Ultimately, COVID-19 is going to impact both Uber and Lyft:
Didi Chuxing was already struggling.
Then came coronavirus Disruption yet another obstacle on Chinese ride-hailing app’s long road to profitability
Ryan McMorrow in Beijing, Mercedes Ruehl in Singapore and Henny Sender in New York yesterday
Financial Times
March 5, 2020
The streets of Baotou in China’s northern Inner Mongolia region are usually thick with cars, many of them Didi Chuxing’s taxis awaiting fares and ferrying passengers around. But the coronavirus outbreak — and citywide lockdowns associated with it — have dealt a heavy blow to business.“
There are not many people hailing cars,” said a Baotou Didi driver with the surname Ma, who asked that his full name not be used. “After 6pm or 7pm, there’s no one going out.
”Didi is one of China’s biggest tech companies and one of SoftBank’s biggest bets. After buying out its rivals — including Uber’s operations in China — the company controls more than 90 per cent of the country’s ride-hailing market.
But the disruption caused by the virus has made it among the most vulnerable to a health crisis that has killed more than 3,000 in mainland China, while raising serious questions about its future prospects.
The hit comes at a crucial time for Didi, which has struggled to achieve profitability and seen its share price sink in private trading. The company hoped that 2020 would be a turning point after years of ballooning losses and controversy over the murder of two female passengers in 2018.
In recent years, Didi has burnt through investors’ cash by offering expensive subsidies to drivers and customers. Now, as the coronavirus spreads across China, suppressing car traffic by as much as 22 per cent in recent days, according to the financial services company Nomura, the start-up must reckon with the prospect that the virus may be derailing what was already a fragile recovery.
According to data from Aurora Mobile, daily active users on the Chinese ride-hailing group’s app fell by more than half in the month after the government acknowledged the coronavirus outbreak. Drivers in China’s capital, meanwhile, say they can spend up to two hours waiting for a passenger. ‘There’s no one going out’
Founded by Cheng Wei in 2012, Didi has so far received $10.9bn in investment from SoftBank. In a 2017 funding round, the ride-hailing start-up was valued at $56bn.But the company’s empire has begun to look increasingly precarious, with sustained cash burn that created Rmb4bn in losses over six months in 2018, and the emergence of new well-funded competitors such as Dida Chuxing, Caocao Chuxing and Shouqi Yueche.
In recent months Didi’s shares have been trading at $30 to $40 a share in private transactions, down from a peak of about $55, according to people familiar with the matter. One investor noted that WeWork’s collapse last year had hammered its valuation.
Meanwhile government regulation of the industry is also tightening, experts say. Didi had 11m active drivers in 2018, according to data from Renmin University, but many appear to lack the licences required of ride-hailing drivers — only 1.85m of which had been issued by the end of 2019. “Oversight is getting stricter, with tighter government curbs on unlicensed drivers,” said Sun Naiyue of Analysys, noting that in Beijing and Shanghai, only those with local household registration can legally drive in the city, meaning implementation would cut the ranks of Didi drivers, many of whom come from outside.
“It will impact the entire industry,” she said of the tightening policies. Didi has taken steps to prevent the spread of coronavirus, including installing plastic sheets in drivers’ cars © Carlos Garcia Rawlins/Reuters In recent years, the company has sought to raise additional funding by spinning out some key divisions, including its self-driving business and car-leasing unit Xiaoju Automobile Solutions, which won a $600m investment from Toyota in July. At least one of its units is currently raising more funding, according to people familiar with the matter. Didi has also shaken up its executive ranks in recent months.
But the coronavirus outbreak has dealt the company a particularly harsh blow, as both passengers and drivers are disinclined to travel around cities — and be contained in a small space with one another. The low-cost migrant workforce it partially relies on has also been slow to return to urban areas.
“Many drivers went home for the holidays and haven’t come back yet,” said Mr Ma. “We’re afraid of getting infected too.”By mid-February, more than 50 cities and counties had suspended Didi’s main ride-hailing service to prevent the spread of the virus, according to notifications in its app, with about two dozen remaining suspended today. How coronavirus is hitting global business Lessons for the industry
The impact of Didi’s tumbling passenger count has been compounded by rising operating costs, according to Shawn Yang of Blue Lotus Capital Advisors, a result of measures such as distributing one mask per day to drivers and installing plastic sheets in vehicles to separate drivers from their passengers — a programme Didi estimates will cost it Rmb100m ($14.3m)."This is not a matter of cost but a matter of responsibility," said a Didi spokesperson, adding passenger and driver health was the company’s priority.
“I don’t think they can be profitable in the near term,” said Mr Yang, noting that Didi’s commission fees were already high and that the firm had little room to raise prices. “If you charge too much from customers, then they will take [other] taxis.”
The paralysis in China is beginning to thaw, with Didi saying trip volume was up more than 30 per cent in some major cities in the past week. The ride-hailing industry could also benefit as people return to work but remain reluctant to use public transport.
Meanwhile in its 2019 annual report, Uber estimated its roughly 15 per cent stake in Didi to be worth $7.95bn, implying a valuation for the Chinese company of about $53bn — a figure that has been stable for the past two years.
According to one Didi investor, the company’s difficulties during the epidemic have been illustrative of the looming challenge facing similar companies around the world.“If you look at China, the experience is that limiting people’s mobility is an effective way to cut off the spread of the epidemic,” said Mr Yang. “If the world takes a similar approach, there will be many fewer orders for Uber and Lyft.”
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