Didi Chuxing, one of the biggest car-hailing companies in China, has reported to have lost $1.6 billion during 2018. Uber, Didi's largest rival, saw a net loss of $939 million during the same time period with an EBITA loss of $527 million in Q3 of 2018.
Didi has yet to explain the sudden sharp loss, but in an internal memo leak, the Founder and Chief Executive Cheng Wei said the company hasn't seen a profit in six years and it appears that the company's woes are coming from multiple sources.
2018 ended with Didi's ride-hailing service experiencing two passengers murdered in two separate crimes which quickly drew government attention and public backlash.
The company decided to respond with increased security, better identity checks for their drivers, and an overall reorganization to put consumer safety first. Hitch, a carpooling company involved with the two incidents, was suspended indefinitely.
However, the company's issues began before the high profile crimes. The founder also revealed in the memo that the company's continued expansion has become an issue. “The expansion frenzy planted seeds of trouble and our internal system couldn’t keep up with our expansion.”
In the first half of 2018, Didi spent $1.7 billion subsidizing drivers and offering discounts to consumers as they continued to see more competition. During all of 2018, the company spent $1.67 billion solely on driver subsidies.
These subsidies are a major reason that Didi has been considered China's largest ride-hailing service. Investors continue to try to fund potential rivals but push for market share instead of profits. This strategy has helped smaller companies grow quickly and earn money including Mobike, a bike-rental platform, but also seen some failures like Ofo.
After these safety concerns, governmental authorities have quickly enforced rules onto the market some of which cost quite a lot to follow. One of them includes requiring drivers to have a normal driver's license and a separate commercial license as well.
This new restriction puts off drivers who work part of the time and increases overall costs. Didi has attempted overcome these new problems by offering test preparation courses for drivers and partnering with rental car companies to provide drivers with pre-licensed vehicles. However all of these efforts ended up costing Didi more money.
Yet another issues are the many potential rivals pushing into the marketplace. Despite having pushed major rival Uber out of China, several smaller platforms like neighborhood-based Meituan are operating their own ride-hailing businesses. Even automakers like BAIC, a Chinese owned car manufacturer, are moving ahead with ride-hailing platforms and bringing in drivers with better pay rates.
The new companies pushing into the market still have a lot to do before they can compete on Didi Chuxing's level, but companies like Alibaba can help spur that growth. While Alibaba isn't going head to head with Didi, they are instead using their AutoNavi map to allow ride-hailing used to book cars from a list of competitors. This tactic helps other companies directly compete with Didi especially since AutoNavi currently boasts over 1 billion daily users.
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