Almost three years after Didi emerged triumphant in the war for the Chinese market, the two ride-hailing companies have again clashed over emerging markets like Latin America. As Uber and Didi are at different stages in their development, with different strategies, the key question is: what’s next in the race for global mobility domination?
By the time the dust had settled in August of 2016, Didi Chuxing had 85% market share in the Chinese ride-hailing industry, while Uber had just 8%. What followed was a ceremonial acquisition of the American company’s China operations, a humbling admittance of defeat after a brutal two year long war. Both firms had burned through lots cash on massive subsidies in efforts to win over the notoriously thrifty Chinese consumers. As Uber withdrew from China with its tail between its legs, it would go on to fight another day, in other arenas around the world.
In the years since the conclusion of the epic struggle between two tech unicorns from the world’s leading economies, the macroeconomic environment has shifted. The backdrop of a bitter trade dispute has cast doubt on the future interdependency between China and the United States. As recently as early 2018, it seemed that Didi would IPO before Uber, with a higher valuation of $57.6 billion. The Chinese ride-hailing company had successfully consolidated its stranglehold on the Chinese market, while simultaneously boasting the variety of its offerings to include scooters and hitchhiking, covering mobility solutions more broadly. Although it dominated the world’s largest ride-hailing market, Didi’s journey to an IPO was hampered by two murder scandals, where Didi drivers murdered passengers in 2018. The ensuing backlash from both the public and government had many calling for #deleteDidi. The company then installed more stringent safety measures to ease public concern, including a function to contact the police on the UI, and audio recordings of rides. It should be noted that Uber is also not scandal-free, when a woman was struck and killed by an Uber autonomous vehicle in Arizona in March of 2018.
Fast forward to May 2019, and Uber has just listed on the NYSE under the ticker “UBER”. With a massive market cap of nearly $67 billion, Uber’s long anticipated IPO has absorbed the spotlight on Wall Street. However, the initial positivity following the IPO was short-lived, as Uber’s share price is currently wallowing at just under $40, from its IPO price of $45. In addition, 70% of Uber shares available for shorting have already been purchased, indicating that there are more Uber bears than bulls at the moment. American ride-hailing competitor Lyft, which recently went public, is down 21% from its IPO price. Didi must be warily watching, as it continues to plot its potential IPO. However Uber’s lack of resounding success, combined with the current U.S.-China trade tensions has created a capital market environment that is not conducive to a successful IPO.
In fact, during 2018, 112 out of the 129, or 87%, of the Chinese companies publicly listed in the U.S. experienced a decline in their stock price during the year. Additionally, half of these 112 companies saw their stock price decline by over 40% year to date. This is clear evidence of an unfavorable capital market environment for Chinese firms. Also, this month Chinese semiconductor manufacturer, SMIC, decided to delist from the NYSE amid increasing trade tensions. Combine all this with rumors that Alibaba is looking to initiate an additional listing on the HKEX, and Didi must consider itself fortunate, showcasing its valuable patience when considering an IPO. The timing simply isn’t right. Recently former chief strategist for the Trump administration Steve Bannon called for cutting off Chinese access to the U.S. capital markets entirely, which would be an exceptionally extreme course of action. Once a clear favorite to beat Uber in the race to an IPO, Didi could now actually find itself having dodged a bullet while it bides time to regain consumer trust and allow the storm of the U.S.-China trade war to blow over.
Regardless of fundraising stage, it’s clear that Uber and Didi will continue to be arch-rivals in the race to dominate global mobility. In emerging markets like Mexico and Brazil, the two companies will race to eat up market share and earn the trust and loyalty of local consumers. Beyond just ride-hailing, both companies have also launched food delivery initiatives.
Uber Eats generates 18% of Uber’s total revenues, while Didi’s fledging food delivery service only currently operates in four cities, including Wuxi, Naning, Taizhou and Chengdu. It is important to note that when it comes to food delivery, Didi has to compete with much more robust rivals such as Meituan Dianping and Ele.me, while Uber Eats’ competition are firms like GrubHub or Postmates. However, the high density of China’s urban mega-cities allows high frequency services like food delivery to flourish, as armies of deliverymen on scooters are able to conveniently service customers. Uber Eats’ main market is the United States, which is far less densely populated than Chinese urban centers. This presents a significant challenge for Uber Eats when trying efficiently increase the scale of its food delivery network. These differing operating environments and competitive landscapes will impact the strategic decisions these two mobility giants take in the years to come as they expand into food delivery.
While Uber has the advantage in global coverage, operating in over 700 cities in 63 countries, Didi has built a very robust platform that has been refined and iterated within the dense metropolises in China. The sheer volume of rides processed by Didi endows it with a certain operational expertise that can be exported abroad. The next battle in the war for mobility domination will take place in Latin America, where Uber’s regional revenues decreased 13% compared to last year. In 2018, Didi completed the acquisition of Brazilian ride-hailing company 99, in an attempt to expand into South America’s most populous country. In the same year, Didi launched its own service in Mexico, directly competing with Uber for the first time outside of Asia. It was a bold move by the Chinese firm, as Uber’s Mexican operations already had 7 million users and operated in 30 cities. In addition, Didi has invested in Grab, Uber’s rival in Southeast Asia.
The global struggle for mobility dominance is set continue due to the the worldwide trend of urban migration. Didi’s expansion strategy so far has largely been categorized by investing in and partnering with local companies, rather than launching its own service. As people all over the world flock to cities, the challenge to localize and optimize ride-hailing platforms for diverse urban landscapes will be crucial to determine who will succeed in the long term. When entering new markets, it is common for both Didi and Uber to burn cash on subsidies to try and attract users. Uber, now armed with the capital injection of an IPO, can perhaps be better prepared to expand its penetration. Uber’s first quarterly report as a public company featured revenue that exceeded Wall Street’s estimates. Uber also confirmed the acquisition of Careem, a ride-hailing company that operates in over 100 cities throughout the Middle East, North Africa and Pakistan. Under the leadership of CEO Dara Khosrowshahi Uber has revamped its corporate governance standards and renewed its commitment to the social good, and is seemingly well suited to take advantage of its newfound status as a public company.
Perhaps, beyond conventional ride-hailing, the true decider of this competition will be decided in the success of innovative technologies including the automation and electrification of vehicles. Uber has established partnerships for the development of autonomous vehicles with Toyota, Volvo and Daimler, while Didi has established a joint venture with Volkswagen and also registered an autonomous vehicles subsidiary according to Beijing Business Today. With over 40,000 fatalities in the United States due to road accidents, and over 250,000 in China, revolutionizing the safety of urban mobility could be the deciding factor. Both companies collect a massive amount of traffic data, and can leverage that to create smarter urban infrastructure. Uber has already launched an initiative called Urban Movement that empowers local governments to create improved urban planning initiatives.
With Uber’s IPO grabbing most of the headlines recently, eyes will now turn to Didi and what their next move will be. Didi’s founder Cheng Wei said in an interview in 2018 with the BBC, “The Chinese market is of course very important, but today Didi’s vision is already going global.” The global ambition is evident, but Wei also stressed that Didi’s strategy may be unfamiliar to some Western observers, commenting, “”Didi’s global strategy may be a little different from others,” he says, smiling. “Our strategy isn’t always to do everything ourselves.” The recent intensification of the U.S.-China trade war provides a dramatic setting for the the clash of two of the world’s most innovative and valuable companies. Will Didi’s patient approach to an IPO be rewarded? Or will it allow Uber to surge ahead in the race to dominate a market that lies at the frontier of innovative technologies? Stay tuned, as this race is likely to go right down to the finish line.
Featured photo credit to the Internet