Why do we think JIDU is a “Bad Company”

JIDU Auto Backgrounds

JIDU Auto (Chinese: 集度汽车), an NEV company co-founded by Baidu and Chinese automaker Geely, rolled out its first concept car in early June 2022. The company announced that its first mass-produced vehicle model will be 90% similar to the concept car in 2023, according to JIDU’s announcement.

One of the sources said that “Baidu’s autonomous driving department had two teams and they focused on L3 and L4 autonomous driving technology, the L3 team was created for ‘now’ and the L4 team was for ‘the future’. L3 and L4 teams had an overlap of activity. For example, both teams had people developing HD maps and sensors, which was wasteful. Until 2019 , the L3 and L4 teams have merged”.

Meanwhile, according to a public report, more than 16 top talents related to the self-driving industry left Baidu from 2015 to 2018.

Xia Yiping, CEO of JIDU Auto, identified JIDU vehicles as “Autorobot”. Likewise, the company is making the vehicle intelligentized as a selling point and has announced that its cars will be mass-produced with SAE L4 self-driving technology. The SAE L4 drive automation is a system that can perform all driving tasks and a driver can take control at any time if desired.

More than five self-driving company executives were interviewed by EqualOcean, with most believing that L4 self-driving technology will be commercialized in five years. Whether JIDU vehicles will be mass-produced with SAE L4 self-driving technology. Technically, it can take five years to achieve possible commercialization.

In addition, L4 technology requires different types of sensors and chips, which means increased costs. About 600 to 700 chips are installed in a gasoline vehicle, and an electric vehicle will be equipped with about 1500 chips.

China’s Dynamic Zero-Covid policy, the production capacity of the reduction, the growing need for chips, and the political conflicts around the world that have caused the shortage of chips and the surge in raw material prices, all of which have exerted pressure important on automakers to maintain production amid already severe supply chain shortages.

To deal with the shortage of chips, the company has set up a team to search for chips around the world. As Xia said “JIDU has a team to search particular chips all over the world. For example, the team updates the latest chip information every day, if our vehicle is missing a certain number of particular chips, we can get the team to find them in time.” Notably, as one of the most important components, the company has not announced its power battery plan.

Baidu’s strategy for its Apollo project before JIDU

Prior to the establishment of JIDU Auto in 2021, Baidu wanted to collaborate strategically with WM Motor (Chinese: 威马汽车). Since 2017, Li Yanhong, CEO and founder of Baidu, has invested three times in WM Motor. He thought the WM engine was the best choice for his Apollo project. In addition, Baidu and WM Motor reached an agreement that WM Motor could not develop its own self-driving technology, and the Apollo self-driving technology is the only system that WM Motor could use.

WM Motor sold 15,000 units in 2019, ranking second in the list of new energy vehicle sales. However, in 2021, the company sold 44,157 units and the net loss was CNY 8.21 billion (USD 1.22 billion), while compared to competitors, NIO sold 91,400 units, Xpeng sold 98 200 units and LI Auto sold 90,400 units, and their net losses were CNY 4.02 billion, CNY 4.86 billion and CNY 0.32 billion, respectively.

WM Motor’s sales and reputation have been declining since 2019, and it is falling behind its competitors. This may explain why Baidu co-founded JIDU Auto with Geely Group.

Porter’s five forces model

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Competitive Rivalry (High):

The potential of the automobile industry is constantly increasing, and the industrial rivalry is relatively high in China. Before and after the launch of JIDU with major automaker Geely, Alibaba, Xiaomi and DiDi successively announced their attempts to enter the auto manufacturing market. Skyworth, an appliance company, also entered the market with high brand awareness. In addition, well-known and established automobile brands, such as Nio, Li Auto and Xpeng, are playing an increasingly dominant role in the Chinese market. Intense competition among current players in the automotive industry will drive down prices and decrease the overall profitability of this industry. The current rivalry has entered a new stage with a focus on intelligence driven by disruptive technology and driving experience.

The threat of new entrants (low-medium):

Compared to traditional automakers, tech giants, such as Baidu, Alibaba and Xiaomi, are opting for software and artificial intelligence (AI) based on more disruptive and advanced technology. These capabilities are superior to conventional automakers, which have prepared them for the field of smart electric vehicles. The entry of new electric vehicle (NEV) manufacturers brings technological innovation and puts pressure on the traditional automotive market by lowering the price strategy, reducing material costs and offering new values ​​to customers. For example, JiDU Auto aims to popularize autonomous driving and human-machine interactive technologies.

Additionally, the threat of new entrants has been affected by barriers to entry, such as government policies, capital requirements, infrastructure, customer demand, economies of scale, etc. On January 26, 2022, JiDU auto raised USD 400 million to accelerate its market entry to improve its research and development (R&D), especially in autonomous driving and smart manufacturing.

Bargaining power of buyers (medium to high)

The bargaining power of customers is relatively high in the Chinese automotive market due to the multitude of options available to customers. Purchasing power is still considered high in the Chinese market as the income level has increased significantly in China over the past decades. With increased environmental awareness and relevant policy incentives, there is a growing trend of more customers switching from conventional cars to NEVs.

Thus, JIDU Auto’s bargaining power is increasing due to intense competition in the automotive industry, which emphasizes customer experience and government regulations. But some factors, such as high switching costs and brand loyalty, still limit customers’ bargaining power.

Bargaining power of suppliers (low to medium)

The bargaining power of suppliers is relatively low as NEV car manufacturers rely mainly on their technological innovation and R&D capabilities. Before JiDU was established, Baidu’s Apollo ecosystem had hundreds of partnerships with various manufacturers and suppliers, such as Toyota, Ford, and Volkswagen. This is of great importance to reduce dependence on suppliers. However, the bargaining power of suppliers is also affected by unexpected benefits, such as the effects of Covid-19 and the shortage of chips.

Threats of substitute products or services (medium to high)

Currently, there are an array of tech giant-backed NEV car brands and services in the market, such as Alibaba-backed IM Motors (Chinese: 智己汽车), Xiaomi Automobile (Chinese: 小米汽车), HUWEI intelligence Automotive Solution (HI) (Chinese: 华为智能汽车解决方案). Furthermore, emerging mobility concepts, such as carpooling (e.g. taxi and didi services), mobility on demand (MoD) and even conventional transport alternatives (e.g. bus, train, etc. ) are considered potential threats to NEVs. Availability of substitutes, switching costs and affordability are three important influencing factors to consider.

Company brand positioning

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The positioning of the JIDU brand is vague. The company says its first vehicle model will compete primarily with Tesla’s Model Y, and pricing will start at CNY 200,000 (USD: 29,860). So, the chart above shows the prices of Tesla vehicles, ranging from CNY 280,000 to CNY 1.06 million, which almost covers the middle to high end of the EV market.

The market for electric vehicles is increasingly crowded. From the low-mid class, players include Changan and Beijing Auto, which are the local automakers. Moreover, in the mid-to-middle class, JIDU will not only join the competition with NIO, Xpeng and Li Auto, dubbed China’s “new forces” of NEV manufacturing, but also tech giants including Xiaomi (Chinese:小米) and Huawei (Chinese: 华为) also announced their car-making plans.

In addition, JIDU is at the “concept car” stage while other automakers in the Chinese market are already on the market in a few years. As a latecomer, it is difficult for JIDU to catch up with competitors, and the entry level of the automotive market is rising.

Baidu’s failed projects

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In recent years, Baidu has continued to follow business trends in the Chinese market, but failed because the company lacks creativity. As an Internet company, creativity and innovation are the key factors to survive in the Chinese market. The graph above shows failed projects introduced by Baidu. Baidu, Alibaba and Tencent were nicknamed BAT. To date, the market capitalizations of Baidu, Alibaba and Tencent are respectively 52.35 billion USD, 310.30 billion USD and 435.62 billion USD. Baidu is far behind Alibaba and Tencent.

In conclusion

Technically, if a new model gasoline vehicle goes from design to mass production, it usually takes 4-5 years before it is sold to customers, because it will experience vehicle testing, quality control and capacity for improvement. EV cars can take less than that. Additionally, EqualOcean believes that JIDU is mass-producing vehicles that cannot be equipped with genuine SAE L4 technology within 3 years. If the company cannot produce the JIDU vehicles as planned, with the slowdown in marketing and poor cash performance of the company, investors may be disappointed with the company.

About Dianne Stinson

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