Move over Alphabet Inc (NASDAQ:GOOG) and Tesla Motors Inc (NASDAQ:TSLA)—there’s a new player in the driverless car market. Baidu Inc (ADR) (NASDAQ:BIDU), known as the Google of China, dominates the Chinese search engine market. But just like Google, Baidu wants to delve into ventures outside of its core business and the company thinks that driverless cars are a good place to start. If Baidu is successful in bringing autonomous vehicles to China’s roads, look for BIDU stock to take off. Here’s why.
Traffic accidents in China claim about 100,000 lives a year. (Source: “Automated Driving Piques Chinese Consumers’ Interest,” Wards Auto, October 20, 2014.) In addition to that grueling statistic, China is starting to become known as the traffic capital of the world. In the U.S., a driver spends about 36 hours every year in traffic jams, but in China, the average driver spends nine days stuck in traffic. (Source: “Here’s the Physics Behind That Insane Chinese Traffic Jam,” Gizmodo, October 9, 2015.) In some freak occurrences, it’s not unheard of for hundreds of drivers to be stuck in a jam that lasts ten days or more.
So given the high rate of accidents and traffic congestion in China, it’s not a surprise to see that Chinese consumers are more interested in driverless cars than the U.S. The technology has the potential to drastically reduce traffic and fatalities.
One report noted that by taking out human emotions and errors from our decision-making while driving, deaths on the road could be reduced by 90%. (Source: “Driverless cars could reduce traffic fatalities by up to 90%, says report,” Science Alert, October 1, 2016.)
Baidu is tapping into this trend by starting development on a driverless car. Baidu, which is working with BMW (ETR:BMW), did a test drive of its autonomous car last December near its headquarters in Beijing. The car was a modified BMW 3 and it performed various tests under different driving conditions around an approximately 19-mile route.
While it looks like Baidu is trying to copy Google by entering into the driverless car market, its brand name in China will give Baidu a competitive advantage in trying to capture the Chinese auto market.
According to Boston Consulting Group, the market for autonomous cars will be about $42.0 billion by 2025 and may be a quarter of global auto sales by 2035. Further, there could be 18 million partial driverless cars and 12 million fully driverless cars by 2035, with China being the largest market by that time. (Source: “Driverless-Car Global Market Seen Reaching $42 Billion by 2025,” Bloomberg, January 8, 2015.)
For Baidu, capturing even a bit of that growth could lead to a huge new revenue source for the company.
The Chinese government also wants to use the Internet to help make roads safer and reduce pollution, which could be a push for driverless cars as well. BIDU stock stands to benefit, as it should be able to capture a majority of that growth in China.
Baidu doesn’t want to manufacture cars—they’ll use BMW’s expertise for that. The company wants to use its Baidu Auto Brain project to develop mapping for highly automated driving (HAD) vehicles.
The technology is able to record three-dimensional road data within a few centimeters of accuracy of vehicle positioning. It can also detect, recognize, and follow other cars with a high degree of accuracy. (Source: “Why Is Baidu Building Driverless Cars?” Forbes, December 11, 2015.) Baidu is also hoping to use the technology for buses.
The Bottom Line on BIDU Stock
The search engine giant is planning to have its driverless cars on the roads in at least 10 Chinese cities within three years. In China at least, Baidu is in a position to get the first-mover advantage. Given the potential growth of the Chinese driverless car market and its strong brand presence, investors may want to take a look at BIDU stock.