Are Didi’s USD 12B cash reserves enough to tackle challenges abroad and at home?

Didi Chuxing, the leading car-hailing player in China, holds USD 12 billion in cash reserves after a recent round of financing. With a valuation higher than even Uber (USD 56 billion versus USD 48 billion), the Chinese unicorn company will likely absorb more capital to feed its global expansion and long term-business development plans. Also, it will likely allocate some of that capital towards fighting a looming war against challengers in China’s domestic market.

Global expansion

Didi founder and CEO Cheng Wei once stressed, “globalization is Didi’s top strategic priority.” To achieve global expansion of its core car-hailing business, two strategies are essential for Didi: directly participating in foreign ride-hailing markets by launching Didi services or indirectly participating in these markets. Indirect participation might mean investing in local players or obtaining shares in local ride-hailing platforms. Both strategies crave large amounts of capital.

An upcoming performance-to-watch will be in Taiwan in 2018. It will be Didi’s first operation beyond mainland China and Hong Kong and will be a good test for Didi’s business model, profitability, and flexibility outside of its domestic market. Additionally, Didi’s debut in Mexico is expected in the not-too-distant future.

Having gone head-to-head with Uber in China, Didi’s domestic operation now covers 450 million users across over 400 cities. Yet, the company understands the difference between operating domestically where it enjoys a home-field advantage versus operating beyond China’s borders where it will surely encounter market and operational obstacles. In strategic markets where Didi’s success is far from guaranteed, exporting capital and practical experience in exchange for local teams and lowered operational barriers is a fast, safe, and efficient plan of attack. The recent USD 1 billion deal with Brazilian 99, in addition to cooperation with Lyft from the States, Grab from Singapore, Careem from the Middle East, Ola from India, and Taxify from Estonia, grants Didi crucial partner-created home advantages to compete globally with Uber. This deal also offers Didi a greater voice and more local insights in the Latin American market.

However, capital injection does not stop after facilitating strategic cooperation. Additional capital will be required to consolidate Didi’s position and prepare for possible competition from current partners. Not long ago Didi was locked in a ride-hailing battle with Uber. Didi ultimately prevailed and Uber gave up its operation rights in China to Didi, but the two still hold each other’s shares. Now, Didi’s cooperation with Uber’s rivals is seen as a direct challenge to Uber, globally speaking. Who says Didi’s partners can’t turn themselves into another Didi?

DiDi Labs in Mountain View, California.

Ambitions in AI & new-energy

Didi’s ambitions in AI and new-energy vehicle development are capital-hungry in order to support R&D and business operation. In the self-driving field, Cheng Wei revealed that Didi hopes to be the last man standing in a competition with Google. This means, Didi must not only defeat tech gurus like Tesla, but also must conquer China’s information titan, Baidu.

However, Google, Tesla, and Baidu are all listed companies that absorb their funding from sizeable investor and finance pools whereas Didi remains unlisted. This will push Didi to aggressively fundraise in the near future before it can overcome obstacles impeding IPO and other efficient funding channels.

Meanwhile, although Didi has established DiDi Labs in California for intelligent car and traffic research, the company has a long and tough road ahead. Partnering with Uber and Volkswagen, Baidu will enjoy priority access to the newly released Nvidia’s Xavier AI and AR platform for driverless development. Didi’s driving data acquired from daily operation gives it a bargaining chip in the game, but Baidu, already armed with mature map infrastructure and mega-data access, may not find Didi’s offerings all that appealing or useful.

Domestic challengers

A more urgent concern is Didi’s war with challengers in the domestic car-hailing and bike-sharing industry.

On the one hand, Meituan has formally announced to join the ride-hailing business. Originally only a food delivery service, Meituan is now a leading one-stop lifestyle service provider offering products ranging from food to travel. It is offering coupons to current Meituan users and is currently hiring licensed drivers as well as those from Didi’s pools. Word has spread that Meituan takes only 8% of drivers’ ride revenue while Didi takes 20%. Meituan’s car-hailing service will formally combat Didi starting in mid-January in Beijing. Beside pure car-hailing experience, Meituan may consider further developments involving restaurants, delivery services, and other existing businesses. Money is needed to defend and strike, naturally.

Bluegogo bikes.

On the other hand, Didi is in a subtle situation with bike sharing platform Ofo and Alibaba. Didi has ambitions to create a closed travel loop to establish an ecosystem for its cars, bikes, AI, and EV strategies. Therefore, Didi, though holding Ofo’s shares, intends to develop its own bike sharing business and has consolidated it by assuming operational rights of Bluegogo, another influential bike-sharing platform that has recently encountered major employee payment and user deposit problems. Of course, this has amounted to a great deal of trouble for Didi. Rumor has it that as a result, Alibaba has agreed to inject USD 1 billion into Ofo, further separating the popular bike-sharing platform from Didi and pushing Didi to incubate its own platform solutions.

In such a complicated market climate, a strategic use of capital might prove more important than the actual amount of money raised. Japan’s SoftBank, for instance, has invested in Didi, Uber, Ola and Grab, ensuring its investment neglects no winner-to-be. When wars, both those at home and abroad, reach a certain stage, allocation of capital will have a clearer direction. For dynamic and constantly diversifying ride-hailing platforms, funding may never be enough, but it’s surely never unlimited.

(All photos from Didi Chuxing)

Fiona Zhao
Fiona Zhao

Fiona writes for AllTechAsia. She has rich business experience across several industries in China. She holds a master's degree in Anthropology from the London School of Economics and Political Science and a bachelor’s degree in Economics and Politics from The University of Manchester. Fiona is particularly interested in how technology and business combine to shape societies across the world.

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