Chinese ride-hailing giant Didi Chuxing just raised more than US$5.5 billion (NZ$8 billion), giving Uber chief executive Travis Kalanick one more thing to worry about.
Didi’s record funding round is said to value the company at more than US$50b and gives it a war chest to ramp up efforts to harness artificial intelligence, build driverless cars, and compete more aggressively in foreign markets.
The cash infusion coincides with a rough period for Uber, which is facing lawsuits and an image problem, and follows a detente in China after Uber agreed to essentially cede the market to Didi in exchange for a significant stake.
“The bruising battle with Uber taught [Didi] a lot,” said William Bao Bean, a Shanghai-based partner at venture capital fund SOSV. “Now it’s battle-hardened, and can buy the best talent in the world to attempt to go big in China, and also go global.”
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While Didi confronts many of the same challenges bedevilling Uber – both are bleeding money and battling regulators – investors are still betting both will eventually have fleets of driverless vehicles in cities around the world.
It’s a daring vision, but perhaps too good a dream to pass up.
“The biggest risk any investor faces isn’t losing money,” says Andy Mok, managing director at Red Pagoda Resources, an executive search firm in Beijing, “but missing out on the next Apple or Google.”
For Didi and Uber, which offer appealing visions of a future when driverless vehicles shuttle people around cities using artificial intelligence, the technology represents a massive opportunity because of its ability to reduce costs, said Kai-Fu Lee, one of China’s most prominent venture capital investors.
“Profitability is heavily dependent on the success of autonomous vehicles,” said Lee, a veteran of both Microsoft and Google.
“If you look at the breakdown of the costs of either Uber or Didi, a very large part of the cost – about two thirds – is based on their drivers, on what they pay for drivers, insurance, driver acquisition.”
Didi has powerful supporters of its vision, including SoftBank, whose founder Masayoshi Son is famous for making big bets. Almost 20 years ago he backed a small Chinese e-commerce outfit that would become Alibaba and deliver a profit of more than US$80b.
“SoftBank is known for making pretty risky investments – like in Alibaba and Yahoo. Sometimes they pay off very big, sometimes they don’t,” said Duncan Clark, founder and chairman at advisory firm BDA China and author of Alibaba: The House that Jack Ma Built.
“Son tolerates very high levels of risk.”
The Didi-Uber relationship is complicated – Uber owns about 17.5 per cent of Didi, making it the largest shareholder, and also allowing it to benefit from Didi’s success. But even if they no longer vie with each other in China, they both have ambitions to be big, global players and are poised to clash in other markets.
Didi has expanded outside its home turf mostly by making investments or forming partnerships with ride-hailing companies such as Grab in Singapore, Ola in India and Lyft in the US.
For Uber, which is present on every populated continent, India represents its largest overseas market and a pivotal battleground.
As Didi develops its autonomous driving technology, it could have the capacity to knit together a far-flung global network of allies, focused on developing markets in Asia and the Middle East, Bao Bean said.
While both companies have had a meteoric rise, the men in charge of Didi and Uber are very different.
Didi CEO Cheng Wei appears reticent and cautious in public, especially compared with Uber’s Kalanick, who has run head first into numerous controversies.
In recent months, Kalanick has seen an exodus of top executives as the company investigates claims of sexual harassment, is facing a lawsuit over self-driving car technology from Alphabet’s Waymo and was videotaped arguing with a driver over fee structure.
Didi Chuxing is a four-and-half-year-old app, which is used to hail more than 20 million rides daily in Chinese cities. Its home is a country where car ownership has only recently started to surge – with roughly 800 million urban residents, but only 200 million personal vehicles – and many fast-growing cities still lack efficient subway or bus systems.
The pent-up demand for periodic chauffeur-service ensured rapid early growth.
The company was formed through the merger of two Chinese ride-hailing platforms backed by Alibaba and fellow giant Tencent Holdings. Didi last year reached a truce with Uber after both burnt through billions of dollars in a fight for market share.
The Chinese company bought out its rival’s business in the country, and then basically shut it down.
That doesn’t mean the immediate road ahead is easy. Having secured a near-monopoly in China, Didi is still losing money – even after reducing the subsidies offered to drivers and passengers. The higher prices don’t help with customer satisfaction, either.
Local governments have stepped in to curtail who can drive for ride-hailing services. Beijing and Shanghai only allow those with local resident permits to be Didi drivers and the cities also specify what kinds of vehicles can be used.
“A lot of cars are off the map. Nowadays it’s much harder to use Didi. I have to wait quite a long time, and I use the service much less than before,” said Ma Tianjie, a blogger in Beijing.
“I think public perception has soured a bit toward the company; there’s less sympathy compared to when it was just getting started and still battling Uber.”