An Automotive Minute - Episode 48 Chris Hopson discusses North American light vehicle demand and specifically Mexic… https://t.co/Flu420L1r5
Didi Chuxing and Uber China announce plans to merge
The merger of Didi Chuxing and Uber China reflects the incredibly competitive landscape for ride-hailing mobility services in China, emphasizing that neither company can profitably sustain the aggressive subsidies used to gain market share in the early expansion of the ride-hailing segment in the country. The merger will effectively end the hyper-competition that has been the norm between the two, and it will allow both companies more freedom to deploy their significant resources in new growth areas.
Didi can now grow inside China at more manageable-and eventually profitable-rates and focus on international expansion, while more deliberately considering its role in the future of mobility in China. On the other hand, Uber will soon see a $1 billion annual operating deficit in China begin to dissipate, which means it can now focus on international expansion, a possible IPO, as well as research and develpment in future technologies -- from self-driving cars to maps.
While the merger should make operating ride-hailing services in China more profitable over time, it comes just days after Chinese regulators officially made the services legal. The details of those regulations are not yet completely clear, but regulation will certainly be an additional cost to operating a business that would have made the highly competitive status quo even more unsustainable. Drivers themselves are likely to feel the pressure, as subsidies are reduced and as the burden of licensing and other regulatory fees are likely passed onto the individual.
China is already the largest market for ride-hailing services, due to its large population and rapid growth in entrepreneurial activities designed to establish this new segment of service. China's growing focus on self-driving and driverless car technology development will position Didi for the next revolution in ride-hailing: mobility services via driverless car fleets. This transition will emerge before 2025 and will be a major force in the transportation industry by 2035. In 2035 China will have the largest driverless fleet for mobility services with more than eight million vehicles in-use.Each of these eight million autos will create a large amount of profitable service revenue over their four- to five-year lifetime."
The revolution created by mobility services by fleets of driverless vehicles will become a major opportunity for Didi, but it will also create opportunities for new market entrants. The result will be a large variety of mobility services, from low-cost services for mass consumption, to luxury mobility services - and many variations in-between.
Jeremy Carlson is Principal Analyst and Manager, Automotive Solutions, IHS Markit
Egil Juliussen is Director of Research, Automotive Solutions, IHS Markit
Posted August 2, 2016
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