Driverless cars have generated a lot of buzz over the past few months as more and more automakers enter the race to develop the world’s first road-ready, fully autonomous car.
While it seems unlikely that a self-driving car will make it to market any time soon, investors are already placing their bets on which firms will have the upper hand in five years’ time, when the technology is expected to make its way to dealership showrooms.
Firms like Tesla Motors Inc (TSLA), Alphabet Inc (GOOG, GOOGL) and General Motors Company (GM) all come up in the discussion about driverless cars, and often.
But have you stopped to consider Baidu Inc (ADR) (BIDU)?
Who Is Baidu?
Baidu is best-known for its dominance as a Chinese search engine, but BIDU shares have more to offer investors than just a position in the Internet search space. The company is shaping up to be a major player in the driverless car revolution as well.
Back in December, the firm announced that its own driverless car prototype, a modified BMW 3 series, was already completing test drives on outdoor roads.
BIDU has invested heavily in artificial intelligence over the past few years to improve its search functions, but the technology has also proven useful as the firm developed autonomous driving software. Machine learning is important when it comes to creating a safe self-driving vehicle, as it allows the car’s computers to use past situations to navigate new roads and traffic challenges.
What Sets BIDU Apart From GOOGL?
For investors looking to invest in the technology behind autonomous cars, Google parent Alphabet may seem like the obvious choice, but BIDU has something Google doesn’t — China. At the moment, being based in China may seem like a disadvantage, but when it comes to the development of autonomous cars, some disagree.
Chinese auto sales are estimated to be worth some $1.5 trillion per year in revenue, making it a huge potential market for autonomous vehicles. Not only that, but Chinese President Xi Jinping has been working to improve China’s position in the tech space and appears to be behind Baidu’s efforts to develop an autonomous car.
The Benefits of Starting in China
Not only does the Chinese market represent a huge growth opportunity for BIDU, but the company will have a leg up when it comes to expanding abroad. Most autonomous vehicle software has been designed for use in the U.S., where driving conditions are much easier to navigate than they are on the crowded roads in China. For Baidu, that means it will be much easier to tweak its software for use in the U.S. than it will be for U.S. firms to do the opposite.
Regulations in China will also make the process of getting an autonomous vehicle up and running much easier. In the States, where federal and state laws often contradict each other, it will be difficult for automakers to get their vehicles road ready across the entire country.
In China, the one-party system will make it easier to meet regulatory obligations, though a current lack of legislation regarding autonomous vehicles could postpone the cars’ release in China’s market.
Setbacks
Investing in BIDU is riskier than buying shares of the firm’s American counterpart GOOGL because the company is still light-years behind as far as development is concerned. Google’s self-driving cars have been through far more testing and have already made their way to public roads, while Baidu’s single car represents just the beginning of the firm’s foray into autonomous vehicles.
As Baidu is based in China, investors that buy BIDU stock are exposing themselves to economic risks, too. The Chinese market has been extremely volatile over the past year, and the future still looks murky.
But as a long-term position, BIDU is a good option for those who are expecting to see conditions improve in China, believe in the potential market for autonomous cars and are happy to take some risk and brace for volatility in the coming year.
As of this writing, Laura Hoy was long TSLA.
