Could Baidu and Geely’s Tie-up Challenge Tesla’s Dominance in China?

Last Monday, Baidu announced a strategic partnership with Geely aimed at manufacturing electric vehicles (EV) for China. (Source: Baidu)

It’s official: China’s largest search engine and China’s largest private automaker are joining forces.

Last Monday, Baidu announced a strategic partnership with Geely aimed at manufacturing electric vehicles (EV). As part of a deal to set up an intelligent EV company, Baidu will provide in-vehicle software, while Geely will put its engineering capabilities on the table, with the new passenger vehicle to be produced at Geely’s factories.

Recently, carmakers, startups and tech giants have been racing to bring autonomous vehicles to the consumer passenger market, by entering joint ventures or through acquisitions of tech firms.

China’s EV industry – the world’s largest – has also undergone tremendous changes over the past few years, with homegrown startups like Nio, XPeng and Li Auto lining up to challenge U.S. carmaker Tesla’s dominance as demand rebounds. Nio, which last week unveiled its first luxury electric sedan, the ET7, and is making plans for a groundbreaking solid-state battery, saw its New York-listed shares surged 187% over the past three months. Xpeng jumped 163% while Li Auto gained 83% in the same period.

By some estimates, the global autonomous vehicle industry could be a $7 trillion market by 2050.

And Baidu knows that. Its decision to finally delve into the smart electric car space shows its ambition to become China’s transportation powerhouse with its self-developed Apollo, one of the world’s largest open-source autonomous-driving platform.

The move from Baidu piqued the interest of Ark Investment, run and led by Catherine Wood, who has been dubbed the female Warren Buffet and most known for having had the foresight to bet big on Tesla. Wood’s team bought nearly 400,000 shares of Baidu following the news, adding up to the 2.7 million Baidu shares currently held by three of Ark Invest’s funds.

Automotive analysts and industry experts Pandaily spoke to were optimistic about the venture, saying the collaboration between Baidu and Geely is definitely a win for both parties.

“Baidu is the brain, Geely is the body; it’s a perfect match,” founder of Shanghai-based consultancy Automotive Foresight Yale Zhang told Pandaily.

“This is definitely a positive development in terms of the auto industry’s shift to electrification,” he said.

Collaboration Could Create New Car-making Model

Compared with domestic rivals such as Nio and Li Auto, analysts believe Baidu’s core competitive advantage lies in its well-established software and deep expertise in autonomous driving. The collaboration could even introduce a new car-making business model to the industry as a whole, according to a report by 21st Century Business Herald.

The new company is not a subsidiary under Baidu’s Apollo unit and will operate independently, which will give Baidu a better position to take more innovative approaches in the EV and autonomous driving (AD) markets, other analysts added.

In addition, Baidu confirmed to Pandaily that it would hold a majority stake and absolute voting power in the new firm while Geely would have a minority stake.

Baidu’s autonomous robotaxi service, Apollo Go, is operating in Beijing, Changsha and Cangzhou, and is expected to expand to 30 cities in three years. (Source: Baidu)

Under this structure – which is different from other joint ventures seen between tech and auto companies, analysts believe Baidu will be able to optimize software-hardware integration and create a better synergy between existing products and services in its ecosystem.

“Based on the stakeholder structure, we can interpret that Baidu will have full control of the product and operations of the new company, unlike collaborations between Changan and Huawei, or Alibaba and SAIC, where the automaker has more say over decisions or the direction of the company,” Richard Wang, a senior analyst at the Gasgoo Auto Research Institute told Pandaily.

“With Baidu and Geely, it’s the other way around,” he said. “Baidu will have more control in terms of the product concept, design, management, sales and operations.”

The collaboration will be based on Geely’s Sustainable Experience Architecture (SEA), an 18 billion yuan ($2.7 billion) EV-focused platform that relies on the use of aluminum to make vehicles lighter and a front steering system for steady driving.

The next-generation vehicles are expected to be sold under a new brand and loaded with Baidu’s full set of internet connectivity infrastructures including the autonomous driving platform Apollo, voice assistance platform DuerOS and Baidu Maps.

Baidu will be able to share data insights and build better in-vehicle experiences based on consumer requirements and preferences, while Geely will contribute to automobile design and manufacturing.

A Permanent Home for Apollo

Baidu is one of the largest and earliest companies in China to start artificial intelligence research, development and investments, and established Apollo in 2017. Since then, it has been supplying AI-powered technology to automakers including Volkswagen AG, Toyota and Ford Motor.

The firm’s autonomous robotaxi service, Apollo Go, is operating in Beijing, Changsha and Cangzhou, and is expected to expand to 30 cities in three years.

When Apollo was announced, some automakers remained reluctant to fully incorporate Baidu’s voice-enabled operating system into their vehicles’ dashboards due to ownership concerns, Automotive Foresight’s Zhang said.

“So, it’s very probable that Baidu has grown impatient and decided to take a leap of faith to manufacture their own cars,” he said.

“Baidu has always been a supplier or technology partner in partnerships. Now, it is taking back control and has found a permanent home for Apollo,” Gasgoo’s Wang said.

Baidu is one of the largest and earliest companies in China to start artificial intelligence research, development and investments, and established Apollo in 2017. (Source: Baidu)

Moreover, Wang believes the new structure of the collaboration with Geely works because the value of an autonomous vehicle will lie in its information and communication technology infrastructure, meaning tech companies, rather than traditional automakers, will dominate the value chain.

“We believe this initiative could help Baidu not only accelerate but enhance the development of autonomous driving capabilities through seamlessly integrating hardware and software,” KeyBanc analyst Hans Chung said.

SEE ALSO: Baidu to Launch Intelligent Electric Vehicle Company with Geely

Why Geely?

Geely, which owns Volvo and a 9.7% stake in Mercedes-Benz parent Daimler, is China’s largest private automaker by sales. The Hangzhou-based firm sold more than 1.32 million vehicles in 2020 and celebrated the milestone of selling 10 million vehicles globally last year.

Introducing Baidu’s intelligent vehicle solutions to its cars is supposed to benefit Geely, which is attempting to undergo a transformation from being a traditional manufacturer to a leader in the auto-tech industry focusing on electrified mobility.

The two companies are no strangers to one another. In October, the tech giant led a 1.3 billion yuan ($194 million) Series A funding round in ECARX, an intelligent software provider backed by Geely. Meanwhile, the infotainment system in Geely’s vehicles has been incorporated with Baidu’s voice recognition technology and other toolkits since late 2019.

Geely, which owns Volvo and a 9.7% stake in Mercedes-Benz parent Daimler, is China’s largest private automaker by sales. (Source: Weibo/Geely)

Collaborating with Baidu can also boost Geely’s valuation as it seeks a secondary listing on the Shanghai Stock Exchange, Wang said. Previous reports said that Geely is planning to raise 20 billion yuan ($2.93 billion) from a public share sale.

“Working directly with a large tech company like Baidu is a big step forward for Geely. This is a really good opportunity for the firm to try something new,” Wang said.

“Geely has been placing a strategic priority in developing areas of electrification, and we’ve seen really innovative developments from the company. To me, this is a natural course for the firm to take,” Zhang said.

Additionally, Haitong International analyst Shi Ji said all automakers would need to transform themselves into more tech-oriented companies as intelligent connectivity will play a much more important role in the future.

Steering China’s Automotive Industry into the Fast Lane

The Chinese government hopes that 30% of cars sold by 2025 will have smart connectivity and has been providing extensive policy support to the EV sector, including tax subsidies, license plate laws, registration benefits and charging infrastructure investments.

The government also signaled its intention to achieve mass production of lower-level autonomous vehicles by then, publishing a strategy for connected vehicles and mobility systems in February. In a 2018 report, Deloitte predicted sales of L4 autonomous vehicles in China to exceed 500,000 units by 2030.

“In China, common consensus in the industry is that autonomous driving, especially the development of L3 and L4 automation, remains a hot area of investment. We’re expecting more new players to enter and disrupt the market in the next two to three years,” Wang said.

The infotainment system in Geely’s vehicles has been incorporated with Baidu’s voice recognition technology and other toolkits since late 2019. (Source: Geely)

But whether the whole will be larger than its parts, analysts say, depends on how Baidu and Geely define their strategic partnership.

Their collaboration could lead the ongoing intelligent vehicle revolution, Wang believes, provided that both parties agree to set up a clear organizational structure for the new company.

“The cooperation can contribute greatly to the development of electric vehicles and autonomous driving technology,” said Zhang, cautioning however that products from the new company would need excellent brand-building capabilities and clear differentiation from Geely’s existing models.

“Software and data will become fundamental differentiators when building and operating cars, and the collaboration between Baidu and Geely will propel the industry transformation overall,” Wang said.

By venturing into the EV sector and disrupting the transportation industry, China’s digital giants are set to dominate in-car connectivity operating systems and take hold of technological commanding heights. Investors, auto enthusiasts and Chinese consumers will be watching the space with keen interest, impatiently waiting for the next auto breakthrough of the decade.