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Analysis EO
Jul 10, 2020 11:39 am ·

Time for BAT and TMD to Hit the Driverless Car Road

► The large addressable market and potential revenue synergy is luring BAT (Baidu, Alibaba and Tencent) and TMD (Toutiao, Meituan Dianping and DiDi) to join the driverless car game. DiDi's in-house Autonomous Vehicle (AV)  in Shanghai is accelerating the adoption curve and also heating up the game, making the rest of the names and startups at times breathless.  ► Pure-tech companies in the area have technology solutions but are struggling to step into the growth/mature stage – and with the unviable business model are exposed.  ► The funding market has been cooling down for a while, with some unicorns suffering without new support. Investors are asking for more – and autonomous driving startups suffered most.  ► As massive – in terms of scope, size or capacity – Level-4 AV deployments are at least four to six years ahead, a ticket to the Internet giants' boat is not a bad exit.  2020 was an eventful year that saw increased AV adoption across some tier-1 cities  China saw several Level-4 major deals closed in the first half of this year – DiDi AV spinoff (USD 500 million), Pony.ai (USD 462 million, Series B), Inceptio.ai (USD 100 million).  The descending enthusiasm of investors could have resulted from the repeatedly postponed commercialization timeline of AV technology. Both giant companies like Google's Waymo and ambitious startups as Momenta once claimed that they would materialize mass production of Level-4 autonomous driving vehicles by 2020. Yet, no single company has realized the goal, due to immature technology, stubbornly high costs and inadequate regulations.  While the investors are getting more discreet on their bets, their expectations remain high. Though the number of deals lessened in the past two years, the volume of money raised in each deal is getting higher. At the beginning of this year, Chinese AV startup Pony.ai secured USD 500 million from Toyota, yet another industrial investor following Kunlun (300418:SZ) – a gaming company. The injection will sustain the firm's research on L4 in the coming years but might harm the company's independence, in our view.  L4 tech solutions providers need to reconsider their role – RoboTaxi operator, self-driving car maker or tech providers. Choosing the latter means they only earn licensing fees.  It might be hard for driverless technology alone to take a majority portion of ride-hailing trips while the rest relies on customer service, as Waymo executive John Krafcik implied. Leading companies have been operating their driverless fleet in China on a small scale. For instance, WeRide reported a total of 8,396 orders of its RoboTaxi service to Guangzhou citizens, in December 2019. However, point-to-point operations in some urban areas are still the initial stage of commercialization.  Like Waymo, Chinese VC Blue Run Capital expressed a similar opinion. OEMs, software integrators and channels surrounding the core OEMs are their priority for opportunities of artificial intelligence (AI). OEMs integrate upstream, downstream and third-party resources efficiently. In the direction of AV, those who focus on parts of the value chain can fonds the course hard, as one closes the loop of demand and supply, creating less value. The company has invested in Lixiang four times, the next being – maybe – China EV stocks after NIO (NIO:NYSE).  Who's the next in Internet giants' shopping bags? Internet/industrial conglomerates have an endless appetite for cutting-edge technologies due to the fear of missing out (FOMO). Their deep pockets support the money needed for acquiring the share of a business when they feel there can be a possible revenue synergy going on.  In the auto industry, whose history is almost a history of M&As, we saw many mega-deals happen in the past five years. Chipmakers and tier-1 suppliers – sensitive to the shifts of world science and technology – are engaging in the game. Intel's USD 15.3 billion acquisition of Mobileye and Delphi's several deals is a clear sign. Pure-tech companies that have technologies but are struggling to step into the growth/mature stage and find the unviable business model are being exposed. A leaf in the storm  We view DiDi's driverless service launch in Shanghai as a significant milestone for the auto industry and, at the same time, a considerable challenge to startups in the same vein. DiDi's peers – not smaller ones in the ride-hailing niche but tech giants – will react accordingly, as the cost of missing new chances may be infinite, just as Baidu missed the opportunity of mobile apps and content recommendation in the 4G era.  The large addressable market and potential revenue synergy is luring BAT (Baidu, Alibaba and Tencent) and TMD (Toutiao, Meituan Dianping and DiDi) to join the driverless car game. Meituan, for instance, has been developing and investing in last-mile delivery AVs to better support its food delivery segment. Its new bet on Lixiang shows its ambitions in networked mobility as well.  The greatest strength for Internet giants to rule the AV business is the solid user foundation created by their primary business. ByteDance (BD), for instance – the Daily Average User (DAU) of its hottest app, Douyin (China’s counterpart to TikTok), reached 400 million as of January, the number having hit 900 million during China's lockdown. The advantage that BD has on traffic entry and its intelligent recommendation systems is paving the way to the Internet of Vehicles (IoV). It will take full advantage of in-car times of drivers and passengers by providing short-video content and expects to commercialize from advertising.  Alibaba has made a presence on the upper stream, investing/building ventures of HD map (AutoNavi) and IoV/V2X (Banma Network). E-commerce giants like Alibaba and JD.com all research on autonomous long-haul freight where L4 Autonomous Truck companies like TuSimple Inceptio and Plus.ai leads the game.  The bottom line As DiDi shows a clear mission to envisage itself as operating fleets of autonomous robotaxis in the next ten years, BAT and TM need to consider engaging more in the game. The need to understand who develops owns and operates the driverless robotaxis or trucks and the surrounding systems, and further, how their advance computing capabilities will help or hinder their entry into the market with their more-than-ten-billion customers, is crucial. They can provide the whole autonomous network with the required infrastructure and best customer experience and move the needle for the autonomous driving industry. 

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Mar 29, 2020 12:00 am · 36Kr

What is missing for Didi?

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Mar 28, 2020 10:50 am · Sina tech

Cheng Wei fights the rivers and lakes again, Didi bows around

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Analysis EO
Jul 3, 2019 01:40 am ·

DiDi Posts 21 Million Rides Per Day in Q1

DiDi Chuxing, the largest ride-hailing platform in China, released its first issue on safety & transparency last Tuesday. DiDi has received approximately 800,000 accumulated reports of dispute claims between drivers and riders that involved with its platform in the first quarter of 2019, representing 0.0042% of total orders. After investigation, more than 35% of those allegations were untrue. 10 were reported to be criminal crimes and 111 became public order cases. DiDi has a 100% clearance of all those crimes thanks to its close cooperation with law enforcement agencies. DiDi spared no efforts in safety since a female passenger was murdered by her driver when using DiDi Hitch service last September, a social ride-sharing based on same-route algorithms. The platform laid off its head of calling center and Hitch Department, suspended Hitch indefinitely; it assigned Hou Jinglei (侯景雷) as new CSO (Chief Safety Officer, a successor of Wang Xin) in March and Pang Jimin (Jimmy Pang, 庞基敏) as SVP of Government Affair and Ride-hailing Safety, who reports to the founder and CEO Cheng Wei (Will Cheng, 程维) directly; in terms of product design, the firm added safety center featuring guidelines and help, and updated SOS button within the passenger app to lead reports to police directly rather than calling center. The firm now initiated 19 safety regulations and expanded its security operation team to 2,548 members, DiDi claimed in a press release on July 2. However, DiDi still feels insecure. It hesitates to relaunch Hitch service back to its platform even public is asking for it constantly. Rumor has it that DiDi Hitch would be back to life in June when DiDi was reportedly testing a service that shares similar functions with Hitch in May. DiDi did not have to pour money to subsidize Hitch drivers for their core needs are not making money from the rides. As a result, Hitch was one of the two departments (the other is Designated Driving) that recorded positive net profits in 2017, with a CNY 800 million net profit. Hitch’s take rate was approximately 5% -8%, far less than Express’s 20%-25%. Hitch recorded 2 million daily rides before it was suspended, accounting for 10% of the firm’s total daily rides. Nevertheless, the ride-sharing market waits for no one. DiDi can only miss the old days when Hitch existed. After DiDi’s doom, several players caught up: Hello Chuxing, starting its business as a bike-sharing platform, made foray into ride-sharing last December and registered millions of drivers in 20 days after launch; Dida Chuxing, an incumbent in ride-sharing, also explored into taxi business, trying to eat up DiDi’s market share. Dida even cooperated with enterprise communication and collaboration platform Ding Talk developed by Alibaba, to roll out a workplace ride-sharing service that allows employees to share cars during business travel and business visits. Thanks to Dingtalk’s millions of data and enterprises management solutions, Dida cut 50% of costs during the process compared with express and premier car-hailing, according to several sources online. Dida did not comment on the issue. Suffering from outside competition, DiDi faces an awkward situation. According to people familiar with the issue, DiDi was mulling over whether it was suitable to speak all the data about disputes claims, criminal crime, and public order case mentioned before out loud in the last minute before DiDI really pressed the button. From that, DiDi was exposed to the light with another formidable truth meanwhile: DiDi posted 1.9 billion rides and 21 million trips per day in the first half of 2019, as suggested by the dispute claim number and its proportion as of total orders. DiDi mentioned its average daily rides several times. The latest one was about a peak number of 25 million by DiDi’s president Liu Qing (Jean Liu, 柳青) in 2017. 21 million daily average rides, is not a good sign for the ride-hailing giant. It reflects that the company’s losing momentum in growing rides, which will inevitably impact on the firm’s gross bookings, gross revenues, and bottom line. By cutting off 2000 employees (15% of total), the firm decided to focus on its main business, as expressed by Cheng in this Feb’s DiDi monthly meeting. Starting from here, DiDi quit its attempts to break into hospitality & tourism industry. Peru, and Chile, two major locations where the company expands its business directly this year, represent DiDi’s new hope. However, hearing and learning from local consumers can be hard for a foreign company, as Uber was kicked out of the China market by its local competitor DiDi. At least, there is another story for DiDi to tell its existing investors, which waited years to cash out after its IPO: autonomous driving. DiDi is seeking investment from its largest shareholder Softbank and other potential investors for its autonomous driving business unit’s fundraising, tech media the Information reported on July 1, amid an emerging trend of ride-hailing companies to price the operations. Uber received USD 1 billion of investment by a consortium including Toyota and Saudi Arabia’s sovereign wealth fund, which valued the unit at USD 7.3 billion.

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Analysis EO
Jun 7, 2019 12:33 am ·

Didi, the Next Mobile Transportation Conquistador in Latin America

The world's leading mobile transportation platform Didi Chuxing announced on June 5 its expansion to another two South American countries. Over 10,000 local drivers have already started providing Didi Express ride-hailing services in Bogota (the capital of Colombia) and the Greater Valparaiso metropolitan area in Chile. Earlier this year, Reuters reported that the Chinese company was planning to break into Peruvian and Chilean markets. At the time, Didi initiated an active hiring campaign aiming at the local professionals including HR, PR and hotline service managers. Besides, the ride-hailing platform has been operating in Mexico since April 2018. Additionally, Didi has already gained some real market experience: the Chinese giant acquired Brazilian taxi upstart 99Taxis on January 3, 2018 and since then has been providing taxi services using the local brand. The deal cost Didi USD 1 billion, according to Crunchbase. The Brazilian market, with the country's overpopulated urban areas, has become a battlefield, on which ride-hailing platforms compete for a share of the immense market. São Paulo and Rio de Janeiro, for instance, are Uber's two biggest cities globally in terms of number of rides, according to VentureBeat. Uber, a major player on the global urban transportation scene, has a big presence in Central and South America: it has operations in 187 cities as of May 2019. What's more, the US firm will reportedly spend USD 40 million over the next few years to open another support center (the third in the region) in Bogota. Emerging markets are seemingly getting special attention from global enterprises nowadays. Latin America is one of the most urbanized regions in the world, with a majority (more than 80%, according to Statista) of its residents living in cities. The continent is also home to several rapidly developing economies with vast market potential. As for the market size, there are more than 450 million people living in the region's five most-populated countries (Brazil, Mexico, Colombia, Argentina and Peru).

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Analysis EO
May 12, 2019 01:13 am ·

Uber’s Bleak Debut Send Unappealing Signal for DiDi

Uber closed its first day of trading down 7.6% to USD 41.57 at the end of May 10. That gives Uber a valuation of roughly USD 76 billion. Its shares opened at USD 42, below the USD 45/share pricing that came on the low end of the USD 44 to USD 50 range. Uber tried to avoid the fate of Lyft Uber validate itself one of the most valuable tech companies in history, with the USD 76 market capitalization. The company cannot be more conservative when it comes to this ten-year-waiting debut, especially when looking at its closest rival Lyft. As of May 8's close of USD 52.91, Lyft shares were a full 27% below their offering price. That values Lyft at just 5.7 times 2018 revenue. Applying the same multiple to Uber values it at around USD 65 billion, below its USD 81 billion expected valuation. No matter it is 76 billion or 81 billion, they are both lower than some early projections. Morgan Stanley and Goldman Sachs had pitched Khosrowshahi last year on an IPO value of as much as USD 120 billion. Its lower-price approach could leave easy money unclaimed, said Bryan Routledge, associate professor of finance at Carnegie Mellon’s business school: “The problem with an IPO is you typically sell your shares too cheap.” Lyft also suffered from Uber’s upcoming debut before May 10, whose shares dropped 11% on May 8. As Uber has more multiple ways to grow its revenue than Lyft through its global presence and fast-growing food-delivery business, which arouse jitters among Lyft shareholders. There was demand for the shares at higher prices but Uber sought to put them in the hands of as many institutional investors as possible, given their penchant for being more long-term-oriented than hedge-fund and retail investors, the Wall Street Journal reports. It seems that no matter how much Uber tried to manage investors’ expectations, the ride-hailing behemoth must accept the truth that its ambiguous and doubtful path to profitability can hurt its stock performance and the private market. Catching up with some Uber and DiDi’s latest moves DiDi Chuxing (download the 44-page report about DiDi for free), the Beijing-based ride-hailing platform, shares the same ambitions on all forms of transportation around the world with Uber, faces obstacles that threaten to derail it as Uber does as well. The company announced its Latin America plan at the end of April. We assume that Brazil, with a population exceeding 200 million, Mexico and Chile would be the hottest battlefield for DiDi and Uber. Uber had a move into self-driving food-delivery as well. Uber has had discussions with SoftBank-backed self-driving vehicle developer Nuro about using Nuro vehicles to help automate Uber’s hot food delivery service Uber Eats, according to a confidential document reviewed by The Information. P/S valuation for DiDi We did expect such a disappointing debut of Uber before we published the report about DiDi, where we estimate DiDi’s fair value benchmarking Uber’s target valuation and Lyft share performance. We’ve already adjusted our final fair value based on our bear case scenario: Uber adjusted its projected IPO value on April 27, aiming for USD 84 billion, Bloomberg reported on Aril 27. Uber is now trading at 6.75x P/S multiple on May 10. we believe the valuation of USD 69.6 billion under the bear case scenario is reasonable. Our valuation for DiDi is based on the comparables method. We chose P/S multiple to reckon DiDi’s valuation. DiDi and its peers Lyft and Uber were not profitable yet so P/E multiple is not appropriate. Plus, the company’s margin can be expanding rapidly and its Sales & Marketing and Research & Development expenses have large rooms to cut when it reaches a mature phase, so EBITDA multiple might not be reliable. For this reason, we think P/S is the most appropriate metric to value DiDi. In addition, we choose the multiple by looking at comparable companies that operate a bookings service in the same vein as DiDi. The P/S multiple we selected for our base case estimation was 9x revenue. Lyft is trading at  9x revenue multiple as of April 5, 2019. Using the same multiple to calculate the fair value of Uber, which is set to go IPO in early March 2019, we obtained the USD 100 billion valuation reported by the Wall Street Journal on April 10. We lay out two scenarios which, relative to our base case assumptions, reflect: (1)investors embrace rapid disruption in mobility warmly and are willing to pay 11 times of the company’s annual sales (bull case); (2) investors view the company in a more pragmatic approach and show less interest in betting on wild dreams (bear case). The degree of change in our multiples will reflect investors’ willingness to alter their behavior in regard to regulatory risks as well. In our bear case scenario, the company will attain a valuation 7x larger than its current revenues. Based on that, DiDi has a fair value of USD 51.4 billion in 2018; if the forecast pans out, the value should grow to USD 69.6 billion at the end of 2019. Uber adjusted its projected IPO value on April 27, aiming for USD 84 billion16. Thus, Uber will be traded at 7x revenue multiple. In conclusion, we believe the valuation of USD 69.6 billion under the bear case scenario is the most reasonable. In our bull case scenario, the company will be valued over 11x of its current revenues. DiDi’s valuation could grow to USD 109.3 billion in 2019; however, both retail and institutional investors might be exposed to larger downside risks as well.

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May 7, 2019 01:05 pm ·

Can Tesla Robotaxi Plan Make Impact on Uber, Lyft, and DiDi?

Tesla’s CEO Elon Musk promised that the company will have a fleet of one million autonomous driving cars in the middle of 2020 on Tesla autonomy investor day, trying to mask the slowdown of vehicles sales. Tesla would charge 25% to 30% commission fee from riders, much like Uber, Lyft and DiDi (download the 44-page report about DiDi for free) do. Elon Musk, expects Tesla to be “approximately cash-flow neutral” as it builds up the fleet. Once enabled, Musk expects Tesla will be “extremely” cash-flow positive. Lyft, Uber have set ambitious goals to broadly deploy autonomous vehicle technology as well. Lyft's share price has dropped 21% since its debut. On the other hand, Uber is currently aiming for USD 84 billion. The projected IPO value is slightly lower than some early projections (e.g.USD 100 million reported by the Wall Street Journal). Morgan Stanley and Goldman Sachs had pitched Uber's CEO last year on an IPO value of as much as USD 120 billion. Everyone is counting on self-driving cars, from EV maker Tesla to ride-hailing companies Lyft and Uber, all expressing their hopes repeatedly in their statements. But we cannot see much recognization from Wall Street. A 500 billion pitch to investors Tesla further explained its vision on the robotaxi in a “broad investor call” held by Citigroup and Goldman Sachs, who is the underwriter of Tesla’s latest efforts to raise USD 2 billion. Musk told investors that self-driving will turn the company into half-a-trillion dollar market cap, according to Bloomberg. Its current market cap stands around USD 42 billion. Musk said that even though Tesla drivers need to keep hands on the wheel today, that will become less necessary over time. Musk said that competitors such as GM’s Cruise and Alphabet’s Waymo can’t catch up because Tesla has a fleet of connected cars on the road today, and a proprietary chip, CNBC reports. Hundreds of thousands of Teslas already on the road will serve as data collectors for the company as well, which help to improve its Autopilot and Full Self-Driving systems. In addition, Teslas can be upgraded “over-the-air” with new software-enabled features and functionality, Musk also emphasized the importance of vehicle appreciation, unlike nearly every other car on the market. they will appreciate in value. A Tesla will be worth USD 150,000 to USD 250,000 in 3 years, he claimed. Details need to be settled According to SAE International’s standard, there are six levels of autonomous driving. The pivotal change occurs between Level 2 and Level 3, when responsibility for monitoring the driving environment shifts from the driver to the system. Tesla Autopilot lie in the segment of Level 2, which is defined as partial automation. Under this level of automation, the driver may have to keep a hand on the wheel as a proxy for paying attention. Even Musk touted Tesla driver will not have to keep hands on the wheel in the future, but he gave us a vague description about exactly which level of automation the vehicle can achieve. “The Tesla Network robotaxi plans seemed half baked, with the company appearing to either not have answers to or not even considered pretty basic question on the pricing, insurance liability, or regulatory and legal requirements,” Cowen analyst Jeffrey Osborne wrote. Morgan Stanley analyst Adam Jonas repeats a common Wall Street refrain about Tesla's Autonomy Day event, saying the tech was impressive, but the go-to-market strategy was unsettled. Musk can be too confident to tout Tesla robotaxi as there are significant competitors in the industry. Waymo, the self-driving car unit of Google-parent Alphabet Inc. has been researching the technology for about a decade. Nvidia produces the most popular AI chip GPU. Uber, Lyft and Didi have experiences and technologies in operating vehicles such as dynamic pricing, order dispatching, and route planning. On the road of removing human drivers in commercial service at scale, we also see a significant amount of legal and regulatory risks ahead. Self-driving is an all-time exciting topic Uber, on the other hand, announced its deal with Softbank, car maker Toyota and Japanese auto-parts maker Denso for a USD 1 billion investment in its self-driving car unit. The investment values the division at USD 7.25 billion. Uber has launched its Advanced Technologies Group (ATG) to focus on autonomous vehicle research. ATG was established in 2015 in Pittsburgh with 40 researchers from Carnegie Robotics and Carnegie Mellon University. ATG has primary engineering offices in Pittsburgh, San Francisco, and Toronto with over 1,000 employees. Uber has invested USD 457 million in the department and other Technology programs, up from USD 230 million in 2016 and USD 384 million in 2017.   "We believe that autonomous vehicle technologies will enable a product that competes with the cost of personal vehicle ownership and usage and represents the future of transportation," Uber wrote in its prospectus. Lower Overhead Overall, we see an upside potential to revenue and margins if self-driving cars become possible in the future. Major operating expenses for ride-hailing companies include sales and marketing, which take the biggest part in all the expenses, as Uber’s financials reflect. We believe that it is related to the ride-hailing companies’ asymptotic marketplace identity and low switching costs. To acquire and retain customers, incentives and subsidies are the need for Uber and DiDi. According to the Uber’s CEO Dara Khosrowshahi, autonomous vehicles could eventually reduce the price per mile for riders from USD 2.50 today to around USD 1.00, representing a 60% price cut8. Although riding in self-driving cars would lead to a decreasing fare per ride, we believe it would eventually translate to an increase in total miles traveled and a decrease in overhead costs in drivers. Thus, increased net margin will offset the shrinking fare to drive profitability. Additional Market Size DiDi’s cars can hardly run for more than 12 hours a day and they barely go to very low-density areas. With the availability of self-driving cars, DiDi’s market can expand from dense urban areas to the entire country, from day to night. DiDi can achieve a higher utilization rate with autonomous vehicles. Uber recorded USD 10 billion in total revenue in its core platform in 2018,  representing 20% of USD 49.8 billion in gross bookings and leaving the rest 80% for drivers. With the availability of autonomous driving, ride-hailing companies can get most of the gross bookings. However, it is not easy to achieve that stage. Uber has been spending between USD 125 million and USD 200 million a quarter on its self-driving car unit in 2017, equivalent to between 15% and 30% of the company’s quarterly losses. Alphabet spent USD 1.1 billion on developing self-driving software and hardware between 2009 and 2015. That number dwarfs Uber’s investment. Can Uber and DiDi afford the costs? Uber spent USD 1.2 billion in R&D expenses and USD 2.5 billion in sales and marketing expenses in 2017, representing 29.78% and 62.58% of the company’s net loss, respectively. DiDi, however, spent much more subsidies for drivers and riders in 2017 and 2018, accounting for 724% and 207.34% of the company’s net loss, respectively. Ride-hailing companies lagging behind the driverless race? Previously, we took a look at a load of autonomous car startups that have raised over USD 100 million. This includes Pony.ai, Momenta, and Roadstar.ai. California’s Department of Motor Vehicles released the latest batch of reports from companies testing self-driving vehicles in the state last month. This sheds some light on the process and level of road testing. We look at the number of test miles and miles per disengagement in California in 2018. Lyft We would say it is a little bit late for ride-hailing companies like Lyft. Lyft has filed a report to DMV but did not operate any vehicles in autonomous mode on California public roads from November 2017 through November 2018. Waymo and GM Cruise posted significantly more miles driven and lower disengagement rates than other companies. Uber logged more test miles than some of the tech startups but did not do well with respect to disengagement rate. Lyft's Open Platform partnership with Aptiv, a leading global auto parts company, has enabled the commercial deployment of a fleet of autonomous vehicles on its platform in Las Vegas. The company have facilitated over 35,000 rides in Aptiv autonomous vehicles with a safety driver since January 2018. "In the next five years, our goal is to deploy an autonomous vehicle network that is capable of delivering a portion of rides on the Lyft platform. Within 10 years, our goal is to have deployed a low- cost, scaled autonomous vehicle network that is capable of delivering a majority of the rides on the Lyft platform. And, within 15 years, we aim to deploy autonomous vehicles that are purpose-built for a broad range of ridesharing and transportation scenarios, including short- and long-haul travel, shared commute and other transportation services," Lyft wrote in its prospectus.  DiDi DiDi joined a number of tech giants, including internet behemoth Google and Baidu, in a race to develop autonomous driving for public transport. DiDi has launched road testing in four cities in China and America, while the exact locations are unclear. It has acquired a license from California DMV to launch live trials of autonomous vehicles in May 2018, trying to catch up with its peers. In addition, DiDi has realized other adjacent markets that a ride-hailing company can compete with incumbents through innovative solutions and DiDi’s customers base advantage. In order to stabilize the compliant capacity and alleviate the capacity shortage caused by regulations, DiDi issued some attempts and expanded its industrial cycle. New energy and autonomous driving. To optimize its operational vehicle, DiDi is working with OEMs and similar new Electric Vehicle makers such as CHJ Automotive to promote new energy and autonomous driving. The two sides will set up a joint venture, which aims to produce smart electric cars in 2020, local financial news outlet Caixin quoted people familiar with the matter as saying. DiDi will have 51% share of the joint venture, with CHJ accounting for the rest. D-Alliance. By the end of April 2018, DiDi formed an international car-sharing alliance D-Alliance, which unites industry associations and 31 OEMs to optimize design and standard formulation of shared new energy vehicles. The 31 members include Volkswagen, Toyota Motor and the Franco-Japanese alliance of Renault, Nissan Motor and Mitsubishi Motors -- plus a joint venture of China's state-owned Dongfeng Motor and South Korea's Kia Motors. Uber Similarly, Uber believes that the company has three attractive options with various levels of integration incorporating autonomous vehicle technologies into our network, as demonstrated by its existing partnerships with original equipment manufacturers (“OEMs”): Toyota. Announced in August 2018, Uber expects to integrate our autonomous vehicle technologies into purpose­built Toyota vehicles to be deployed on our network Volvo. Announced in August 2016, Uber is working with Volvo to develop and build our own fleet of autonomous cars to be deployed on our network Daimler. Announced in January 2017, Uber expects to enable Daimler to introduce a fleet of their owned­and­operated autonomous vehicles onto our network. Ride-hailing companies have access to customers and autos. Since the autonomous driving is still at an early stage, we are unable to provide an answer on who is the No.1 leader, but we are comfortable to conclude that Uber, DiDi and Lyft own the most powerful databases of modern mobility. A more likely scenario would be ride-hailing companies paying a percentage to an owner of a self-driving solution at a lower cost than a human driver. To win from this transportation revolution, DiDi must gain access to autonomous vehicles or it will be exposed to risks of being upended by an autonomous vehicle player entering its market. It would still be too early to say that if Waymo deploys its autonomous vehicles and marches into China’s ride-hailing industry or it would beat DiDi. We believe operating ability and government relationship are also important in the industry.

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Analysis EO
May 5, 2019 02:55 pm ·

DiDi to Relaunch the Controversial Hitch Service?

Ride-hailing giant DiDi (download the 44-page report about DiDi for free) is testing its Hitch service with a gated launch way, reported by China tech media Jiemian.com on April 25. This function allows users to book a car which is available within 15 to 30 minutes. The price is much less than that of Express and Express Carpool, which is believed to be the new Hitch service for a similar experience and price. Former employees told the media that the head of Hitch wishes to relaunch the service in June 2019. the product is ready, DiDi still could not nod though. April 15, ZHANG Rui, the head of the suspended service apologized once again for insufficient safety standards and proposed some measures to revamp the product. DiDi has expressed that the company has no timeline to relaunch the controversial service many times since it suspended it in last August. DiDi is still mulling the “best time” to launch its controversial service Hitch. However, Didi is, definitely, missing the service. The company had suspended its service for six weeks to make some changes after a passenger was killed by a driver in May 2018. DiDi suspended its DiDi Hitch business indefinitely since August 2018 when the second death occurred. In March, a DiDi driver was murdered by a passenger in the central Chinese city of Changde, calling into question the safety of drivers as well as passengers. DiDi has become prudent when it comes to safety and grapple with safety issues. DiDi will set up a team of 2,000 service staff to increase its focus on offline driver management and support, the latest in a series of attempts to improve safety for both drivers and passengers on the company’s platform, China investment media Technode reports on April 29. The company aims to “help drivers solve the problems they encounter in their work,” while soliciting their feedback, said FU Qiang (傅强), CEO of DiDi’s Ride-hailing Business Group in an open memo to its drivers, who reports directly to DiDi's CEO CHENG Wei (Will Cheng, 程维). “We firmly believe that only by serving the driver well can the driver serve the passenger well,” Fu said. Losing Hitch is a pain for DiDi Unlike other ride-hailing services, Hitch is utilizing existing vehicles to provide ride services other than adding more vehicles on the road. Key metrics of Hitch. DiDi Hitch’s former head Ms. HUANG once claimed that Hitch has achieved what DiDi’s taxi businesses achieved in two years in three months. DiDi Hitch covered 137 cities in China in two months since its debut in 2015. GMV of Hitch ranked third among all DiDi’s products, following Express (accounts for 85% of DiDi’s total GMV) and Premier. Hitch recorded 2 million daily rides before it was suspended, accounting for 10% of the firm’s total daily rides, according to Chinese tech media Rancaijing4. Few Hitch drivers are running Express or Premier but riders are willing to choose all types of ride-hailing services. Thus, backed by a large pool of riders in DiDi’s platform, Hitch succeeded. Hitch recorded positive profits. Hitch was also one of the two departments (the other is Designated Driving) that recorded positive net profits in 2017, with a CNY 800 million net profit. Hitch’s take rate was approximately 5% - 8%, far less than Express’s 20%-25%. DiDi does not have to pour money to subsidize Hitch drivers for their core needs are not making money from the rides. Value proposition. The core value proposition of Hitch service is that with more commuters, the higher the value to demand for all commuters, and that value keeps increasing to a large number of users. If we refer to the marketplace we mentioned before, Hitch service is similar to the Typical Marketplace rather than the Asymptotic Marketplace. Express Carpool also has some of this characteristic, but not as strong as Hitch. Hitch's competitors are prepared for its relaunch  Founded in 2014, Dida Chuxing only offers two services: taxi and car-pooling. The company takes a 5% commission fee from the fare. Dida is not the follower of "cash-burning game" but do hope to expand the industry's potential. LI Jinlong (李金龙), the company's co-founder claimed that there are three pillars for car-pooling: users acquiring, drivers acquiring and users experience, in an interview. LI claimed, "for mobility companies, it is important for focus on one vertical at one time. For instance, bike-sharing is a heavy-asset business which requires initial asset and operations. If one company want to move into bike-sharing and other verticals at the same time, it turns out to be a huge challenge for a platform. Even a company like Meituan, the biggest food-delivery platform in China, which has investments in the public market, it is also asset-consuming battle for it to compete with Didi in ride-hailing service." The company offers its car-pooling service in more than 300 cities in China and expanded its taxi business in 84 cities in 2018. The company has once survived under Didi's Hitch launch in 2015, which burned lots of money in three months and suddenly stopped. This gave the several weak in the industry time to breath.  only 40% of car-pooling orders can be taken on Dida's platform for the company only recognize those rides who really go to the same direction with riders as the real car-pooling. LI claimed that only car-pooling platforms can acquire enough vehicles so they can improve dispatching efficiency. And governments are, actually encouraging car-pooling, only if it is real car-pooling, according to LI.  In July 2016, the Ministry of Transport issued the Temporary measures to manage online ride-hailing services and Guiding comments regarding deepening reform and promoting healthy development in the taxi industry. This represents approval of car-pooling service by the Chinese government but the service must fit two essences: same direction for drivers and riders, and low price. LI said the company complies with both. Alibaba-backed bike-sharing startup HelloChuxing launched its cab-hailing service in Oct 2018. The firm has partnered with Dida Chuxing in an arrangement to allow HelloChuxing users to hail Dida cabs on the HelloChuxing platform since Oct 2018, Caixin reports. The service will be available in 81 Chinese cities.  "We're not afraid of Hitch's relaunch, " LI said. However, we believe that DiDi's can leverage its strong network effect on Hitch, with its large pool of drivers and vehicles, and beat other weak competitors soon after relaunch. Moreover, DiDi can offer more accurate route planning and order dispatching due to its powerful algorithms that Dida and Hello cannot compete with.

Analysis EO
Analysis · 2
Analysis EO
May 3, 2019 01:42 pm ·

DiDi Releases Expansion Plan to Take on Uber in Latin America

On April 25, ride-hailing giant DiDi Chuxing’s president LIU Qing (Jean Liu, 柳青)announced that 1,200 Didi employees serve in DiDi’ Latin America expansion department in an investment forum held by Chile in Beijing. DiDi (download the 44-page report about DiDi for free) provides Express, taxi, and food-delivery in the region, covering 200 million users. The company plans to expand more business such as diversified public transport, electric vehicle, smart transportation in the future. Chilean President Sebastian Pinera also met with executives from DiDi. The company has been planning to take on U.S. rival Uber in some of Latin America’s fastest-growing markets, including Chile, for a long time. In Jan 2017, CHENG Wei (Will Cheng, 程维), the company's CEO, claimed that the company's next international market targets would be Japan, South Korea, Brazil, and Europe. April 22, 2017, the company said that it is beginning to recruit drivers ahead of its launch in Colombia's capital Bogota in the coming months. Didi launched its international department in Feb 2017. “DiDi currently competes with us in certain countries in Latin America and in Australia, and in 2018 made significant investment to gain or maintain category position in certain markets in Latin America,” Uber said in its prospectus. Prudent and cunning way DiDi seems to clearly know that it is facing entrenched competitors with key knowledge of local markets and the company is not an international brand when it comes to global expansion yet. The company takes an easy and tender way to do that business. DiDi usually invests its competitors. DiDi invested USD 100 million in Lyft and USD 350 million in Grab, in 2015. DiDi also was involved in Ola’s USD 500 million investment in 2015. DiDi acquired 99 in a USD 1 billion deal in early 2018. In July 2017, DiDi injected USD 2 billion into Grab, along with SoftBank. Will Cheng once admitted that relying on DiDi's international expansion, DiDi won the war with Uber. DiDi's anti-Uber alliance has trapped Uber in several bruising fights for local domination, which costed Uber's resource and ended up Uber's losing China market. DiDi is not the bossy type. Grab’s co-founder Anthony Tan once claimed that “DiDi is not the type to say ‘we want to boss’,” DiDi, instead, respects Grab’s ability to operate across disparate cultures and fragmented markets in Southeast Asia. That’s a market with 600 million people. Latin America is a growing market for ride-sharing as well, and Brazil, with a population exceeding 200 million, is a prime target. SoftBank is among the biggest shareholders in DiDi, Ola and Uber. Uber has given up its business in China, Southeast Asia, Russia to local competitors. The cash burning game cannot go on forever and players have to cut subsidies to drivers, which let them lose market share, or merge. SoftBank has publicly encouraged Uber to focus on the United States and Europe in Jan 2018. In 2019, Uber announced another M&A deal with Careem, its competitor in the Middle East, which is expected to close early next year.   Consolidation is never Uber’s strategy, not for the past years and not today. Uber, however, after several costly battles in Southeast Asia, Russia, and China, ceded its control over its operations there to the local players. Uber itself admitted that Uber's strategy to barge into a new market without considering local situations carefully has put the company into a position where it faces too many battles across too many fronts with too many competitors, losing valuable market where it did not operate and the battle where it did. Unlike Uber's antagonistic approach to expand into a target market and seize the largest market share, DiDi takes relatively conciliatory and multiple ways. DiDi undertakes three-pronged ways including acquisitions, investments, and partnerships with local players. People Matter in DiDi's international plan Didi cannot go back to the carefree days when users growth came easily, even at high subsidies, and the company and the public were largely ignoring the company’s vulnerabilities to regulations, safety issues, and subsidy abuses. Didi has to find traction with its business challenges.   DiDi suspended its DiDi Hitch business since August when the second death occurred. The company had suspended its service for six weeks to make some changes after a passenger was killed by a driver in May 2018. DiDi needs to fundamentally change how it runs this company to make real progress on thorny problems of security and safety. More importantly, it needs to find the next new business engine. “Globalization is a top strategic priority for DiDi”, Will said in a statement. DiDi might need to do more than invest in overseas ride-hailing operators. The company must find a way to impress its investors and potential investors, probably by venturing into international markets directly.  ZHU Jingshi (Stephen Zhu, 朱景士) is an all-time head of the department, a former Goldman Sachs executive. Stephen has worked with Jean for four years before he joined DiDi in 2014 to oversee the international expansion, marketing, and public relations. Stephen also played an important role in recruiting talents, who can be promoted to lead operations of core businesses such as Express Mobility, Premier Business Unit, and Big Data after they gained experience under the corporate strategy department. Stephen was promoted as the company’s SVP of financial operations and strategy in December 2018 and will keep supervising its global expansion and financial department.

Analysis EO
Analysis · 2
Analysis EO
May 2, 2019 10:44 pm ·

DiDi Loses Significant Money on its Rides

Didi Chuxing, the biggest ride-hailing company in China, said the company lost 2% of the fare for every ride it operated in China for the three months ended in December 2018, in an essay published on April 22, 2019. It was the first time the company published such metrics. DiDi (download the 44-page report about DiDi for free) took 19% in commissions on average for the actual fare riders paid, or so-called take rate. Drivers took all the long-distance dispatching fee, dynamic fare, and tips, which are not included in commission calculation. Didi’s executive CHEN Xi (陈熙), who oversees the company’s ride-hailing business, said that the take rate changes dynamically. A sum equivalent to 10% of the fare is used for operational costs, which includes technology research, safety, calling center, human resource, and offline operations. The company wants to cut expenses while staying a low gross margin. A further 7% goes to the driver as incentives to award drivers who service in rush hour and hot spot district. 4% is used to pay taxes and online payment-associated fees. In conclusion, while Didi took 19% in commissions on average, its costs surpassed that at 21% of the fare. Didi had to cover the rest of 2% costs from its fundraising. CHEN mentioned that it is a normal phenomenon in the ride-hailing industry. Uber’s take rate in its core ride-hailing platform was 20% in 2018. Its smaller rival Lyft registered 26.8% take rate in 2018, according to its prospectus.  DiDi and Uber have played in the first half game in the ride-hailing industry in China. DiDi achieved a monopoly position in terms of traffic flow after it had won the battles with Kuaidi and Uber. In 2018 Q2, DiDi was accounted for nearly 96% of the market share, which was significantly higher than the second place Shouqi. In the second half game, however, regarding the B2C model, there is no monopoly like DiDi. However, DiDi is now being trapped in a dilemma: the company will have face losing market share or losing money. The company cannot increase its take rate or cut driver incentives to offset losses. If that happens, drivers will flow to other Apps easily. The company cannot cut customer subsidies completely either for this will also lead to customers using other ride-hailing Apps. We believe the main reasons are two: the Asymptotic Value Marketplace and low switching costs.  Two-sided network effect Network effect occurs when a company’s product or service becomes more valuable as usage increases. However, it can be divided into two types: two-sided network effect and one-sided network effect. One-sided network effect is also known as same-side effect. As users increase, so does the value. It happens mostly on social networks like WeChat. Two-sided network effect. More users increases the value of the services they receive from the other side and vice versa. DiDi has created a virtuous two-sided network effect: a large supply of drivers enables more rides to be completed, which attracts more riders, making the entire platform more valuable for both sides. In essence, each incremental rider and driver creates a network effect. Driven by its strong two-sided network effect, DiDi has built three pillars: maximum supply liquidity, minimum wait time, and seamless service. However, DiDi does not perform the one-sided network effect. For the first part of the network effect: the core mission for DiDi is to acquire enough users or riders. DiDi has cooperated with WeChat and Alipay to put an entrance on their APPs. By pouring money into marketing and subsidizing, it can attract more new users. DiDi needs to improve its customer loyalty to retain new users to keep on using its platform. Second, dynamic pricing. The dynamic price adjustment ensures a reliable service for riders and incentivizes drivers to provide rides at peak times and location. Efficient dynamic prices depend on stock of drivers elasticity, according to Jonathan Levin and Andy Skrzypacz. In addition, Dynamic Pricing is particularly important for ride-sharing platforms because pricing too low for the market conditions creates a "wild goose chase" phenomenon: demand outstrips supply, and pickup ETAs (Estimated Time of Arrivals) suffer long waiting time, according to Dawn Woodard. DiDi introduced Dynamic Pricing on December 2018 to Australia to help boost drivers’ earnings. During times of high demand, Dynamic Pricing will apply on drivers’ trip fares. If demand is high in a particular area and time, the trip fare will have a multiplier added to the base, waiting and distance fees. We define take rate as ride-hailing net revenue as a percentage of gross bookings. It fluctuates based on competitive pressure, the dynamics within each segment market and product mix. It affects profits. The firm will adjust its commission fee and service fee accordingly to match both needs of drivers and riders. Ride-hailing companies take a 20%-25% cut of drivers’ fares (gross bookings). On the other hand, ride hailers need to recruit new drivers to grow and need to subsidize (or even occasionally fully pay) those drivers to attract new customers. This is the main reason why no ride hailer has ever booked positive operating profit to date. Both the service fee paid by drivers and the driver incentives affect the take rate, which in turn affects the net revenue. Uber’s core platform take rate was 20% in 2018. DiDi’s network effect benefits both drivers and riders and creates a continuous cycle. By focusing on a small number of locations at first and gaining reputation via word-of-mouth marketing, DiDi soon expanded to 400 Chinese cities by March 2017 and 1,000 cities globally by Jan 2019. With scale, DiDi has attracted enough backers to support its generous subsidy plan, which allows the company to continue scaling regardless of costs. The Asymptotic Value Marketplace DiDi only has a strong two-sided network effect but weak one-sided network effect. DiDi intended to build the one-sided network effect by adding a social network function in DiDi Hitch, a carpooling service. This function allowed drivers to create public tags for passengers including physical features, gender and age. A female passenger using the service was killed in May 2018 and the public criticized DiDi’s efforts to market Hitch as a “social carpooling” service. As a result, the company removed social features from Hitch service.  We believe Didi has a strong two-sided network effect. However, not all two-sided marketplaces are the same. One way to differentiate them is to draw a value-to-demand curve. This value curve refers to how fast the value to the demand side increases as supply increases. The graph above represents the Typical value marketplace, the Delayed value marketplace, and the Asymptotic value marketplace.For Asymptotic Value Marketplace, the initial supply quickly adds value to the demand-side, but soon the value to demand-side growth rate starts to diminish. Delayed Value Marketplace: In this case, players need to grow the supply-side to a very high level before there is any value to the demand-side. For example, Taobao, JD.com, and Meituan have a Delayed Value Marketplace because the value generated to customers grows slower than the supply. However, once the Critical Mass was achieved, the network effect becomes powerful and value rises rapidly. The Critical Mass is critical. If we consider the value to demand as the minimum wait time, DiDi’s situation looks like this: Up to the Critical Mass, DiDi will increase its supply of drivers, leading to a higher capacity per driver and lower idle time for riders. Riders are willing to pay enough money for DiDi cutting their wait time from 8 minutes to 4 minutes. Beyond the Critical Mass point, however, the value diminishes. Demand utility will not improve as fast as before for there is less difference between waiting for 4 minutes and 2 minutes. DiDi will then have to face diminishing returns to scale.  Vulnerable to competition. Asymptotic Marketplace is more vulnerable to competition compared to the Delayed Marketplace. Competitors can easily enter the market as long as they can reach a sufficient threshold to provide comparable pickup times or high-priced and service-quality premium car service. That is part of the reason why Meituan ride-hailing service, Shenzhou Zhuanche, Shouqi Yueche, and Caocao Zhuanche can impact on the company’s business.  Low switching costs Ride-hailing is a type of service or commodity sending people from location A to location B. For users, they can download different ride-hailing Apps and decide which has the best price/service without recognizable costs. For drivers, things are pretty much the same. Both sides of the marketplace lead to low switching costs. It’s also called “multi-tenanting” when supply or demand is willing to live in two or more places. We took the battle between DiDi and Meituan as an example. In January 2018, DiDi unveiled its bike sharing platform, which integrates services of two Chinese bike sharing companies OfO and Bluegogo and is open to other potential partners in the future. The battle between DiDi and Meituan has escalated in 2018 when Meituan bought bike-rental startup Mobike after DiDi launched its bike-sharing business. Meanwhile, DiDi made a move into food-delivery industry. DiDi’s market share rebounded after Meituan’s subsidies canceled. Meituan Dianping (3690.HK), the operator of the world’s largest on-demand food delivery service, introduced its ride-hailing operation in February 2018 in Nanjing and rolled out the service in Shanghai in March 2018. The cost of rides hailed on Meituan started at CNY 5 (USD 0.75), compared with the initial charge of CNY 14 on a regular taxi. Meituan gave subsidies to drivers as well. In May 2018, local authorities criticized this kind of price war as unfair competition. Meituan’s subsidies ended, which led to its respective market share decreasing from both drivers side and customers side. DiDi’s market position rebounded as a result. It reflects low switching costs and limited short-term customer loyalty on DiDi’s platform. Meituan halted the services in September because DiDi’s safety issue has changed the market dynamics. Before the Critical Mass we mentioned in Asymptotic Value Marketplace, riders’ utility will be improved drastically when DiDi provides more drivers and better technology. Their rides can arrive in less than four minutes. After that, however, DiDi will find out that even with more cars waiting on the platform, it becomes harder to comprise the ride-hailing time to less than two minutes, due to the real traffic situation. Several weak including Shouqi Yueche, Caocao Zhuanche and Shenzhou Zhuanche get popular as DiDi is under government's strict supervision and compliance pressure. For instance, Shouqi relies on its regional advantages in Beijing, targeting high-end mobility demand, cutting into the car segment market with standardized services, and creating a small and beautiful high-end car-hailing platform. It registered 4.3 million MAU and 665,000 DAU in December 2018, driven by a continuously growing user base. At present, DiDi is a leading company among enterprises that adopt C2C (Customer-to-Customer) business model, which are typical with light asset.  We come to the conclusion that DiDi has a stable moat. Without disruptive technology (for instance, Alphabet’s self-driving unit Waymo ventures into ride-hailing with self-driving technology) and extreme political factors, it is hard to find a new company that will threaten DiDi’s business. However, we think that DiDi is exposed to frequent risks while the shortage of transportation capacity continues to plague DiDi in the short term.

Analysis EO
Analysis · 2
Analysis EO
Mar 30, 2019 10:53 am ·

The Implication for Didi: Lyft's Unviable Business Model?

March 29,2019, Lyft shares rose 8.7% on its first day of trading. It’s a long-awaited chance for investors to grab the opportunity of the biggest and most high-profile technology IPO since Snap debut in 2017. Lyft opened at USD 87.24 on the first day, up 21%. The opening price pushed Lyft a valuation of roughly USD 30 billion on a fully diluted basis. Lyft is offering 32.5 million shares of its Class A common stock, plus up to an additional 4.8 million shares that the underwriters have the option to purchase. Lyft priced its IPO at USD 72 a share late Thursday to raise USD 2.3 billion publicly. The company went through a tough time when its largest rival Uber trying to cut off its capital resource from private equity or venture capital firms, reported by Wall Street Journal. Lyft’s performance has boded well for Uber, however, which will kick off its IPO in April. But how far ride-hailing companies can turn to the inflection of profitability? And what’s the subsequent lesson for Didi? We dive deeply into Lyft’s financials and its true motivation behind the IPO to find the answers. Business Model Lyft is making money by charging service fees and commissions for each ride the company offer to its riders and drivers. The company uses contribution margin as one of non-GAAP metrics to give us a breakout of how its business operates. Contribution margin has been increasing from 2016 to 2018, from 23.1% in the first quarter of 2016 to 45.5% in the fourth quarter of 2018. The company almost double Contribution margin to USD 920 million last year than that of 2017. Cost of revenue was USD 1.24 billion on USD 2.2 billion sales in 2018. The company generated minus USD 977 million operation loss last year. To conclusion, even it has a good growth story, for instance, its revenues increased over 100% last year but still struggles to find the path to positive operation profit, not even mention the net profit. Lyft is no longer on its early stage when it put up about USD 343 million revenues in 2016. When we look at its core business metrics for a company which still cannot make money, we can see an unviable business model from that. The company has 18.6 million active riders in 2018 Q4. The number of revenues per active riders is increasing in the past three years and recorded at USD 36.04 in 2018 Q4. Both of the numbers reflect the company has a healthy business growth. That’s the user sides. With respect of drivers side, the company came up with a concept called a cohort of riders which is defined as riders who took their first Ride on its platform through the Lyft app in a specific year. The 2015 cohort, which is the earliest drivers (in the reported period) of that platform drive 67 million rides in 2018. The company also have seen that the aggregate number of rides taken generally increase as riders in each cohort derive more utility out of the platform and expand their use cases. The company expects an increased frequency of use of its multimodal platform as it innovates and expands offerings, which is the core role of an as-a-service player. However, Lyft is exploring scooter business so far, ignoring food delivery or logistics. Lyft lost USD 911 million in 2018, growing by 32.5% from last year. Lyft recorded contribution per ride at USD 1.49, growing from USD 0.5 in 2015. But the problem is the net loss per ride was minus USD 1.47, which addresses the need to increase contribution per ride at a rapid speed to offset growing operating expenses. Prisoner’s Dilemma Lyft has an ability to chip away at Uber’s dominance in recent years, especially in the aspect of fundraising and the business strategy. The company has upped its U.S. market share from 15% to around 30% over the three years, according to Second Measure, reported by Wall Street Journal. Uber has roughly 70% of the market. Lyft itself estimated that it has about 39% of the U.S market in Dec 2018, up from 22% in 2016, which is an impressive development since the U.S is also Uber’s major operation locations. Lyft has been pitching its simplicity to its investors in its roadshow. John Zimmer, the company’s co-founder said that "we are founder-led. We have one of the largest and fastest-growing multimodal transportation networks. We are solely focused on consumer transportation. Not food. Not trucking. We have a strong brand based on our strong values. And we have the right autonomous strategy," CNBC reported. Lyft has exhibited in its roadshow that the industry was ripe for a “natural monopoly” in which a company could “set price to maximize profits”. However, it is never a natural monopoly situation either for Lyft or Uber yet. Uber and Lyft have somehow been trapped in a classic prisoner’s dilemma. Given ride-hailing companies’ primary competition model, they must keep subsidizing drivers and riders to seize market share. If one of them stopped that, it can make money but will soon definitely face failure.  We give out the matrix under the game theory as below: The equilibrium result lies in the (High, High), which leads to that both parties are constantly burning money to compete with each other and fearing they will lose market shares. Usually, under such scenarios, the party who take more money with it will win the game at last. However, as Uber has marred its brand due to PR disasters happened in earlier 2017 which led to its then CEO’s resign, Lyft was able to grow by leveraging that chance and successfully raised USD 600 million to seize the market share at that time. Uber has made plenty of mistakes in terms of corporate culture and Lyft ultimately established itself as more of an ethical company. As the market adjusted itself to be stable, the two companies are back to the duopoly situation. They are still losing money for each ride and they still cannot earn profits as long as they do not want to see their market being eaten. Cautions: Didi is going through a similar problem Lyft & Uber Dilemma Didi needs to caution that for a similar thing is happening in China where the company maintains a more than 90% of market share. After two riders have been killed by drivers on its platform, Didi suspended its ride-Hitch service indefinitely last August. Even rumors said that the company planned to reopen that business in April, Didi never responded to it officially to date. Didi became prudent when it comes to safety and regulations. The company postponed its IPO plan as well. A number of competitors, however, are exploiting this precious opportunity to build its own brand and outrank Didi, at least, in a niche market. Didi has a series of competitors before the safety issue actually, including UCAR-backed Shenzhou Zhuanche (神州专车), Shou Qi Group-backed Shou Qi Yueche (首汽约车)and Geely-backed Caocao Zhuanche (曹操专车), which operate in a business to customer (B2C) model. These companies own or rent all the vehicles used in their service and train their drivers and give certificates to them, who will be treated as their employees and enjoy monthly payments. It’s a heavy-asset way to do ride-hailing business and has nothing to do with ride-sharing or sharing economy. However, B2C model allows companies to increase user stickiness by offering a standardized and high-quality service, and more importantly, it is less exposed to regulation risk compared to C2C (Customer to Customer) model. As for the C2C model, new competitors are emerging recently. Startup Hello Chuxing decided to expand its bike-sharing business to include a hitch service called Hello Hitch (哈啰顺风车) last December. It only charges 5% from the gross bookings as its revenues, compared to then didi’s Hitch service charging from 10% to 15% before Didi cut the service down last August. Hello Hitch touted it pursues sustainable cash flow other than heavy profits. Valuation Didi has completed 7.43 billion rides in 2017, a staggering number which is around 20 times than that of Lyft. Considering the two companies have different subsidies policy, commission fee and service fee, insurance policy, and even different average price per ride in the two countries, it’s hard to extrapolate the exact valuation of Didi by simply looking at these business metrics. Of the two companies, Didi’s dominance in its domestic market means it losses more money. The company reported a loss of CNY 10.9 billion (USD 1.6 billion) last year and its closest competitor Uber recorded USD 1.8 billion loss at the same period. Uber and Didi have a similar business strategy. Both companies venture into costly businesses, including food delivery and bicycle-sharing, as well as international expansion efforts like in Brazil and Mexico, which will eat into their cash quickly. Uber is preparing to file for their initial public offerings scheduled for as early as next month. However, Didi faces a government crackdown and public backlash and remains low-profile for more than half of year. The firm even released its net loss numbers to the public to alleviate pressure burden, Chinese media suspected. The 2018 IPO market was extremely receptive to money-losing firms. According to data from University of Florida professor Jay Ritter, over 80% of companies that went public in 2018 were unprofitable, Business Insider reports. We expect that given Didi’s such large scale, it is reasonable that Didi's market cap will surpass the lasted post-money valuation of USD 56 billion when it goes IPO. Even if that happens, we still doubt how long people will keep buying it shares until the company will finally get to a point where it will reach profitability. But the company will have a hard time until that point. Path to profitability Uber and Lyft are somehow in a duopoly situation on the rideshare market and that leads to a key question: when they can make a profit? Lyft gave its answer towards costs and future. Lyft executives said they expect the costs of processing transactions to come down, according to Reuters. Lyft now has 18.6 million active riders and over 1.1 million drivers who provide rides for Q4 2018. On the road head, Lyft believes that their business has a potentiality to grow in the future as just 1% of miles traveled in the U.S. happen on rideshare networks, according to McKinsey. Considering some people would still want their own, we still think the market has a massive opportunity to serve more people even it is not 100%. Things are similar in China. The ride-hailing penetration rate in China is 18.2% in 2017 and expected to grow to 22.4% in 2020, according to data collected by Statisita. Investors partly were driven by Lyft’s autonomous driving story to buy its shares. The company says that it ultimately wants to oversee a fleet of tens of millions of autonomous vehicles. For now, ride-hailing is a service or commodity sending people from location A to location B. Suppliers has little bargaining power and pricing power. If Lyft can cut the cost of rides by leveraging autonomous driving technology, pricing power would no longer exist as a problem anymore. However, we have not a clue about what process the company has developed its technology so far. We did not see its road testing report in California in 2018 for it did not operate vehicles here. Waymo, a subsidiary of tech giant Google which has a way more cash balance than that of Lyft, reported the best transcript in that race. Didi joined a number of tech giants, including internet behemoth Google and Baidu, and Uber in a race to develop autonomous driving for public transport. The company has launched road testing in four cities in China and America, which the company did not elaborate on the exact places. Didi has acquired a license from California DMV to launch live trials of autonomous vehicles in May 2018, trying to catch up with its peers. We are pretty much suspicious about how much percentage of revenue Lyft can invest in the autonomous driving business as its cost is growing as fast as revenues, as well as when it comes to Didi and Uber.

Analysis EO
Analysis · 2
Analysis EO
Mar 4, 2019 11:28 am ·

Didi Launches Self Driving Company: Too Late?

On March 1, 2019, the parent company of Didi Chuxing, the largest taxi-hailing App in China, has started a wholly owned subsidiary called Shanghai Didi Woya Technology Limited (上海沃芽科技有限公司). In the newly established company ZHENG Jianqiang (郑建强) serves as the legal representative and executive director, while WU Rui (吴睿), co-founder at Didi Chuxing, serves as supervisor. Woya will focus on the following: Internet-related technologies, transport equipment, intelligent driving, and self-driving. This is not Didi's first attempt in the self-driving field Back in 2017, shortly after its USD 4 billion funds, Didi declares it will spend some of its fundings into transport technology powered by AI. In March 2017, it opened a self-driving research lab in Mountain View, California. In the same time, it has poached Charlie Miller (worked for National Security Agency and Uber & responsible for the infamous Jeep hack) and  JIA Zhaoyin (senior software engineer at Waymo). In November 2017, it established a map company called Ditu (滴图). High Definition Map is important to build self-driving technology and been widely believed it is the key to bring L5 into reality.  In January 2018, it opened an AI research lab, which will be led by  Prof YE Jieping (叶杰平), vice president at Didi Chuxing, in Beijing. Now the team has around 200 scientists and engineers and still recruiting.  Now, Didi has begun to test self-driving in China and the states. It wishes self-driving cars could be released next year, reported by Leiphone.com. Why Didi wants to step in the self-driving field? The trend:  Self-driving technology is still developing but seems to be an inevitable trend.  Self-driving has been an eye-catching concept. Traditional car manufacturers, tech startups and tech giants etc all wish to join the development commercialization of this technology. Goldman Sachs says the market for Advanced Driver Assistance Systems (ADAS) and Autonomous Vehicles (AV) will reach USD 96 billion in 2025.  The two largest economies, namely the Chinese and the US government hold a supportive attitude towards self-driving.  Autonomous driving legislation has been introduced in more than 24 states in the US. On the other side, China made Beijing as the first to run the open road test and Shanghai, Hangzhou, Chongqing, and Wuhan are expected to follow soon, says South China Morning Post. Uber and Lyft, the two largest taxi-hailing apps are also closely following the self-driving trend.  Lower costs: Labor costs have been increasing for years. By adopting self-driving cars could significantly drop the operational costs down and bring the efficiency up. The challenges that Didi might encounter According to the data published by DMV, Uber was so lagging behind from the top 1 player - Waymo or other tier-1-to-2 players. However, Didi is even behind Uber for now.  This raises a thorny question that how long or will Didi be able to catch the technological gap.  

Analysis EO
Analysis · 2
Analysis EO
Feb 25, 2019 01:52 pm ·

The Mutual Impacts Between Rules and Ride-hailing: Rules and the Giant DiDi

Ride-hailing (also referred as car-hailing), a newborn industry emerged from the end of last decade, has been growing since this decade. The pioneer and the industry model, Uber, was founded in 2009, which is actively preparing for the initial public offering with the newest market value at approximately USD 90 billion. In 2010, China’s first ride-hailing company Yidao (易到) was founded and soon the other startups joined in following years. The competition in ride-hailing industry is as intense as any other newborn industries, players eager to dive in the blue ocean and, indeed, the first comers have advantages while the latecomers have to struggle through their ways out in a red ocean – first comers take most of the market share. The rule and legislation process for the new industry took time. In order to wait for the industry to grow more mature and expose enough problems, the most important policy regarding the formalization and regulation of ride-hailing industry, Specification for App-based Ride-hailing Operation Services, was issued in 2016, which was six years after the first ride-hailing company founded. By the date the article published, 31 car-hailing-related policies, rules, plans, and other topics are released on government page within the last six years. The booming of the car-hailing industry did not start until 2013. In 2013, the intense competition among ride-hailing companies aroused the public’s attention and brought more flows into the industry, be it the customers, startups, or investors. Comparing to 2012, the growth of customer pool increased at a rate of 220.0% in 2013, and the number increased to 559.4% in 2014. After 2014, the growth rate dropped sharply in 2015 and gradually slowed down to 19.2% in 2017 and was expected to be 11.6% in 2020. Since 2013, the Ministry of Transport of the People’s Republic of China (MTPRC) and the State Council of the People’s Republic of China (SCPRC) started to mention “Ride-hailing” in press conferences and government documents. The fast-growing newborn industry pushed the government to accept its existence and changed the way that people used to think since taxi is a critical part of public transportation which is strictly regulated by the state. Ride-hailing, as a competitor of taxi, functions like a taxi but with more flexibility. Some originally thought that ride-hailing would not be able to survive in China since the government’s strict regulation might prohibit the industry to live or grow. Nevertheless, fast growth represents the need of people in transportation and ride-hailing has satisfied the need as a supplement instead of a substitute for taxi. Currently, ride-hailing service is assigned to be a category under taxi and all laws and rules applied to taxi can be applied to ride-hailing. 2013 – the First Exposure “Actively promote the development of taxi phone reservation service, ride-hailing, and other means that can offer convenient services for citizens”, said the Vice Minister of MTPRC in 2013’s Chunyun conference call in January 2013. This is the first time that ride-hailing was mentioned in an official document. In 2013, the customer size of ride-hailing industry reached 30 million, which tripled the size in 2012. Yidao’s ride-hailing business used car rental companies’ cars and drivers to provide ride-hailing service. KuaiDi (快的) and DiDi(滴滴) were born in 2012 and they used taxis for their car-hailing service. Besides the large base and quantity of the ride-hailing service provider, KuaiDi and DiDi both swiftly took over the market by subsidizing ride-hailing drivers and customers when they started to receive venture funds. In June and October, the MTPRC published the advice and an official document. In both publications, ride-hailing was mentioned and encouraged to effectively serve the public transportation system by reducing the passenger-less taxi rate. Rules and policies targeted at formalizing or regulating the new-emerged industry were yet to be discussed. 2013 is a growing year for the industry. 2014 – Rules Come “To adapt to the fast-changing trend of new forms such as app-based ride-hailing, phone reservation, and other means to enjoy taxi service, to maintain the market order of taxi market, to elevate the taxi service quality service, and to promo the healthy development of taxi market, the Office of the Ministry of Transport of the People’s Republic of China is authorized by the Ministry of Transport of the People’s Republic of China to announce followings:…” wrote in the Office of the Ministry of Transport of the People’s Republic of China’s [2014] No. 137 document. No. 137 document was released in July and aimed at formalizing and encouraging the growth of the taxi market through new forms like mentioned above. 2014 is a year that firmed the foundation of future development of DiDi. In January, DiDi closed its series C financing in amount of USD 100 million led by Tencent, which was seven months after its series B financing in amount of USD 15 million led by Tencent; KuaiDi received  its first financing in April 2014 of an amount in millions of dollars (actual amount is not disclosed) from Alibaba and Matrix China (经纬中国). Two top players both raised twice in 2014: DiDi raised a total of USD 800 million and KuaiDi raised over USD 110 million. In the same year, Uber China was founded and as well as other startups came in bundles. The competition was pushed to the first climax. The subsidy war between DiDi and KuaiDi was intense in 2014. According to CITIC Securities (中信证券), DiDi compensated subsidies in an amount of CNY 1,400 million (USD 207.8 million) and KuaiDi compensated subsidies in an amount of CNY 1,000 million (USD 147.7 million) by May 17th. In total CNY 4,000 million (USD 590.8 million) was splurged by the two companies in the subsidy war throughout 2014. Thanks to the subsidy war, the consumer base increased steeply from approximately 30 million to 210 million within a year. The subsidy plan drew both drivers and passengers to DiDi and KuaiDi’s app platforms within a short period of time. In CNNIC’s analysis, DiDi and KuaiDi’s users’ loyalty was the highest during 2013 – 2014: the utilization rates of DiDi and KuaiDi were 74.1% and 50.2% respectively while other ride-hailing apps’ were below 7% during the research timespan. According to iResearch, DiDi’s market share was approximately 68.1%, KuaiDi was approximately 30.2%, and the rest were 1.7%. The aggressively growing market aroused the state’s attention, and in the middle of 2014, the state published the No.137 guidance document and keenly paid close attention to the industry. The emergence of ride-hailing industry started to change the taxi market. Since ride-hailing is not limited to taxi drivers but also home-use car drivers. The joining of home-use car’s drivers had become an important source of DiDi and KuaiDi’s ride-hailing services and this situation started to complicate the regulation for both the app platforms and government. After the first guidance document, another MTPRC’s official document published in October, the 14th order of MTPRC. The guidance and the order aimed at regulating the administration of the taxi market and prompting new forms of side services (including ride-hailing) to assist the development of the taxi market. 2015 - The Acquisition After burning millions of dollars in 2014, DiDi and KuaiDi reached an agreement. DiDi acquired KuaiDi in February and ever since DiDi became the largest ride-hailing company. 2014 might be regarded as the year of DiDi and KuaiDi, but 2015 was a year for DiDi and Uber China. Uber China as a brand founded by the most experienced ride-hailing company in the world faced the most intense competition in the year it founded. The competition burnt millions to open the market and acquire users with financial backups from Tencent and Alibaba. Uber China, as a latecomer and also an invader at that time, was financially supported by the only one left in BAT (China’s three giant internet companies with strong tech background: Baidu, Alibaba, and Tencent), Baidu. HNA Capital (海航资本) and Baidu co-invested in Uber China in series A with over millions of US dollars. Though coming late, Uber China was backed up by a giant and had the Uber brand, which can bring it trust and reliability, DiDi cannot ignore a potential competitor in this market. The growth of the market was at a YOY rate of 39.3% and the customer size reached approximately 290 million, while the size of the population in the U.S. in 2017 was 325.7 million. DiDi’s market share was 80.0%, Uber China was 12.6%, UCAR (神州专车) was 5.3%, and the rest were 2.1%. The enlarged market had started to reshape the original taxi market and Uber-related news from abroad stirred up the comments about ride-hailing services. In 2015, French taxi drivers protested against Uber and the protest brought Paris into chaos. The crash brought by ride-hailing to the taxi market had caused varied reactions in worldwide: some accepted it and some banned it. China chose to let the market reveal how ride-hailing could develop instead of actively intervening or ignoring it. In October, the MTRPC proposed to deepen the reformation in taxi’s administration mechanism. The proposal suggested to monitor the change brought by ride-hailing, to do on-spot research about ride-hailing thoroughly, and to assist the taxi market to grow and serve public transportation system better. Citizens’ demands of diverse transportation means they should be satisfied. 2016 –2018 Formalization Comparing to the only proposal in 2015, policies and regulations published in clusters in 2016. In the second half of 2016, at least 11 official documents were released. The high frequency of government’s documents published could be regarded as the move that the state determined to regularize and formalize the ride-hailing industry. The trigger of government’s action is the homicide which took place in May 2016. A woman was murdered by the driver while using DiDi’s Shunfengche (顺风车) service. The case astounded the nation and exposed the hole in ride-hailing industry’s administration. Rules had been published but not implemented thoroughly. The loss of life aroused attention from top to bottom. Two documents released in June specified several things: ride-hailing is administrated by MTPRC; ride-hailing platform needs to be licensed to provide platform service; vehicles are quired to registered as taxi at the local office; drivers must obtain ride-hailing driver license to offer ride-hailing services; vehicles must retire from ride-hailing if satisfies either the mileage reaches 600,000 km (33,000 miles) or used age is over eight years. The Specification for App-based Ride-hailing Operation Service (网络预约出租车运营服务规范) was published in October 2016. The Specification pointed out the subjects that could be applied to the Specification and specific requirements for drivers, vehicles, ride-hailing platforms and the standard of service. Ride-hailing’s entrance has become similar (might be equivalent) to taxi’s entrance. Since October 2016, cities in China subsequently published rules for regulating ride-hailing industry and these rules are effective until now. Some cities require that ride-hailing driver must be local resident while some do not; some cities make restrictions in the distance between shafts; some cities have a bottom line for vehicle emission. While the MTPRC frequently published regulatory documents, DiDi purchased Uber China in August 2016, which solidified the status of DiDi in ride-hailing industry. At the end of 2016, ride-hailing’s customer base expanded to 370 million. In 2017, DiDi’s market share grew to 92.5%, Yidao was 4.3%, UCAR was 3.1%, and the rest were only 0.1%, while the customer base had grown to 440 million at a YOY rate of 19.2%. With the implementation of strict regulatory rules, the ride-hailing market kept growing at a steady speed, which could be interpreted as the citizens’ need for transportation means’ diversity and the demand for public transportation system’s improvements. How to satisfy citizens’ mobility needs while maintaining the industry to develop healthily is the primary concern for the state to regulate the ride-hailing industry nowadays. In 2017, the MTPRC released three official documents related to ride-hailing industry. In the Paper’s (澎湃新闻) observation, 246 out of 297 cities, which is 82.83% of the total, have published ride-hailing industry regulatory policies by the end of October 2018; the number at the end of 2017 was 203 (68.35%), so another 43 new cities published ride-hailing policies during the past year. Comparing to 2017, 10 documents were published by MTPRC regarding the development and the regulation of ride-hailing industry and one announcement co-published by nine divisions about the co-regulation of ride-hailing from finance, tax, cybersecurity, and other perspectives. Two more homicides occurred in 2018 at DiDi’s Shunfengche platform urged the state to deepen the regulation of ride-hailing drivers’ background and to follow up other regulatory works. The background check posts more costs for ride-hailing companies but it is necessary for the safety of both drivers and passengers. Since August 2018, DiDi shut down their Shunfengche service and put more resources in the security area. Previously, as reported by EqualOcean, DiDi’s massive delay and loss incurred in 2018. Summary The growth of DiDi witnessed the change of the government’s attitude and regulations of the market - from encouraging to becoming strict. In Deloitte’s analysis, the ride-hailing industry in China will be more formalized in future, and the topper the tier the city is, the stricter the regulations will be imposed, for instance, top-tier cities like Beijing and Shanghai will have the strictest ride-hailing rules. As a critical component in the public transportation system, ride-hailing has become a part of our daily life. The growth of ride-hailing urges the completeness in the regulatory system and inversely, the regulatory system impacts the development path of ride-hailing – at least, it changed DiDi drastically. Inversely, DiDi and other players in the industry have affected and changed regulation and administration from central to regional radically.

Analysis EO
Analysis · 2
Analysis EO
Nov 20, 2018 06:26 pm ·

Detours Or Straight Line A Glimpse Into The International Expansion of DiDi And Uber

DiDi Chuxing(滴滴出行)has entered partnerships with several major international players and Uber has picked up and chosen to battle in 2018. The Global Expansion of DiDi Latin America. In 2017, DiDi led a USD 100 million investment to 99, a Brazilian ride-hailing company. One year later, in Jan 2018, on heels of getting USD 4 billion of fundraising, Didi announced the acquisition of 99 valued at USD 600 million to buy shares from 99's previous investors, and add another 300 million to fuel regional expansion. It is the company's first movement of overseas acquisition worth at USD 1 billion in total. April 2018, DiDi launched its own ride service in Mexico, setting up a potentially costly battle with Uber which has 7 million users in the country and covers 30 cities. It was the company's first face-to-face war against Uber outside of Asia. DiDi's strategy was not to cut any pieces of drivers' fares till June, after Mid-June, DiDi would start to only take 20% commission out compared to Uber's 25%, reported by Reuters. Asia. DiDi plans to provide an app-based taxi-hailing platform named Didi Mobility Japan in Japan with Softbank, which is a main backer of DiDi. Trial service will cover at least four cities including Tokyo, starting from this year. In Hong Kong and Taiwan, DiDi released new apps to enable locals to hail taxis. In Taiwan, DiDi is partnered with local tech company Ledi for a license agreement. It seems that DiDi believes that working with local taxi companies is an efficient way to get authorities' support. "If there are suitable domestic partners, we will empower them to succeed, be it by using our capital, technology, products or experience. But if there are no suitable partners, we'll enter ourselves." ZHANG Bo(张博), DiDi's CTO, said in an interview with Financial Times. The Global Network. DiDi has teamed up with Singapore's Grab, India's Ola, Estonia's Taxify, Careem in Dubai and U.S.-based Lyft, by investing and sharing technology. Take Lyft as an example, DiDi users were able to hail a taxi throng Lyft and vice versa, although the service has been temporarily paused. On June 15 2018, DiDi started its operation in Australia officially.   It's a question: To barge in a shortcut, or to detour? The battle between DiDi and Uber in China has ended by August 2016, with DiDi acquiring Uber China and in return, Uber got a 17.7% share in DiDi. Now the two archenemies are firing up in the global chest again. However, DiDi chooses a less aggressive and cautious way. Unlike Uber's antagonistic approach to expand into a target market and seize the largest market share, DiDi takes relatively conciliatory and multiple ways. The company undertakes three-pronged ways including acquisitions, partnerships with local players and natural growth, all backed by a huge amount of fundraising. In July 2017, DiDi injected USD 2 billion into Grab, along with SoftBank. In March 2018, according to Fortune, Uber would merge with its big Southeast Asian rival, Grab. Uber will get a 27.5% stake in the combined firm, 500 staff will transit to Grab, and its customers will be shifted over to Grab's apps. Just like what the company did two years ago in China market. According to Forbes, in Japan, where ride-hailing is forbidden by law, Uber only recently warmed up to partnering with local taxi companies to act like an on-demand dispatcher in Tokyo while its archenemy DiDi is providing its taxi-booking service covering four cities as mentioned above. We may address the event as Didi has beaten Uber, partly, when it comes to the strategy aspect. Uber gave up some market share by merging its business with homegrown rivals in Russia, China and Southeast Asia and departure for long. In Russia, Uber opted to merge with Yandex. Uber's rough ride continues in Europe where regulations are threatening its business. Even if they won the torsion in England and France but failed in Germany with a guarantee to only operate its taxi service. The company has faced Argentina's protest and Spanish taxi drivers' strike while it took dominant position in Australia. In the Middle-East, Uber is in discussion to buy its Dubai-based rival Careem reported by Bloomberg in September 2018. The battle for the company just far from over. Actually Uber itself admitted that Uber's strategy to barge into a new market without considering local situations carefully has put the company into a position where it faces too many battles across too many fronts with too many competitors, leading to the result of losing valuable market where it did not operate and the battle where it did. But we have to admit that Uber did move faster than DiDi in the global expansion and learned fast from winning over regulators no matter in its home country or worldwide. On the other hand, DiDi did not yet jump into the battleground against Uber with main force. Partnerships and investments, after all, are rather moderate ways, not even a progress of gaining market dominance. ——Author: LinYan. Write to LinYan at LinYan@EqualOcean.com 

Analysis EO
Analysis · 2
Analysis EO
Nov 16, 2018 11:09 am ·

What's Behind The Glory Of DiDi-Style Manbang Group

In Nov 2017, the competition between Huo Che Bang and Yun Man Man, two oligopolies in China trucking industry, ended by a merger. The new-born Manbang Group(满帮集团), formally known as Full Truck Alliance Group, became truck-hailing juggernaut which managed to sign up to 70% of trucks running on arterial roads and 80% of logistics firms in the country, according to the statistics from Xinhua. De Ja Vu: DiDi & Manbang Group WANG Gang(王刚), an angel investor in “China’s Uber” DiDi Chuxing(滴滴出行), morphed himself into the CEO of Manbang Group. ZHANG Hui(张晖), the founder of Yun Man Man, once recalled that his career was actually enlightened by WANG Gang, saying that freight market in China called for a Didi-like platform to match merchants and truckers for transporting cargo. DiDi Chuxing has relied on massive subsidies for consumers and drivers to take up the passenger transportation market in rapid time and won the price war against Uber in 2016. Since then, DiDi Chuxing stopped subsidizing drivers and passengers on a large scale and started collecting over 20% from each fare. Interestingly, both DiDi and Manbang Group are backed by Softbank. DiDi was once a third party connecting taxis and customers, as they are accustomed to the service provided by DiDi, it all changed. DiDi introduced their DiDi Express and DiDi Premier (also known as Kuai Che (快车) and Zhuan Che (专车) to seize profits from the pocket of taxi drivers. And they both are struggling to become profitable after burning billions of dollars in the last few years, Didi Chuxing cut subsidies and Manbang Group charged commissions.  Rumors spread, after the merger, saying that Manbang Group was going to charge annual membership fees among truck drivers and information fees for every single order, but Manbang Group soon dispelled that they would only charge shippers so far, not the drivers. According to The Wall Street Journal, most of Manbang's users aren't paying while the company has gotten around 200,000 shippers to fork over around$250 a year in membership fees and is aiming to break even next year, said a person familiar with the matter. If charging membership fees is understand, but this one is not. One policy Manbang Group implemented in earlier June fire up drivers. To grip the power of setting price, Manbang Group cut off the access to negotiation with shippers for registered truck drivers by canceling phone call function, which is a common way to communicate the orders’detail. The company updated another version allowing their customers set transactions and haulage rates via app and phone under the pressure two days after the demonstration. It eased the situation but many drivers are complaining that the apps are pushing down shipping prices. Behind the glorious statistics: MAU and Concerns Manbang Group is taken up 90% market share in China’s freight information matching industry and now valued at around USD 6 billion. The company has north of six million users (including drivers and shippers) and still looks forward to more, which hires 3,000 staffers across China to attract new drivers to sign up.  LUO Peng(罗鹏), the co-president of Manbang Group, disclaimed their app will be linked with vehicle management authorities' systems to help truck drivers replace license plates and pay fines. It seems that Manbang Group is building an ecosystem. According to Softbank, 2.9 million truckers logged into Manbang’s app at least once a month in March 2018, growing 54% (YoY). However, things are not going well recently. Persuading new truckers and keeping old truckers to stay on the app are getting harder, as the growth rate falling drastically from 31.8% in March to 6.9% in June. Aside from their concern in MAU, there are plenty of problems Mangbang Group need to work on. First, according to Bloomberg, revenue per parcel, excluding the (expensive) last mile, is flatlining, and competition is rising as BEST has its own parcel-matching system, UCargo, that could eventually compete with Manbang Group. There leaves little chance for Manbang Group to compete in the aspect of price. Second, even if WANG Gang emphasized the importance of technology to build the company's core competitiveness, but the pressure of generating decent profit still loom. On 12 Jun 2018, Chinese truck drivers are demonstrating against higher fuel costs and the dominance of local truck hire platform Manbang Group which they said is squeezing incomes, according to Hong Kong-based China Labour Bulletin. Third, Manbang Group kindly offers loans and insurance for drivers bothered by the long account period in the logistics industry, but it might entail some financial risks. Last, according to Goldman Sachs' report, Manbang Group continues to burn about 1 billion yuan of cash a year on capital expenditure and payroll. Based on the sales amount and revenue streams form additional services, it is rather easy for Manbang Group to reach a high valuation and secure new funding, just like this year April the company raised almost USD 2 million and it is only looking for around USD 3 million. Reported by  The Wall Street Journal, the company is now seeking for an additional USD 1 billion at a valuation of USD 10 billion. But be careful, skeptical investors will always find out the truth buried deep down the glory.