehicle velocity and slip ratio. Simulations are used to validate the effectiveness of the proposed estimation method.