Since the March 2020 stock market low, electric vehicles have been one of the best-performing industries. From the bottom, the KraneShares Electric Vehicle and Mobility ETF (KARS) is up 194%. In contrast, the S&P 500 is up 74% over the same period.

Such strong performance has multiple consequences. It whets investors’ appetites for stocks in the sector, and companies that are adjacently connected. As a result, we’ve seen gains across a variety of different industries beyond EVs such as battery stocks, material stocks that supply metals used in batteries, charging stocks, auto components, and auto parts manufacturers. 

It’s also attracted skeptics who believe the sector is in a bubble. And, there are certainly some indications of froth such as numerous IPOs and SPACs trading at lofty valuations despite being years away from full production. 

Massive Opportunity

However, believers in the EV trend point to the long-term fundamentals such as improving technology and rapid adoption. According to the IAEA over the next 30 years, EVs will go from a 3% share of car sales to over 50% globally. 

Given that 80 million cars are sold every year, this is a massive opportunity for companies that emerge as winners. In addition to the existing EV companies like Tesla (TSLA) and NIO (NIO), legacy car companies are also introducing their own EVs like Ford (F) and General Motors (GM). 

However, we are also seeing companies in other industries who are also working on bringing their own products to the market such as Apple. Now, it’s been reported that Baidu (BIDU) is working on its own EV and has teamed up with Geely (GELYY) in the endeavor.

Baidu, Geely Venture

BIDU is known as the “Google of China” due to its dominance of Internet search. Like Google (GOOG), its near-monopoly has resulted in impressive growth and profits. And, it’s used these proceeds to move into other growth industries like cloud computing, AI, and autonomous driving. 

Now, Baidu’s ambitions are growing as it sets its eyes on a market with its joint venture with Geely which owns Volvo. The entity will use Baidu’s autonomous driving software with Geely’s electric vehicle modular platform. Geely will handle the vehicle manufacturing, while Baidu will contribute the design, tech, and capital to scale production.

This has many parallels to the deal between Apple (AAPL) and Hyundai to manufacture Apple’s EVs. It’s expected that the JV will take the form of an independent company with Baidu and Geely retaining a major stake.  

Following the deal’s announcement, Geely’s shares soared more than 20%. Its shares have more than doubled over the past six months as car sales have been improving. Additionally, many expect that car sales will be exceptionally strong in 2021 due to pent-up demand and strong consumer spending due to fiscal stimulus.

Baidu’s shares are up more than 70% since the end of November. In part, gains were due to rumors that it was working on its own EV. Another factor was the promising results of its autonomous driving pilot program which could be licensed to OEMs. Earlier in the last decade, BIDU was the premier Chinese Internet stock in terms of growth and share price performance. 

However, it took a backseat to companies like Alibaba (BABA) and JD.com (JD) in the past couple of years. For example, Baidu’s shares first hit $140 in March 2011 which was its price at the start of December 2020. Yet, over this period, it continued to increase profits so the company’s valuation became quite reasonable. With this catalyst, the company looks set to begin another period of growth.

What’s Next

Going back to the bubble discussion, the fact that companies like Apple and BIDU are investing significant sums to compete in this space are a validation of investors’ optimism about the sector’s potential. However, it also means that competition will intensify especially as these companies have deep pockets and are willing to take losses to build market share.

One option for investors is to invest in companies like GELYY. Whoever ends up coming out on top will face the challenge of scaling production, GELYY is well-suited to meet this demand given its supply chain and network of factories across the globe. It’s a well-known aphorism that during the Gold Rush, most miners didn’t make money, but the biggest winners were the entrepreneurs who sold the miner’s picks and shovels. Similarly, investing in GELYY could have lower risk while also benefitting from the EV trend.

According to the POWR Ratings, GELYY is rated a Strong Buy. GELYY has an “A” grade across all categories including Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It’s ranked #7 out of 51 Auto & Vehicle Manufacturers. 

The POWR Ratings rates BIDU a Buy. It has an “A” for Trade Grade and Peer Grade with a “B” for Buy & Hold Grade. Among Chinese stocks, it’s ranked #19 out of 103.

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BIDU shares were trading at $239.15 per share on Tuesday afternoon, up $19.60 (+8.93%). Year-to-date, BIDU has gained 10.59%, versus a 1.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

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