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Baidu Shares Soar on Popularity of Robotaxi Service
Baidu's stock experienced a significant surge, with shares climbing the most in over a year, largely due to increased enthusiasm surrounding its Apollo Go robotaxi service in China. The stock saw a rise of up to 13% in Hong Kong, following an 8.5% increase in the US market on Tuesday. The trading activity was notable, with more than 48,000 call options changing hands, which is six times the 20-day average and double the number of bearish put options recorded.
As China faces economic slowdowns affecting advertisements, Baidu has been investing in generative AI and autonomous driving to diversify its revenue streams. Market sentiment has turned optimistic, particularly after Beijing's recent announcement to support robotaxis for ride-hailing and car rental fleets. Analysts, including Li Muhua from Guotai Junan International, predict that autonomous driving will significantly gain traction in the next three months, especially with Tesla planning to launch its robotaxi service soon. Baidu's Apollo Go is anticipated to break even in Wuhan by 2024 and turn profitable in 2025 with an expanded fleet.
Testing and Development Expand
In recent developments, Tesla Inc. has received approval to test its advanced driver-assistance system on specific Shanghai streets, reflecting China's growing support for self-driving technologies. The Ministry of Industry and Information Technology announced in November the approval of pilot road tests for selected autonomous vehicles in designated areas.
Apollo Go has commenced manned tests in eleven Chinese cities and is conducting unmanned driving tests in key locations such as Beijing, Wuhan, Chongqing, Shenzhen, and Shanghai. By 2025, Baidu expects Apollo Go to become profitable, thanks to a significant reduction in operating costs.
Stock Performance and Market Dynamics
Despite this positive momentum, Baidu's stock performance has been under pressure, remaining down more than 17% this year compared to a 2.5% gain in the benchmark Hang Seng Index. Recent quarterly reports showed slowing revenue, leading to the lowest stock prices since November 2022 earlier this month. However, the market's cost of hedging against further declines has decreased, with the skew metric nearing a three-year low, mirroring trends in options on American Depositary Receipts.
In the US, bullish options volume hit its peak since March 2021 on Tuesday, with notable block trades betting on a significant 25% stock price increase. Analysts, like Phil S. Lee from Mirae Asset Global Investments, emphasize Baidu's leadership in autonomous driving systems and its flexibility to work with various brands, which align with China's government policies promoting autonomous driving technology.
Outlook
Baidu's investments in autonomous driving and AI are setting the stage for potential long-term growth despite current stock challenges. With supportive government policies and increasing city-level test initiatives, the company is poised to become a notable player in the evolving autonomous vehicle landscape in China.
