AutoNavi and Meituan encircled Didi, and the online car-hailing war will never end

New Retail Business Review

2024-05-16 16:56Published in Shanghai

Author: Qian Luoying | Editor: Ge Weiwei

"All forces are entrenched, but they don't make money."

Good essay 3436 words | 6 minutes read

The title image is from the movie "Villain Angel"

"My name is Didi, right?"

"Wait, let's see which one is cheaper, Didi, AutoNavi or Meituan - I heard that AutoNavi and Didi have been paying subsidies recently."

In the retail market, consumers have learned to compare prices on various platforms before making purchases, and they have also become more price-sensitive when it comes to taxis.

As a result, the ride-hailing market is undergoing the third reshuffle of the industry:

Didi's latest financial report shows that it is profitable, but its market share has decreased and its operating costs have increased; The price war of aggregate ride-hailing platforms such as Meituan, AutoNavi, and Baidu is intensifying; The market in many places is becoming saturated, and drivers seem to be less and less profitable; AI technology is also beginning to impact ride-hailing services......

The winner is far from decided.

 Platform: The price war is intensifying 

On March 22, Didi announced its fourth quarter and annual results for 2023, which showed that Didi achieved a total revenue of 192.38 billion yuan in 2023, a year-on-year increase of 36.6%; The net profit was 535 million yuan, and the annual net profit finally turned positive.

But the earnings report wasn't all good news.

According to the statistics of the online car-hailing regulatory information interaction system, the number of online car-hailing orders received nationwide in October 2023 increased by 2.1% month-on-month; Orders rose 2.0% month-on-month in November and 8.3% month-on-month in December. Didi's financial report shows that its average daily domestic travel orders increased by only 1.9% month-on-month, which is lower than the national level.

This shows that Didi's market share is declining. Since Meituan announced in March last year that it would abandon its self-operated ride-hailing business, Didi has not been able to take the opportunity to return to the peak of 90% of its market share.

At the same time, Didi's fourth-quarter cost of revenue reached 41.6 billion yuan, accounting for 84.3% of total revenue – a cost that is still surprisingly high. This may be related to the intensification of competition in the online car-hailing market, and Didi has to spend more resources to issue coupons and advertise in order to defend its own country.

Data sources: prospectus, Oriental Wealth Choice

Of course, the same is true for other ride-hailing platforms.

A person familiar with the matter revealed to the new retail business review that AutoNavi Map (hereinafter referred to as "AutoNavi") previously issued a large subsidy in Shanghai, and it was two-way - not only to give each user a subsidy of about 10 yuan, so that they can get a car at a preferential price of 1~3 yuan, but also to subsidize the company that helps AutoNavi to promote. Now, after the success of this subsidy policy in Shanghai, AutoNavi has expanded it nationwide, especially in some lower-tier cities where Didi has not yet gained a foothold.

Aggregator ride-hailing platforms like AutoNavi, Baidu, and Meituan will cost less than self-operated ride-hailing platforms like Didi in exchange for higher subsidies, and then be the first to capture emerging markets – as long as their platforms have a large enough user base, ride-hailing will be responsive enough and consumers will be more inclined to choose them.

Hello Travel, which is also mainly engaged in its own business, has also been making continuous moves recently. In late March, Hellogo announced that its self-operated ride-hailing business would open business in 20 cities, including Chongqing, Guiyang and other places, so far, Hello Taxi has served more than 70 cities with its self-operated capacity. At the same time, the PK order grabbing model launched by its ride-hailing business has sparked heated discussions on the driver's side: as more and more online car-hailing drivers join the ranks of hitchhiking, many serious ride-hailing cars have nothing to do.

According to Frost & Sullivan's 2022 report, Haro's market share reached 42.5%, ranking first, while Didi only ranked third with a market share of 19.3%.

Overall, though, Hellogo's business is too fragmented – although, like Didi, Hellogo has bike-sharing (including trams), car rentals, ride-hailing and ride-hailing. Until now, Hellogo does not seem to have sorted out a clear main line of development, but has carried out multi-line business simultaneously. It seems to be more of a last resort to catch up with competitors.

For example, in March this year, Hello Travel announced that the "Hello delivery errands" was officially connected to Dada Express, the former was launched in 2019, and now it is connected to Dada in order to further increase the errand business. In 2020, Didi launched the "Help Me Buy" errand service in 21 cities, and in 2023, it will officially launch the "Didi Express" service with an aggregation model.

All in all, the major online car-hailing platforms are all relying on their own abilities.

 Service providers: local forces are entrenched, but they do not make money 

The well-known online car-hailing platform actually carries more online car-hailing companies.

By the end of 2023, there were 337 "licensed" ride-hailing companies in China, all of which had obtained licenses from the Ministry of Transport to operate ride-hailing platforms. These ride-hailing companies are scattered across the country, and may even serve only a small area.

For example, Guangzhou Ruqi Travel, which is preparing to submit its second listing recently, is an online car-hailing company that is deeply involved in the Greater Bay Area. By the end of 2023, the penetration rate of Ruqi Travel in the Greater Bay Area will reach 45%, and Ruqi Travel is deeply bound to the Greater Bay Area, with 93.9% of its business coming from the Greater Bay Area.

But this kind of online car-hailing company that is deeply involved in a certain region is not doing well. According to the prospectus of Ruqi Travel, in the three years of 2021~2023, Ruqi Travel has maintained a "stable loss" of 600 million ~ 700 million yuan per year, and the loss has exceeded 2 billion yuan in the past three years.

The main reason is that these truly self-operated ride-hailing companies have huge operating costs. On the one hand, there is a large amount of service fees to be paid to drivers, such as the service fees paid by drivers in Qichu Bank, which accounted for 77.6% of the total cost expenditure in 2023.

On the other hand, many online car-hailing companies will also build car service stations for drivers, similar to specialized car service stores, responsible for car repair and maintenance, or provide drivers with a place to rest - this is a detail that the aggregation platform will not care, but it is related to the driver's "happiness index", and the cost of this amount is as much as 300 million yuan in the prospectus of Ruqi Travel.

In addition, it is the fee for "supplying" the aggregation platform. According to Ruqi Travel's prospectus, the growth rate of this cost has soared rapidly, from 0.5% in 2021 to 4.1% in 2023, becoming its third largest cost expenditure.

If Qi Travel can obtain multiple rounds of investment and submit a table to prepare for IPO, it can be seen that it is already "well mixed". Smaller ride-hailing companies that focus on lower-tier areas may be living a harder life.

As more and more drivers join the ranks of online ride-hailing service providers, the market tends to be saturated, which brings about stronger supervision.

For example, the governments of Shanghai, Hefei, Wuhan and other places have demanded the elimination of non-compliant online car-hailing in recent years, and issued a warning to the industry that the proportion of online car-hailing and urban taxis has been unbalanced, and platforms and companies need to come forward to adjust.

Another example is that the distinction between ride-hailing and ride-hailing is not clear. Such problems are not only exposed in Hellogo, but also on other ride-hailing platforms. As early as 2019, the Ministry of Transport made it clear on its official public account that hitchhiking is "not for profit, sharing part of the travel cost or free mutual assistance", and many problems faced by hitchhiking undoubtedly require further regulation by the platform.

 Serving consumers, but also serving drivers 

The new problem with market saturation is that drivers are increasingly unable to secure their earnings.

In addition to the direct coupon subsidy mentioned above, AutoNavi has also launched "special car" orders, Didi has launched "special car" orders, and there are similar low-cost orders on Baidu and Meituan.

And Didi's Hua Xiao Pig is even more famous in the industry for its "fixed price" - in fact, Hua Xiao Pig is relying on the fixed price to allow Didi to continue to sit firmly in the first position in market share.

However, the unit price of customers continues to fall, and the supply of drivers tends to be saturated. And drivers have no money to make if they don't take orders, so they can only scold and continue to join in and keep expressing their dissatisfaction with the platform.

Hello Taxi, which ranks low in the market, promises to protect the driver's income in the form of low commissions, hoping to attract more drivers. However, more drivers still value the agglomeration effect of the platform, because only a sufficient number of users can ensure the number of orders, so as to ensure the stability of income.

In addition, using technology to bring drivers and consumers a newer and better experience is also one of the directions of the future "volume" of online car-hailing platforms.

Hello is quite conservative, saying that it will use AI to do a good job in customer service first - Li Hong, head of public relations of Hello brand, said at a forum that he will use AI large models to improve the accuracy of hitchhiking and improve the service efficiency of customer service.

And on April 6, Tesla CEO Elon Musk posted on the social media platform X that Tesla plans to launch a driverless taxi (robotaxi) on August 8. In a sense, this also leads the subsequent development direction of online car-hailing.

Although there are no specific laws and regulations to support autonomous driving in China, the proportion of online car-hailing trams in first-tier cities is very high, and autonomous driving and smart travel have also become important topics for online car-hailing platforms including Didi, Haro and Ruqi Travel, as well as new and old car-making forces.

Immediately following Musk's news, on April 7, Didi announced that it would cooperate with GAC Aion, a L4 autonomous driving company, to prepare for the development and mass production of its own driverless taxis. Previously, Didi and Xpeng Motors collaborated on a new model called "MONA" in 2023, but this is as a production car for the C-end market, not a driverless taxi.

Ruqi Travel also said in its prospectus that driverless taxis will be its strategic focus.

However, China's road conditions are much more complex than those in the United States, which is one of the main reasons why many trams do not experience the autonomous driving function well enough. In order to adapt to the working conditions of online car-hailing, I am afraid there are more important aspects, such as response speed, route planning, impact on mileage, and so on.

All this requires a lot of investment in research and development, but this is probably a long-term plan for the online car-hailing platform that is still throwing money at price wars and "small profits but quick turnover".

However, driverless taxis would be a good story, otherwise Musk, Didi, and Ruqi would not have taken it out and focused on it. But no amount of storytelling can be more tangible than making real money and bringing benefits to both consumers and drivers.

Resources:

1. "Tencent-invested online car-hailing company, losing 2 billion in three years, is about to go public", Hedgehog Commune

2. "Hello Li Hong: Combining Advanced AI Achievements with Practical Applications", China Business Daily

3. "Running errands has become a sweet spot, and the online car-hailing platform seems to have found a new battlefield", Sanyi Life

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