As Didi’s Growth Misses Goals, Focus Shifts to Car Services
Growth is falling short of internal targets at Didi Chuxing, the world’s biggest ride-hailing company. That has added urgency to its efforts to generate new revenue by diversifying into car insurance, maintenance, car sales and consumer loans.
Didi, valued at $56 billion last December, has scaled back this year’s internal targets for year-on-year growth in rides in China to 50% from 70%, The Information has learned. The company’s struggles to meet its targets, two years after defeating Uber in China, highlight growing challenges facing one of China’s most valuable startups. The murder of a passenger earlier this year has affected one of Didi’s main ride-hailing services, even as competition has intensified with the entry of Meituan into the market.
Meanwhile, the company’s hopes of boosting growth by expanding into bike sharing and food delivery haven’t quite worked out. The government has cracked down on the explosion of bike rental companies. That has curtailed the ability of Didi, a late entrant to the bike market, to roll out more bikes in cities like Beijing and Shanghai. Its effort to buy Ofo, one of China’s biggest bike-rental companies in which Didi and Alibaba are major shareholders, has been stymied.
Didi hasn’t met its internal target of five million bike trips per day, according to an employee. “We can’t grow the market share like what our competitors did when they started,” a current Didi employee said. In comparison, Ofo and Mobike both said they each had about 30 million rides a day at their peak a year ago.
Didi’s food delivery business also isn’t doing as well as expected. The company is considering a freeze on rollouts of the service to new cities.
A spokesman for Didi said the company’s overall business, including rides and the new initiatives, had grown by more than 70% so far this year, as measured by gross merchandise volume, or the dollar volume of all transactions. Didi said its core ride-hailing business was profitable last year, and it expects to turn a profit in that business this year.
After publication, Didi said the five million bike trips a day target was for September. Didi also said its food expansion hadn't been frozen and was in line with the planned rollout.
Didi missed internal ride-hailing targets for the month of December last year, which was seen as a result of new government rules on ride-hailing and competition from bike-share services. But the murder of a female passenger using Didi’s carpooling service, called Hitch, in May, appears to be a major factor hurting growth this past spring. Didi’s year-on-year growth rate in rides was 40% after the murder, according to two people who are familiar with the data. The growth rate was 50% in April, employees said.
The murder prompted regulators to tighten restrictions on the types of vehicles that can be used in ride-sharing services. Unqualified cars have been stopped. Many Didi part-time drivers quit the service this summer, afraid they would be caught and fined, a Didi employee said.
To get more riders, Didi is expanding to China’s smaller and poorer cities where economic development lags behind places like Shanghai and Beijing. It is offering a service that is about 20% cheaper than what it charges in major cities.
Transportation Superstore
Didi founder Cheng Wei has grown frustrated with the company’s performance. In internal meetings, he has repeatedly compared Didi to Alibaba, where he worked previously, according to a person who has direct knowledge. He has pointed to Alibaba as a role model for its ability to continue robust revenue growth even 20 years after it was founded. Alibaba revenue grew 58% in the last fiscal year, ending March 2018.
To lift Didi’s growth rate, Mr. Cheng is borrowing a page from the Alibaba playbook. Just as Alibaba offers a broad range of services to merchants on its platform, to keep them loyal, Didi is beginning to help drivers do things like buy car insurance, maintain their cars and get fuel. In April, Didi launched an auto service platform to provide car leases and trades, gas station services and auto maintenance services. Didi’s thinking is it can use its size to get lower prices which it can pass onto its drivers.
The company had talks to raise money for the auto services business from outside investors, but Didi eventually decided to put in $1 billion directly, according to people who are familiar with the matter. It announced the investment in August. The car services unit was renamed Xiaoju Automobile Solutions.
These new businesses are already showing promise, at least in terms of the volume of sales through the platform. Didi said in August that sales on the auto services platform hit 60 billion yuan, up from 37 billion yuan in April when it first was started. It hasn’t said how much revenue this service generates.
The services business’ core market now is Didi’s massive fleet of drivers, numbering 2.4 million full-time and 25 million part-time drivers. Some of the services, such as garages, are open to the public. And eventually Didi aims to sell all of the services to the public, it has told investors. Didi estimates that by 2022, 342 million people in China will have driver’s licenses.
In a presentation to potential investors, Didi projected that by 2022 the auto services business could generate annual sales of 229 billion yuan, the equivalent of $33 billion, from auto leasing and used car trading. Gas stations could bring in 164 billion yuan, and maintenance could bring in 39 billion yuan a year.
Broader Diversification
The car services unit is part of a broader diversification underway for some time at Didi. The company has taken steps to get into car sales, again initially aimed at its drivers but with the plan to go broader later. Last September, Didi invested in a used-car marketplace Renrenche. Didi is also the third-largest shareholder in Cango, a New York Stock Exchange-listed online auto marketplace. In August, Didi acquired Hiservice, a Shanghai-based auto after-service marketplace.
Another Didi operation, Didi Finance, lends money to drivers for cars. By bundling all the driver loans, Didi is able to get lower interest rates from banks. Didi says it can offer loans faster and at lower risk of default because of all the data it collects about driver behavior.
Didi is planning to start offering loans to passengers, too, marking a broader move in consumer financial services, according to people who are familiar with the matter.
Didi is also working with automakers to develop and market electric cars, showing just how much it wants to become a one-stop shop for transportation. But while it has allied itself with carmakers, it could one day end up competing with them, a Didi manager said.
CORRECTION: Cango is listed on the New York Stock Exchange. An earlier version of this article incorrectly said it was listed on the Nasdaq. Didi has bikes available for rental in Beijing and Shanghai. The earlier version incorrectly said it did not. The article has also been updated to include additional comments from Didi, made after publication.