(ATF) China’s search engine giant Baidu and Chinese automaker Zhejiang Geely Holding Group announced they will form a joint venture to produce 'intelligent' electric vehicles (EV) after reports on the tie-up made Geely’s Hong Kong-listed subsidiary soar by over 20%
Baidu, which has been developing autonomous driving technology and internet connectivity infrastructure, said in a statement on Sunday that the new EV company will count on Baidu’s "intelligent" driving capabilities and Geely’s car manufacturing expertise.
Geely Holding said in a separate statement on Monday that the two’s collaboration will be based on its EV-focused platform, Sustainable Experience Architecture (SEA), which aims to create an interactive and expandable transport service system and will be made available to Geely’s strategic partners.
Shares of Geely Automobile, Geely Holding’s Hong Kong-listed subsidiary, soared a little over 20% on Friday and its pricing target has been raised by several analysts, after a report last Thursday that Baidu plans to forma company to make 'smart' electric vehicles with production to be done at plants owned by Geely.
The venture will revamp some of Geely's existing car manufacturing facilities to make the vehicles, and Baidu will take a majority stake and absolute voting power in the new company, according to the Reuters report.
Geely Automobile’s dramatic rise added HK$59.4 billion (US$7.7 billion) to its market cap, making it more valuable than China's biggest automaker SAIC Motor Corp during the day on Friday.
Noticing the unusual share price movement, Geely Automobile clarified in a statement on Monday that it is not a party to the proposed deal with Baidu, and is not partnering with Geely Holding in relation to the deal. The statement sent Geely Automobile’s stock price down by over 8% during the day.
However it said Geely Automobile “does not rule out the possibility of exploring potential cooperation opportunities with Baidu Inc”, it said.
Baidu’s Nasdaq-listed shares rose 1.9% on Thursday and 15.6% on Friday.
JP Morgan Chase & Co raised Geely’s rating to “buy” from “neutral”, and its pricing target to HK$50 from HK$18.
Daiwa Securities maintained a “buy” rating for Geely and raised its pricing target to HK$35 from HK$22.30, saying collaboration with Baidu will bring technological support to its EV development. Judging by the pace of Geely’s recent sales growth, Daiwa expects the company to sell 1.68 million cars in 2021, up 25% from the previous year.
Daiwa’s forecast is more aggressive than the automaker itself, which revealed in its December sales report a 2021 target of selling 1.53 million cars with a 16% year-on-year growth rate.
Bank of America Securities raised Geely’s pricing target to HK$32.10, saying the company’s capability to transition from hybrid to EV, a growing market share, and an improved product portfolio will likely increase its gross margin.
Everyone's doing it
Baidu's rival Alibaba has formed an EV joint venture with SAIC, while China's Didi Chuxing is making EVs designed for ride hailing services with BYD.
Cheered by Tesla's success in commercialisation of EVs, internet giants including Tencent Holdings, Amazon.com and Alphabet, have also developed auto-related technology or invested in 'smart-car' startups.
People familiar with the matter said last month Apple is pushing to design an electric vehicle and batteries, aiming at a possible 2024 launch.
Hangzhou-based Geely, China's highest-profile automaker due to group investments in Volvo Cars, Daimler AG and Malaysia's Proton, is expanding EV production.
(With reporting from Reuters)