PCs: Lenovo Test Drives Cars with LeEco

Bottom line: Lenovo’s investment in the smart car business looks like a necessary step for an important new growth area, but its choice of LeEco as partner looks more dubious.

Lenovo invests in LeEco’s car business

I’ve been quite bearish on stumbling PC giant Lenovo (HKEx: 992) these days, but at least I have to commend the company for trying something new to jump-start its fading fortunes. That’s my initial assessment, on reading reports that Lenovo has invested in the smart car business of online video superstar LeEco (Shenzhen: 300104), formerly known as LeTV. But that said, even if the reports are true, Lenovo seems to be coming to the smart car story slightly late, and I also have serious doubts about the suitability of LeEco as its choice of partner.

I’ve been somewhat skeptical of the recent rush into smart, self-driving cars, which began in the US with Google (Nasdaq: GOOG) and has a major backer in China with local search giant Baidu (Nasdaq: BIDU). But the technology does seem to be gaining momentum on both sides of the Pacific, and I’m prepared to admit that perhaps my early skepticism was premature.

LeEco joined the smart car rush more than a year ago, though its own strategy seems to lack the same focus as Baidu’s, and has included a dubious tie-up in luxury segment with British nameplate Aston Martin. (previous post) More recently LeEco has announced a more sensible looking alliance to include its entertainment system in cars from 6 Chinese automakers. It is also trying to build up a Silicon Valley lab to develop new smart car technologies.

Against the backdrop of that unfocused drive, the latest reports that Lenovo has invested in LeEco’s car business don’t look especially exciting. The reports simply say that Lenovo wants to get more involved in the car business, and was one of a number of recent investors in the first funding round for LeEco’s “super car” unit that raised around 5 billion yuan ($760 million). (Chinese article)

The reports point out that many others invested in the round, but also add that Lenovo made the move as part of its own hopes of getting more involved in the business. This particular fund-raising is just one of many for LeEco, which has also raised big money by selling stakes to outsiders in its other recently formed units engaged in businesses ranging from sports to smartphones.

Under Pressure

I wrote earlier this week about LeEco’s frenzied expansion and my doubts about it (previous post). So instead I will focus here on Lenovo and what the investment might mean for the struggling PC giant. Lenovo is under incredible pressure to turn itself around, after stumbling badly in the critical smartphone space that is likely to overtake traditional PCs in the next few years.

Company chief Yang Yuanqing replaced Lenovo’s smartphone head last year and recently reorganized his company to try and improve the situation, even though I’ve said several times he should step down to pave the way for younger, new leadership. (previous post) Thus this new investment looks possibly like Yang’s attempt to play catch-up with others who are already placing big bets on the smart car sector.

Such a move does indeed look smart and necessary, since it increasingly appears that cars could become a major new growth area for smart technology. This form of investment also looks relatively shrewd, since its probably relatively small and will give Lenovo access to technology in a space where it has little or no experience yet.

But that said, I am quite dubious about the choice of LeEco as its partner, even though Lenovo’s options are probably quite limited. As I’ve said above, LeEco’s car investments look quite scattered, and I have bigger doubts about its longer-term prospects due to its murky structure and sudden explosive growth. At the end of the day, I’m probably neutral overall on this move by Lenovo, which looks like a small but necessary step even if its choice of partner may turn out to be a bad one.

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