Big news for EV maker Tesla(NASDAQ: TSLA) today -- the company just took a big leap forward with its plans to offer full self-driving features for its electric vehicles sold in China. That is, it announced it's officially partnering with China's search engine giant Baidu(NASDAQ: BIDU), which will be providing the digital maps required by Tesla's autonomous driving technology. Tesla shares jumped nearly 15% on the report, which is expected to make its cars even more marketable in that large market.
But the development also is being viewed as a victory for Baidu itself, sending shares of the so-called Google of China 5.7% higher at market close Tuesday on the news.
Tesla and Baidu team up
It's called the Google of China for good reason. Baidu control's roughly two-thirds of China's web search engine market, according to GlobalStats' StatCounter, but also offers cloud computing services, manages an online streaming video platform called iQIYI, and perhaps most notably has been working on its own autonomous driving tech for several years. Integrating this work with Tesla's hardware shouldn't prove complicated, particularly given that it's already been working with the electric vehicle outfit for some time.
The upside for Tesla is clear: More and more of China's drivers are interested in assisted-driving features. An outlook from S&P Global Mobility suggests China will be the world's biggest market for robotaxis and assisted-driving technology by 2035.
It's a complicated regulatory market, however, requiring the use of mapping technology specifically licensed by Beijing to gather the digital data needed to make self-driving automobiles safe. Baidu has such a license.
While the terms of the agreement were not disclosed, presumably it's not fiscally insignificant for Baidu. Even if it's not a game-changing partnership, though, the agreement will allow Baidu to further develop and test its mapping technology, which -- like Alphabet's Google maps -- is a profit center for Baidu in and of itself.
Wrong reason, but still the right stock
The upside for Baidu is clear. But does this deal suddenly make the stock nearly 6% more valuable than it was at the end of last week? Does it make it a buy that it wasn't before?
The answer to both question is, probably not.
That's not to suggest there's no incremental, measurable benefit behind the Tesla/Baidu partnership. There may well be. Baidu is a well-diversified company in many different businesses. Expanding this one isn't apt to be significant...now, or later.
Still, this development does bolster the already bullish case for Baidu stock.
Baidu shares are bargain-priced at less than 10 times this year's projected per-share profits, with sales and earnings growth in the cards this year and next. It's also one of the better (even if overlooked) ways to plug into China's budding economic recovery. Despite China tripping over several stumbling blocks of late, the International Monetary Fund still believes China's GDP will grow at a clip of 4.6% this year.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Baidu, and Tesla. The Motley Fool recommends iQIYI. The Motley Fool has a disclosure policy.
