How Didi Chuxing Is Beating Uber at Its Own Game

Matthew Carr
by Matthew Carr, Emerging Trends Strategist, The Oxford Club
didi chuxing 0

It wasn’t even a decade ago that two of America’s largest carmakers declared bankruptcy - General Motors (NYSE: GM) and Chrysler.

The financial crisis saw automobile sales plummet. Like the real estate sector, the automobile industry was completely wrecked by the downturn.

But no matter how severe a downturn or crash might be, remember - it’s just a blip.

You don’t need any more proof than the record highs we’ve seen in the markets for the last few years. Or the fact that we’ve had seven straight years of record auto sales in the U.S.

Today, there are more than 264 million registered vehicles in this country. And that’s compared with roughly 218 million licensed drivers.

Many of us live in multicar homes. And plenty of us have “weekend cars.”

Obviously, that’s not a luxury enjoyed around the world - especially in the most heavily populated countries. Far from it, in fact, despite the newfound wealth some of these countries are enjoying.

Currently, there are more than 300 million licensed drivers in China - but only 100 million private cars.

That means less than half of all drivers have one.

And the driver-to-car spread is growing. In fact, in Beijing, more than 1 million people are waiting for a driver’s license allocated through a state-run lottery.

This shortfall is sparking an epic race to meet China’s surging transportation needs.

The Far East’s Wild West

It’s worth noting that during the financial crisis, as automobile sales in the U.S. plummeted, we saw the emergence of one of the most disruptive companies in recent years: Uber.

Its main rival, Lyft, arrived on the scene a couple of years later.

In March 2009, as the S&P 500 Index and Dow Jones Industrial Average hit their bottoms, Uber was founded as “UberCab.”

Today we just call it Uber, and its valuation has vaulted to as much as $70 billion. That’s a meteoric rise from the depths of the financial crisis.

Like a lot of other similar ride-hailing, car service and car-sharing companies, Uber saw the numbers in China and was salivating.

But because of this insanely large opportunity, these sectors in China are the Wild West.

In 2012, there were two car-sharing vendors in China.

Since then, the number has blossomed to more than 350 vendors, and that doesn’t include the more than 6,000 car rental companies operating in the country.

In Beijing alone - where those 1 million people are waiting for a driver’s license - more than 200 car-sharing companies operate.

The competition is so fierce that Uber threw up its arms and was forced to bail on China, selling its assets to ride-hailing app Didi Chuxing.

Didi is not only the ride-hailing king in China. It’s now the second-most valuable privately held firm in the world, behind Uber.

And to demonstrate the true enormity of Didi’s potential as well as the larger ride-hailing market in China, let’s take a moment to appreciate these facts.

Last year, Uber announced it had completed 1 billion rides worldwide after launching in 2009. It was a big milestone for the company. And it patted itself on the back.

For comparison, in 2015 alone (one whole year before Uber’s accomplishment), Didi completed 1.43 billion rides.

The ride-hailing app does 20 million rides per day. And it has 450 million users. That’s 10 times the number of Uber users. Those numbers are the product of an enormous country - China’s population is 3.6 times that of the U.S. - with a big shortage of cars and licensed drivers.

Didi books four times as many rides as the entire U.S. And it’s only just beginning.

And, in a shot across Uber’s bow, Didi is expanding into North America.

Earlier this year, it opened a research and development center in California. That facility is focusing on autonomous driving and artificial intelligence as well as gobbling up the talent needed for both.

Next year it will begin operating in Mexico.

Apple (Nasdaq: AAPL) has already sunk $1 billion into Didi.

Softbank (OTC: SFTBY) has poured $5 billion into the company. If a company has anything to do with AI and the rise of robots, Softbank CEO Masayoshi Son is there.

Meanwhile, Didi invested $100 million in Lyft and has signed a deal with car rental company Avis (Nasdaq: CAR) to allow the booking of cars through its app in 175 countries.

China’s transportation needs are enormous... particularly as the country’s wealth has increased. The car-sharing and ride-hailing industry has turned into the Wild West, with hundreds of competitors. But there is no behemoth larger than Didi Chuxing... and from its base in China, it’s expanding out onto the international stage.

Soon, Uber could be passé... just as calling a cab is today.

Good investing,

Matthew

Thoughts on this article? Leave a comment below.

Another Chinese Disruptor Worth Buying

Matthew heads the VIPER Alert service, which recommends companies that fulfill a proprietary set of criteria indicating big growth ahead.

Needless to say, some VIPER stocks have been Chinese transportation companies. One of them is eHi Car Services (NYSE: EHIC). Here’s Matthew checking on the pick back in October...

I love that when doing the tedious, boring work of scouring earnings report after earnings report, I get even more excited about a company...

That it’s not about the hype surrounding its industry or sector. There’s not some talking head out there claiming a company’s product is going to be the greatest thing since the iPhone or sliced bread.

The great thing is: A good company is simply a good company.

And as we’ve seen with today’s recommendation, the market ultimately recognizes that. In turn, shareholders are rewarded.

That’s what makes me excited about the potential for eHi Car Services (NYSE: EHIC).

It’s one of the leading car rental service companies in China for both individuals and corporations. Currently, it has more than 60,000 vehicles operating from 4,000 locations in 250 cities.

It’s one of the preferred chauffeured car service providers for many Fortune 500 companies and business travelers. This is its white-collar customer base.

But it’s also the designated car service partner for the Chinese travel website Ctrip.com International (Nasdaq: CTRP). So it dominates here in tourism and self-drive car rentals.

In both the first and second quarters of 2017, eHi’s revenue grew more than 25%. And that was driven by car rentals and services.

During the summer, eHi launched a “flash car rental” service.

And in April, it launched a car-sharing service called “Hi Car.” By the end of the second quarter, even though the service was available in just 10 cities, eHi already had more than 60,000 registered users.

I think this is exciting for two reasons.

First, eHi has built a fleet and has a solid core business. It’s seeing fantastic growth here. And now it’s taking the opportunity to expand into mobile markets and car sharing.

Second, eHi CEO Ray Zhang recently summed up the opportunity here: “New mobility services are an essential part of the sharing economy, which is becoming more popular for hundreds of millions of Chinese consumers.”

- Samuel Taube with Matthew Carr

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