Ride-hailing battle continues in China

• The growth of ride-hailing in China
• Uber vs. Didi, the fiercest battle in the industry ever
• Didi’s dominance threatened by Meituan 

China’s ride-hailing industry is rapidly cruising towards growth, which is infused with huge amount of capital. The industry continues to witness an intense battle between several players. Moreover, in terms of ride-sharing market volume, China is quite close to the U.S. and is way ahead of the U.K. and Japan. The pollution and traffic-plagued nation allot number plate licenses solely through lottery system thereby, straining the available transportation options to the citizens. Furthermore, new business models revolving around the concept of sharing economy such as bike-sharing and car sharing have emerged as potential mobility solution in China. Hence, given the uniqueness of the commuting problem, the ride-sharing business has a huge upscale potential that is up for grabs.

The hard-fought battle between Uber and Didi saw both the companies spend in excess of c. $1bn per year in order to gain a major chunk of the market share and inflict a severe blow to each other. The firms had investments from the largest global techies including the likes of Tencent, Apple and Alibaba. Didi routed Uber after a fierce battle on its turf and finally, in August 2016, Uber gave in and agreed to sell its Chinese operations to Didi as it left the country. Uber on the other side took a 17.7% ownership stake in Didi. Both the companies agreed to keep Uber China as an independent brand entity wherein Didi would additionally invest around $1 billion in Uber China to provide technological and other expertise. Didi under a strong leadership expanded to 400 Chinese cities in a period of mere 4 years with a valuation of roughly $56 billion (as of 2017). The company boasts of c. 400 million registered customers in c. 400 Chinese cities and it delivers 25 million rides per day. This translates to around twice as many as rides as Uber and other global ride-sharing apps combined together. Didi is a well-funded company and it raised $1.5 billion in March 2018 (by issuing asset-backed securities in China) after having raised $12 billion in free cash flow post-funding round in 2017. These proceeds were used by the partner firms to acquire more vehicles for Didi’s platform.

The firm has turned its focus towards building profitability by partially reducing the passenger subsidies previously offered as Uber went out of the picture. Moreover, earlier this year as per Didi’s international expansion plan, the company attempted to hire and poach top engineering talent for its newly opened research and development centre in California, USA to work on AI (Artificial Intelligence) and self-driving technology capabilities. The company is also said to be extending its reach in Mexico. This could trigger a second round of a competitive battle with Uber and the first one out of Asia. 

But as Didi plan to expand overseas there are challenges that have sprung at home. Recently, few Chinese companies have entered the ride-hailing market in China to grab the growing market share. This includes companies such as AutoNavi (Alibaba-owned mapping firm) as well as Meituan-Dianping; a local services provider having deep pockets. In order to capture the market, they are indulging in price wars by offering discounted rides to passengers as well as enticing drivers with more favourable terms. For instance, AutoNavi is efficiently tapping onto its 40 million enriched active user-base on its Gaode digital map to recruit drivers by offering no cuts/share from the passenger payments. Ctrip, a New York listed travel site has also obtained licenses to launch its car-hailing platform in China. Similarly, other startups, such as the state-affiliated Shouqi Limousine & Chauffeur and Geely-backed Caocao Zhuanche have lately raised fresh funding of more than $100 million to aid their expansion. Thus, in spite of Didi’s present market dominance, it would not be wise to ignore these players as they possess intense local market expertise as well as competitive advantages that Uber somehow lacked in China.

In the current scenario, Meituan-Dianping seems to be the strongest opponent for Didi and is considered as the world’s fourth most valuable start-up with a valuation of $30 billion (as of 2017). The firm has about 320 million active users who often access the platform for services such as finding nearby restaurants, booking hotels and purchasing movie tickets. The food delivery business in China was estimated to be worth $37 billion in 2017 (up from $25 billion in 2016) with 2 major industry leaders; Ele.me (Alibaba owned) and Meituan-Dianping (backed by Tencent).

Meituan’s CEO, Wang, is targeting a valuation of $100 billion in the upcoming years. China’s ride-hailing services currently allow the firm in achieving the target with ride-hailing integration into the existing platform. Meituan-Dianping can offer its customers a single (food to flight) app to book both the transportation, choice of restaurants or movie tickets. In order to challenge Didi’s nascent bike-sharing business Meituan recently acquired a bike-sharing start-up; Mobike for c. $3 billion. While the Uber-Didi fight was purely related to the ride-hailing services, Meituan will be fiercer as it will bring in ride-sharing tips combined with multiple online services thereby, attracting more users and traffic. In order to counter this, Didi has launched its meal delivery service to target Meituan’s core business.

A full-blown price war on food delivery and transportation has begun as boundaries among distinct industries blur. Further, Meituan after a year-long completion of testing on its ride-sharing portal finally commenced the service at the end of March. There is a further plan to launch the services in 7 major Chinese cities including Beijing and Shanghai in 2018. While Didi in an official statement congratulated Meituan on entering the business, it also cautioned the company on services and security risks related to the business. Hence, only time will tell what would be the fate of the industry as both these companies are well funded and are ready to burn cash as they compete with each other. The parties involved are certainly not complaining as customers in China are benefiting from discounts and cashback benefits, while drivers are profiting from higher salaries and incentives. Televisory believe that these internet giants are clearly not going to stop anytime soon and are expected to enter other fast-growing businesses such as clothing, housing, food and transportation as well.