On Wednesday (July 10th), Baidu closed at HKD 94.75, up nearly 10%, marking its largest increase in over a year.

At the same time, the market's bet on Baidu's call options has skyrocketed to a historic high. According to statistics, over 48,000 call options changed hands on Wednesday, which is six times the 20 day average and twice the put options.

"Apollo Go" on Hot Search

On the news, recently, Apollo Go, a autonomous driving service under Baidu, has become popular and topped the Weibo hot search on Wednesday.

Apollo Go is an autonomous driving travel service platform under Baidu, which has implemented autonomous driving travel services in 11 cities across the country. It has conducted demonstration operations for unmanned vehicles in four cities: Beijing, Shanghai, Shenzhen, and Wuhan.

According to official data, as of January 2, 2024, Baidu Apollo Go has provided a total of 5 million ride services to the public. In the fourth quarter, the number of Apollo Go service orders increased by 49% year-on-year to 839,000, and the proportion of all autonomous driving orders in Wuhan reached 45%.

Apollo Go is not its first day of release. But recently, as Baidu expands its deployment of autonomous vehicles in Wuhan, more and more people are paying attention to Apollo Go.

However, there is still controversy online about the development of Apollo Go.

Some netizens believe that autonomous driving does not have a driver, saves labor, and does not rest 24 hours, so taking a taxi is cheaper. It is only half of the online ride hailing fee, and there is no refusal or detour. Most people welcome it. According to netizens, the cost of Apollo Go is quite affordable, with a 10 kilometer journey costing between 4 and 16 yuan, compared to the average ride hailing fee ranging from 18 to 30 yuan.

Some netizens also believe that the emergence of Apollo Go will snatch the "jobs" of many taxi drivers and ride hailing drivers, and even affect the livelihood of many drivers.

In addition, the safety of autonomous driving is also within the scope of discussion among netizens.

On the afternoon of July 7th, a Wuhan netizen posted a video on social media claiming that an Apollo Go vehicle launched by Baidu in Wuhan had collided with pedestrians and caused road congestion. On July 8th, the relevant person in charge of Baidu responded by saying, "The accident was caused by a slight contact between the vehicle and a pedestrian who ran a red light while the green light was on. After the accident, our company cooperated with the police and accompanied them to the hospital for further observation and rest."

Apollo Go May Make Profits Next Year

In addition to the increasing awareness of Apollo Go from the outside world, Baidu's surge on Wednesday is also closely related to a research report by Guotai Junan.

Guotai Junan wrote in the latest research report that Apollo Go is expected to achieve profitability in the unmanned ride hailing business model.

Guotai Junan believes that compared to the manned version, the price of autonomous ride hailing is lower and the passenger experience is better. According to the Apollo Go plan, full coverage of Wuhan will be achieved by 2024, and 1,000 sixth generation mass-produced unmanned vehicles will be put into operation. It is expected that with the increase of advertising volume in the future, the operating costs of bicycles will significantly decrease, and economies of scale may be reflected. 

Guotai Junan further pointed out that the taxi industry may experience significant changes in its business model.

The bank believes that there are three mature conditions for autonomous driving to change the taxi industry at present. The first is the maturity of technology. On May 15, 2024, Baidu released the world's first autonomous driving model ADFM that supports L4 level on Apollo Day. Baidu believes that its autonomous driving technology is safer than human driving, with safety more than 10 times higher than human drivers, achieving urban level coverage of complex scenes across the entire domain.

The second is the decrease in bicycle costs, with the sixth generation unmanned vehicles priced at only 200,000 yuan. The significant decrease in costs has the potential to bring profits to bicycles.

The third is policy and infrastructure support. The Notice on Launching Pilot Work for Access and Road Access of Intelligent Connected Vehicles, released at the end of 2023, provides policy guarantees. Recently, vehicle cloud construction in various regions has provided unmanned driving related infrastructure. The three major conditions are met, and the challenge of autonomous driving in the car rental industry is theoretically feasible.

On May 15th, Apollo Go's sixth generation unmanned vehicle made its debut in Wuhan. According to Baidu, the sixth generation unmanned vehicles are equipped with Baidu Apollo's sixth generation intelligent system solution, which reduces the overall cost of the vehicle by 60% compared to the fifth generation. The new car will be immediately put into use in Wuhan, and a thousand units will be deployed in Wuhan within the year.

Chen Zhuo, General Manager of Baidu's Autonomous Driving Business Department, stated that with the completion of Apollo Go's autonomous vehicle operation network construction, autonomous driving technology and passenger vehicle cabin efficiency will continue to be optimized, and Apollo Go's operating and service costs will be reduced by 60% and 80% respectively.

Chen Zhuo said, "We are very close to the critical point of break even. Our goal is that Apollo Go will achieve break even in Wuhan by the end of 2024 and fully enter a profitable period by 2025."

Guotai Junan also stated that as ChatGPT was released in October 2022, the AI market was not launched until February 2023 after significant media promotion. The initial success of the Carrot Run business model this time may trigger discussions in society about the structural unemployment caused by technological advancements among taxi and ride hailing drivers. The bank has also observed the above phenomenon on the Baidu search index.

In addition, Tesla may release Robotaxi on August 8th, which may further catalyze industry development. Autonomous driving is expected to become the main market trend in the next three months.

Guotai Junan believes that the successful business model of Carrot Run in Wuhan is expected to be replicated in different locations, and autonomous driving may challenge the taxi ride hailing industry.