Last night, Baidu's stock experienced a monumental surge of 15.57%, leading to a market capitalization increase of $11 billion in a single evening—approximately 70 billion RMB. This kind of spike is exceedingly rare in Baidu's history, with the final stock price settling at an impressive $242 per share. After a two-year absence, the company's valuation has once again crossed the critical threshold of $80 billion. So, what triggered such a significant response in Baidu's stock?

The rumor circulating widely is that Baidu is poised to establish an electric vehicle (EV) company in partnership with Geely, a prominent traditional automobile manufacturer. Such collaborations between internet giants and established automakers are not entirely new; Alibaba, for instance, recently joined forces with SAIC to invest around 10 billion RMB in a fully electric vehicle company named Zhiyi Automotive. But is this recent move what propelled Baidu's stock into the stratosphere?

It’s quite possible. Unlike Alibaba's investment, where they held a mere 18% stake in the joint venture, Baidu’s new automotive venture appears to be structured such that it retains the majority ownership and control, with Geely taking a minority stake. This partnership allows Baidu to leverage its software expertise while Geely brings its engineering capabilities to the table, thus optimizing the strengths of both companies.

The electric vehicle market is undoubtedly one of the hottest sectors globally right now. Tesla, for example, saw its stock price skyrocket almost eightfold in 2020. At the beginning of 2021, it maintained momentum, rising 25% in just five trading days, resulting in a market capitalization that eclipsed $800 billion. This valuation surpasses the combined worth of all traditional car manufacturers worldwide, demonstrating the immense potential of this booming sector. Elon Musk, Tesla's CEO, ascended to become the world's richest person, overtaking Jeff Bezos of Amazon in the process.

Moreover, New Chinese auto manufacturers like NIO have also made a significant impact, claiming a spot among the top five automotive companies globally by market cap—a feat unattainable for many legacy companies. This trend reflects a strong optimism in global capital towards smart electric vehicles, with investors eager to pump money into the sector.

When it comes to the approaches toward building electric vehicles, there are generally two models: the first involves traditional car manufacturers leading the development of electric vehicles. Notable players like BYD have achieved considerable success in this category, with its stock performing well this year. The second model sees internet companies at the forefront, as seen with NIO and Li Auto, whose founders hail from the tech industry and lack traditional automotive manufacturing experience. These two models are somewhat analogous to the old debate between traditional finance and fintech—where the question of who leads ultimately leads to different outcomes.

In contrast, the strategies of the big three tech companies—Baidu, Alibaba, and Tencent—are notably different. Tencent adopts a more passive approach, acting as a financial investor and holding the position of the second-largest shareholder in NIO. Their strategy focuses on investing in projects outside their core business. This has allowed Tencent to become a key shareholder in other internet giants like JD.com, Pinduoduo, and Meituan.

Alibaba, on the other hand, engages in partnerships with traditional car manufacturers but does not seek to dominate. Its collaboration with SAIC is emblematic of this methodology, where it holds just an 18% stake and occupies one out of five board seats, revealing the importance Alibaba places on such initiatives, especially with their Damo Academy director occupying that board seat.

Finally, it appears to be Baidu's turn to make a decisive move. Many analysts believe that Baidu is the internet company most suited to enter the automotive space, particularly given its prowess in artificial intelligence. In the past, the company's former executive, Lu Qi, proclaimed an "All in AI" strategy, leading to a surge in stock prices during that period. However, confidence in this strategy waned following Lu's departure. Now, the news of Baidu potentially launching an electric vehicle company has invigorated the capital markets.

Indeed, the prospect of Baidu getting personally involved in the automotive industry excites the market. The company has amassed a considerable technological advancement in autonomous driving and artificial intelligence. Since establishing the Apollo subsidiary in 2017, Baidu has primarily focused on AI-driven technologies and has collaborated with major automakers such as Geely, Volkswagen, Toyota, and Ford.

While the rumor around forming a joint electric vehicle venture remains unconfirmed by either party, it has nonetheless galvanized the market’s belief in the two companies’ collaboration potential. Geely's stock saw an impressive rise of nearly 20% yesterday—the largest single-day increase for Geely in five years—pushing its stock price beyond the 2017 peak, with a market valuation soaring to 330 billion HKD.

Despite the absence of definitive statements from either company regarding this prospective venture, a prior alliance exists. In July 2019, Baidu's founder, Robin Li, announced a comprehensive strategic partnership with Geely focused on artificial intelligence technologies in the automotive and transportation sectors, aimed at constructing a smart transportation ecosystem.

The significant stock increases for both Baidu and Geely underscore the market's positive outlook on the potential collaboration between the two entities. Baidu has faced a sluggish stock performance over the past few years, stalling in the mobile internet space. Given that the automotive industry represents a frontier for AI applications, this could be an optimal time for Baidu to leverage its technological know-how and capitalize on the prevailing enthusiasm surrounding electric vehicles. Whether viewed through the lens of market capitalization management or the corporate vision strategy, there appears to be no better time than now for Baidu to venture into the automotive sector.