After an erratic nine years marked by wasted cash and public anger, ride-hailing outfit Didi finally filed for an IPO last week.
Photo from CFP
By KE Xiaobin, LI Biao
We are the world's largest mobility technology platform. We reimagine urban living using transformative technologies to make mobility safe, affordable, convenient, and sustainable. We have been strategically building four key components of our platform that work together to improve the consumer experience: shared mobility, auto solutions, electric mobility, and autonomous driving. - Didi Chuxing prospectus
They can call it what they like, but Didi Chuxing (Didi) is basically a glorified taxi business, picking people up and driving them somewhere else like any other. This giant ride-hailing – because “taxi” is so last-century – company filed IPO papers with the SEC on June 11. It took the company nine years to turn a stuttering startup into a titan of public transportation.
According to Didi's prospectus, by the end of March 2021, 493 million users in 4000 cities and towns across 15 countries took 41 million trips a day with 15 million drivers. Total transactions were 340 billion yuan (US$53 billion). The business now spans basic ride-hailing and freight, finance, and bike-sharing. Autonomous driving and automaking are in Didi’s sights.
The IPO will be a moment of relief and celebration for investors who have sunk tens of billions of dollars into Didi. Wounds from the price wars with Kuaidi and Uber are still raw, and two horrible murders of passengers loom large in the rear-view mirror. The road ahead might be potholed, but there is confidence at the wheel.
"Ten out of ten people told me it was a terrible idea." CHENG Wei, founder and CEO of Didi, recalled leaving Alipay to start up on his own in 2012 when the mobile internet economy was yet to take off.
"Most Beijing taxi drivers then were former farm workers from nearby villages. For them, a phone was for making calls and sending text messages. No one had any use for an 'app.' Plus, it was hard to convince them that a passenger would wait for a reserved taxi instead of hopping into one that happened to pass by."
It was a hard sell. WU Rui, business development manager of Didi way back then, knocked on the doors of no fewer than a hundred taxi companies in two months and signed up exactly none of them. They started to hand out leaflets directly to potential passengers in Beijing offices, but the response was pathetic.
The lucky break came with a snowstorm in November 2012. Shivering commuters suddenly preferred the idea of hailing a driver with an app after waited for a taxi in vain in the cold wind. For the first time, the number of daily trips on Didi exceeded a thousand. A remarkable baby step towards today’s 41 million.
Riding the momentum, Didi established a strong base in Beijing and Shenzhen before quickly expanding nationwide. In April 2013, it raised US$15 million from Tencent and Matrix Partners. But Kuaidi, another rising taxi-hailing app also backed by Matrix Partners and, this time, by Alibaba, was gaining ground. The rivalry soon became an all-out street brawl.
In the next year, the street brawl became a price war, with lavish giveaways and aggressive expansion. The two foes threw heaps of burning money at each other but the investors did not hesitate to pick up the tab. In December 2014, Didi announced a US$700 million round of funding. Twenty days later, Kuaidi raised US$800 million, but behind their brave faces, investors were getting antsy.
A never-ending money-burning game is the last thing an investor wants to see. Tencent and Alibaba might have swallowed it, but small venture capital firms started to feel the heat. In February 2015, after only 22 days of negotiations according to LIU Qing, president of Didi, a merger was announced. Other sources reported that the two companies had been talking about a deal for at least two years.
One final obstacle remained. Immediately after the merger, the focus turned to Silicon Valley based Uber. In early 2015, a goal was set to “take Uber off the map within ten months,” and Didi immediately began to increase the menu with carpooling, designated driving, limos and buses (which didn’t succeed). Each one was a direct challenge to Uber. Uber’s then CEO Travis Kalanick is said to have tried to invest in Didi, but for whatever reason, Cheng Wei rejected his offer.
And so a new war erupted. Almost every war in history has been more expensive than the previous one, and this was no exception. In the first five months of 2015, Didi is said to have burned through US$300 million on its premier ride-hailing service alone. In May, it announced another 1-billion-yuan giveaway. The next month, Uber, which had already spent US$1.5 billion in China that year, matched the number, but in dollars. The carnage ended in August 2016, with Uber agreeing to sell its China business to Didi.
With its rivals off the road, Didi turned inwards. In 2017, a year for “recovery and revival,” the company invested in safety and experience. Accidents were reported to be down 21 percent that year. A variety of driver services, including car maintenance and financing, were added and beefed up. More ambitious projects were also being hatched, most notably an AI-powered traffic management tool (Smart Transportation Brain), a new international business unit, and a new travel booking initiative (R-Lab).
All signs were pointing to a 2019 IPO. Then in late 2018, two female passengers who took Didi's carpooling service were murdered by their drivers in three months, horrifying the entire country, and all plans were thrown into disarray. Lofty-sounding initiatives were urgently deprioritized or suspended, giving way to anything safety-related, as former employees recalled. An IPO was out of the question.
The murders, as Liu once publicly admitted, were a bigger crisis than anything Didi had faced. It was more than a year before the carpooling feature involved in the murders quietly went back up. In the interim, Cheng and Liu, both nationally applauded entrepreneurs, spared no effort to save the brand and its image, but an IPO was far from their minds.
After the worst of the crisis was over, Didi began further expansion. At a conference in April last year, Cheng spoke of “100 million daily trips, 800 million monthly active users, and 8 percent market penetration in three years.” Since then, Didi has moved into freight, errand services, groceries and a low-price taxi-hailing app called Huaxiaozhu, an instant hit. Unsurprisingly, autonomous driving and car-making have an important part to play in the company’s future. The prospectus calls autonomous driving a “key component” of its business. In 2020, an autonomous driving subsidiary raised US$525 million from Softbank, among other investors, at a US$3.4 billion valuation.
Last November, Didi unveiled an electric vehicle called D1. Cheng wants to put one million D1s on the road by 2025, and make the fleet entirely driverless by 2030. D1 was co-developed by BYD, but in April this year, Didi was reported to have started its own car manufacturing project.
Almost all the new ventures, including autonomous driving, bike-sharing, car financing and freight, are grouped into an “Other” segment in the prospectus, which generated 5.76 billion yuan in 2020, 4 percent of revenue. The segment reported a 2.1-billion-yuan loss in Q1.
Community grocery buying business Chengxin Youxuan, valued at 1.8 billion in the spring, is excluded from the IPO and is no longer consolidated into Didi’s financial results. The sector is now entangled in yet another price war, no less savage than ride-hailing turmoil not long ago.
