Baidu autonomous driving progress driven stock price rise: ApolloGo orders surge highlights market potential

At the end of June, the Beijing Municipal Bureau of Economy and Information Technology issued the "Beijing Regulations on Autonomous Driving Vehicles (Draft for Comments)" and publicly invited opinions from all walks of life. This move further enhanced the market's confidence in investment in autonomous driving-related companies. According to data disclosed by Baidu at the ApolloDay2024 conference, as of April 19, 2024, ApolloGo has processed more than 6 million orders, and its business scope covers 11 major cities including Beijing, Shanghai, Guangzhou, and Shenzhen. In Beijing, Wuhan, Chongqing, Shenzhen, Shanghai and other cities have launched fully unmanned autonomous driving travel services and tests.

This article will focus on the unit economic model (UE) of Baidu's ApolloGo business. Through detailed scenario analysis, I aim to explore the broad space for future commercialization of ApolloGo. In view of its continued innovation and steady growth in the field of autonomous driving, ApolloGo's business model and its potential economic benefits will become the focus of this study.

ApolloGo, as a pioneer in driverless technology, is subverting the traditional travel market at very competitive prices. Many users are attracted by its affordable prices, especially for a 10-kilometer trip. ApolloGo’s charging range is only 4 yuan to 16 yuan, which is much lower than the 18 yuan to 30 yuan for ordinary online ride-hailing services (all amount of money mentioned in this article are in RMB).

Price comparison at a glance:

   ApolloGo: The starting price is about 15-16 yuan, and the cost per kilometer is 2.4-3.5 yuan.

   Ordinary Didi Express: Starting price is 10-12 yuan, and the cost per kilometer is 1.59-2.3 yuan.

   Taxi: Starting price is 10-14 yuan, and the cost per kilometer is 2.5-3.5 yuan.

Although the unit price of ApolloGo seems to be slightly higher than that of online car-hailing and taxis, its low-price advantage is mainly due to the platform’s subsidy policy. It’s worth noting that maintaining such low prices may become a challenge as the promotion period ends. However, since autonomous driving eliminates the labor cost of drivers, ApolloGo is still expected to maintain its price competitiveness and continue to compete fiercely with the manned online ride-hailing industry.

Table: Price comparison of taxi-hailing platforms in Wuhan area

Note: Prices vary across regions across the country

According to the company's disclosure, Wuhan's ApolloGo has recently experienced an explosion of orders, with a peak of more than 20 orders per day in a single day, while the average daily order volume for online ride-hailing and taxis is around 16 orders. I assume that the average mileage per trip is 5km and the average daily number is 16. Calculated based on the 20% preferential platform subsidy, the annual income per vehicle is about 110,000 yuan.

In terms of costs, the main costs of ApolloGo are vehicle costs and labor costs. Other costs include electricity costs, maintenance and insurance fees and other expenses.

   (1) Vehicle cost: significantly reduced, opening a new chapter in driverless driving

Vehicle cost is a crucial component of Baidu Robotaxi project, which is mainly reflected in hardware-related depreciation expenses. What is striking is that the cost of Baidu’s sixth-generation Robotaxi model has been significantly reduced to 204,600 yuan, which is a significant reduction compared to the cost of the previous generation model RT5 of 480,000 yuan. Since the first half of this year, the Wuhan area has begun to gradually deploy the sixth-generation model, indicating that it will soon become the main force of the Robotaxi fleet, thereby significantly reducing the depreciation costs per vehicle. Looking to the future, there is still the possibility of further reductions in costs, paving the way for the widespread application of driverless technology.

In the cost analysis, I calculated based on the purchase cost of the sixth-generation Robotaxi of 204,600 yuan, assuming that the vehicle was scrapped for six years, and the annual depreciation cost of the vehicle was approximately 34,000 yuan.

   (2) Labor costs: intelligent management, efficient operation guarantee

The operation model of ApolloGo is divided into two categories. The first category is vehicles equipped with safety officers. The safety officers only intervene in emergencies, and the vehicles are in autonomous driving state the rest of the time. The second category is completely driverless vehicles. Although there is no need for a safety officer to be present, each vehicle will be remotely monitored by cloud driving to ensure safety and efficiency. It is worth mentioning that each cloud driver can remotely control 2 to 3 driverless vehicles at the same time, effectively improving operational efficiency and safety.

The specific assumptions are detailed in the table below:

Based on the above assumptions, I calculated based on two different scenarios of configuring safety officers and cloud driving:

   (1) Scenario 1: In the scenario where each vehicle is equipped with a safety officer, the annual loss per vehicle is 15,000 yuan.

   (2) Scenario 2: In the scenario of completely unmanned autonomous driving and each cloud driver covering 2 vehicles, the annual profit per vehicle is 23,000 yuan.

As of the first quarter of 2024, the size of ApolloGo's driverless fleet in Wuhan has stabilized at between 400 and 500 vehicles. This number corrects the inaccurate information of 1,000 vehicles previously circulated on the Internet. At Baidu's 2024 ApolloDay event, the company's management revealed that the proportion of completed orders for fully driverless vehicles has reached 55%, compared with 45% in the fourth quarter of 2023, showing significant growth. This proportion exceeded 70% in April 2024, and is expected to continue to rise in the next few quarters, with the goal of achieving a 100% fully driverless order completion rate.

The goal is to achieve breakeven in Wuhan by the end of 2024 and fully enter a profitable period in 2025. According to our scenario analysis, the steady increase in the proportion of fully unmanned orders may help the Wuhan region achieve breakeven. Under the assumption of 70% driverless vehicles and an average annual operation of 500 vehicles, the annual profit will be around 6 million yuan. If the number is increased to 1,000 vehicles in the future and 100% of driverless vehicles are achieved, the annual profit contribution can reach about 24 million yuan.

Key driving forces and risk considerations for UE improvement:

   1. Promotion of fully autonomous driving: The gradual relaxation of national regulatory policies will be the key to promoting the improvement of UE (unit economics). As more vehicles are licensed for fully autonomous driving, single-vehicle profitability will increase significantly.

   2. Declining hardware costs: In the long run, further reductions in bicycle hardware costs will be another major driving force. The cost of the sixth-generation Baidu Robotaxi model has dropped significantly to RMB 204,600, demonstrating the potential of cost control.

   3. All-weather operation capability: The all-weather operation characteristics of driverless vehicles enable the average daily order volume to far exceed that of traditional taxis, creating conditions for improving UE.

   4. Improved efficiency of cloud driving: Technological progress will allow cloud driving to remotely control more vehicles and improve overall operational efficiency.

   5. Subsidy policy adjustment: Subsidies will be reduced after the promotion period, which is expected to have a positive impact on revenue and increase UE.

   6. Technology iteration and consumer attraction: The continued progress of autonomous driving technology will improve vehicle operation efficiency, attract more consumers, and promote UE growth.

Potential risk factors:

   1. Consumption reaction after subsidy reduction: Subsidy policy adjustments may lead to a decrease in consumer enthusiasm and affect order volume.

   2. Uncertainty in policy implementation: The inconsistent implementation of autonomous driving commercialization policies in various cities may limit the improvement of UE.

   3. Public opinion risks caused by safety issues: Traffic accidents may damage brand image and affect consumer confidence.

The short and medium term impacts and investment suggestions of ApolloGo:

Although ApolloGo's contribution to Baidu's profits is limited in the short to medium term, the recent stock price rise is mainly driven by events, reflecting the market's recognition of the profitability of ApolloGo's business model and its optimistic expectations for future urban expansion space.

The progress of autonomous driving technology and the support of related policies are expected to continue to push up the company's valuation.

Currently, the company's stock price corresponds to a forecast price-to-earnings ratio of 11 times in 2024. Due to Baidu's long-term lack of shareholder returns, and ApolloGo's difficulty in continuing to release huge cash flows in a short period of time, it is expected that if Baidu cannot boost shareholder returns in the later period, This breakthrough of ApolloGo will become an "event driver" for Baidu's stock price in the short to medium term. Therefore, investors can actively conduct trend trading. Long-term investment still needs to be based on Baidu's shareholder returns and cash flow.