Meet China's Future Tigers: Tencent, Baidu and Alibaba
The Shanghai auto show promises to be a fascinating clash between China's Old Tigers and Future Tigers.
Think of Detroit vs. Silicon Valley.
The Old Tigers are state-owned enterprises such as Shanghai Auto or First Auto Works. They employ hundreds of thousands, and they manufacture millions of cars in joint ventures with GM, Toyota, Mercedes and others.
And the Future Tigers? They are the fast-moving private companies that dominate China's Internet industry. No metal-benders here. They deliver shopping and messaging and search services, and make billions in profits.
Now the Future Tigers smell opportunity in the car business. They see tomorrow's vehicles as robots on wheels -- ideal platforms for delivering ever more Internet services.
The three most powerful Future Tigers are Tencent, Baidu and Alibaba. Combined, their market capitalization has shot up to a head-turning $620 billion -- about the same as 11 General Motors.
These companies are making billion-dollar bets on future car technologies in -- surprise! -- California.
They will be nearly invisible at the auto show this month, but industry executives will feel their ghostly presence hovering over the event.
No one knows just how far they'll get, but China's Future Tigers are on the move, and you need to know who they are.
Tencent, China's most valuable company, is the Future Tiger most likely to disrupt the car industry.
The company's core product is WeChat, China's instant messaging and payment service that 700 million Chinese use all day, every day.
WeChat is as indispensable to Chinese people as smart phones are to Americans.
"No one can touch Tencent in terms of [connection] to the Chinese customer," said Coco Kee, Managing Director of Kee Global Advisors in New York. "We transfer money, pay for meals, share photos, hail a taxi, use it instead of exchanging business cards, everything."
Tencent (the Chinese name teng xun means "soaring knowledge") has big buckets of cash, too. In December the company acquired a 10 percent stake in Here, a company that is developing high-resolution maps for self-driving cars.
Last month, Tencent also laid out $1.78 billion for a 5 percent stake in Tesla.
Based in the southern Chinese city of Shenzhen, Tencent operates in Palo Alto, New York, Seattle and Los Angeles.
If Tencent leads this pack of Tigers, Baidu is an aggressive number two.
Baidu is the Google of China, the default search engine for 1.4 billion Chinese. (China does not grant Google a license to operate in China). Like Google, Baidu is developing artificial intelligence and maps for self-driving cars.
Baidu's investments in California run deep. In its Palo Alto research center, 120 engineers are working on artificial intelligence.
Last month, Baidu led a $600 million dollar investment round for NextEV, the premium electric car start-up operating out of San Jose. Baidu also has acquired a permit to test self-driving cars on California roads.
In Shanghai, Baidu is expected to showcase its self-driving technology in a model built by Beijing Automotive.
Think of this 18-year old company as a massive eBay. People and businesses trade everything on Alibaba. In 2016, Alibaba earned more revenues than Amazon and eBay combined, making it the world's largest retailer.
"Jack Ma [and Alibaba] are icons in China because they are actually the American dream set in China," says Duncan Clark, author of "Alibaba: The House That Jack Ma Built."
Alibaba's automotive pursuits started in 2014 when it purchased AutoNavi, a mapping specialist, for $1.5 billion.
The following year, Alibaba invested $160 million in a new venture with Shanghai Auto to develop China's "first Internet vehicle."
Last summer, the partners unveiled the Internet-capable Roewe RX5. At the Shanghai show, look for Alibaba and Shanghai Auto to display an advanced version of that model.
California presence? Alibaba has that, too. The company's 24,000-square foot U.S. headquarters is located in San Mateo.
While each of these companies has deep pockets, keep an eye on Tencent.
The company now is Tesla's fifth-largest shareholder. Think about that: China's most valuable company has a major stake in Tesla, arguably America's most innovative carmaker.
Imagine Tencent and Tesla as partners in the world's largest car market. Tesla develops the product, and Tencent connects it with its 700 million Chinese customers. Can you envision a more powerful mix?
Be forewarned. These Future Tigers think big and move fast.
-- Michael Dunne is president of Dunne Automotive Ltd., a Hong Kong-based company that facilitates investments between the U.S. and China. He is also author of American Wheels, Chinese Roads.
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