Tesla faces a new foe as China’s search engine Baidu allies with Volvo’s owner Geely to make electric cars

Baidu, which already runs one of the world’s largest open autonomous-driving platforms, plans to use Geely’s production facilities and development capabilities to reinforce its foray into car manufacturing, according to two sources with knowledge of the matter. Shares of Geely Automobile shot up by a fifth in Hong Kong on Friday.

An agreement between Baidu and Zhejiang Geely Holding Group, which owns Volvo Cars and a stake in Daimler, will be signed soon, the sources said.

Baidu joins a crowded field of more than 200 licensed electric car makers of all shapes and stripes, many of them backed by China’s major technology companies. Alibaba Group is invested in Xpeng, while Tencent backs NIO.

The sources said the new partnership would represent more than the creation of a car making joint venture. Reuters reported on Thursday that Baidu will take a majority stake and absolute power in the company, which will builds its own cars.

Both Baidu and Geely declined to comment.

“EV has become the new gold mine as investors and technology giants believe building next-generation cars is a huge business,” said Eric Han, senior manager at business advisory firm Shanghai Suolei. “But not every player can afford to enter the game as all leading smart EV companies are still burning the cash.”

The technology giants hope to create synergies with the carmakers they back and define the future of mobility by putting their technology in 5G, cloud services and artificial intelligence to use in autonomous driving, navigation and in-car entertainment. The race is to define and set the industry standard and generate a steady stream of revenues either through licensing their technology or through digital subscription services.

Deliveries of green cars are expected to account for a fifth of the mainland Chinese passenger vehicle market by 2025, up from less than 5 per cent last year, Nick Lai, an analyst at JPMorgan, wrote in a research note in October.

Under the country’s Made in China 2025 industrial strategy, Beijing unveiled its ambitions of leading the world in 10 areas of technology by the middle of the next decade. This included the NEV sector.

Smart EVs refer to electric battery-powered cars that use technology to enhance navigation, improve in-car entertainment and link up with other cars or mobile devices digitally.

Tesla is the global leader in building next-generation cars and is facing competition from three Chinese start-ups – NIO, Xpeng and Li Auto, all of whom have yet to make profits.

Geely, controlled by billionaire Li Shufu, is one of the mainland’s highest-profile carmakers, buoyed by its ambitious go-global strategy.

It is the parent of Hong Kong-listed Geely Automobile Holdings, which jumped 19.6 per cent to HK$33.25 (US$4.29) on Friday. Its market value now stands at HK$326 billion, the biggest among all Chinese carmakers listed in Hong Kong, including those that make traditional vehicles driven by internal combustion engines.

Baidu’s Nasdaq-listed shares advanced 1.9 per cent to US$207.89.