Baidu moves further in auto-related businesses

Chinese internet giant, Baidu (NASDAQ: BIDU), continues to develop a driverless car and looks to ramp up investment in areas outside of its core search business, shoring up its auto ecosystem, an ambition which was even more explicit this week.

This week, Baidu announced a joint venture with a subsidiary of China Pacific Insurance (Group) Co. to form an online auto-insurance company with a registered capital of 2 billion yuan ($305 million), and a $50 million investment in BitAuto, a Chinese auto-marketing provider.

The new online auto-insurance company will provide auto insurance, enlisting big data to help assess risk for consumers and offers competitive pricing for car owners. According to the China Insurance Regulatory Commission, China’s total auto-insurance premiums reached around $100 billion as of 2015, and the market is expected to double by 2021.

As to the investment of BitAuto, each of Baidu, JD.com and Tencent agreed to contribute $50 million to purchase newly issued Bitauto shares for $20.23 a share, a strategic investment that will give Baidu a 3.2%, Tencent 7.1% and JD.com 23.5% in Bitauto’s stake.

This investment of Baidu is understood not only as drawing public attention from the recent government investigation of its search and advertising practices (Baidu’s stock was hit hard after the announcement of the investigation given that its 94% revenue comes from online-advertising), but also as its ambition to create an end-to-end vertical of auto products and services, its desire to catch up to rivals Alibaba Group Holding Ltd. and Tencent’s flurry of investments.

Baidu has been making investments in auto-related businesses in recent years, including deals with Uber China and used-car-auction company Uxin Ltd. In addition, Baidu is already testing its driverless cars on open roads in Beijing and Wuhu, in China’s Anhui province, and hopes to conduct testing across 10 Chinese cities.

“They want to have coverage in the auto industry, whether it is for ride-hailing applications or insurance so they can have end-to-end service,” said Nicole Peng, an analyst at Canalys. “They want to understand consumer behavior, regardless of if it is before a person purchases a car, during ownership or getting insurance.”

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