Chinese car-sharing startups face reckoning as more than 500 players crowd into a fast-growing, but young, market
They are in one of the world's most promising growth markets, but Chinese car-sharing startups seem to be having a rather bumpy ride of late.
Last month, Beijing-based TOGO ran into a deposit refund crisis as anxious users flocked to cancel their accounts and reclaim their RMB 1,500 deposit – but had trouble getting their money back. TOGO was said to be shrinking or even suspending their operations in several cities because of exorbitant maintenance costs; hence the panic.
In October 2017, another Beijing-based car-sharing app, EZZY, said it was closing for good. Launched in March 2016, EZZY used to impress the public with its high-end fleet, which included models like the BMW i3 and Audi A3.
The company's founder, Fu Qiang, attributed the shutting down to his failure to secure new funding. “I began seeking a new round of financing after we received RMB 20 million in February . We know this sum is far from enough.”
And EZZY is not alone. UU Cars, also a Beijing-based player, folded in March 2017, blaming “the fact that we had not received the agreed investments from VCs timely.”
In fact, TOGO, which struggled to cough out all that cash needed to refund its users their deposits, had just raised an eight-digit US dollar funding round in October 2018, bringing its total amount of financing raised to nearly RMB 500 million.
“The ability to raise money is the most important factor for winning in this market,” stressed Jiang Qin, co-founder of UU Cars.
As an alternative to traditional car rentals and ownership, car sharing is meant to offer greater convenience and time and cost savings to urban consumers, not to mention a whole new user experience.
China's urban public transport systems are also over-stretched – another good reason for consumers to consider car sharing. According to consultancy Arthur D Little, the average subway length in Shanghai was 25 meters per thousand people in 2016, which is about half of that in London.
Renting a GoFun car, for example, costs just RMB 1/km, plus RMB 0.1/minute, about half the cost of using the ride-hailing service Didi. New users can also take advantage of a special deal of RMB 1 for three hours of driving – even cheaper than bike-sharing services.
But for car-sharing operators, it is a highly capital-intensive business. Plenty of cash is needed in the early stage to cover the costs of vehicles, gas, insurance, parking and maintenance. Not to mention cars are cash guzzlers – the average cost of daily maintenance is estimated around RMB 50-60 per car.
For these reasons, young startups usually can’t afford to run a large fleet. Even the biggest players in the field have only tens of thousands of vehicles in their stable: 42,000 units for Shanghai-based EVCARD, and 30,000 units in the case of Beijing-based GoFun. Nearly all other car-sharing startups operate with less than 5,000 vehicles, and quite a few have launched only several hundreds or even dozens of cars.
Huge market, teething pains
Since 2015, China’s car-sharing market has been growing at a rapid pace of about 200% yearly on average in Tier 1 and 2 cities. In value, the overall market is predicted to reach RMB 3.6 billion in 2018 and RMB 11.8 billion by 2020.
And although most Chinese consumers prefer owning cars to sharing them – cars remain a status symbol in this country – car ownership has become more challenging than before, even when people can afford to buy them.
Potential car buyers in eight major cities in China are now subject to license-plate restrictions. Only 0.15% of the applicants win the license-plate lottery in Beijing, 3.8% in Shanghai.
According to data released by China’s Ministry of Public Security in 2017, nearly 210 million Chinese with a driver’s license don’t have a car, a number that’s expected to reach 700 million in the next decade. These people are likely going to turn to car sharing anyway, whether they like it or not.
No wonder then players, big and small, have crowded into this market, eager to grab a share. As of June 2018, over 500 car-sharing startups have been founded in China, operating more than 100,000 vehicles.
Some teething problems have surfaced in this relatively young market. The lack of dedicated parking lots has been one of the biggest complaints voiced by car-sharing users. Adopting a free-floating model could boost the convenience of car sharing, but that entails higher requirements, namely in operations, vehicle scheduling, vehicle maintenance and providing refueling or charging facilities on a mobile basis.
The good news is local governments have moved to address this problem. For instance, about 400 parking lots were allocated to shared cars in the Shijingshan District of Beijing in 2017, and 600 more will be built in the next three years.
Confusion over insurance for car-sharing drivers is another major concern. In March 2018, a user driving a shared car, a BMW 525, from GoFun got into an accident. He assumed full liability and had to pay RMB 200,000 for car damage. It turned out that the insurance policy for car sharing covered only RMB 50,000, which meant he had to bear the remaining RMB 150,000 due.
Automakers join the fray
Not all is grim, however.
Shenzhen-headquartered PonyCar began churning out profit on its home turf around the end of 2017. “We use big data analytics to assign maintenance tasks to our staff. One person could cover 15 to 20 vehicles. It helps us to dramatically slash manpower costs,” said the company’s co-founder, Cai Jintao.
Startups like PonyCar and TOGO have been joined by local car makers who, like their counterparts overseas, don’t want to miss the ride in this newest growth market segment.
In Germany, more than a decade ago, Daimler AG kicked off its pilot project car2go, which was introduced to China in 2016. BMW also offers a car-sharing service through DriveNow, co-launched with car rental firm Sixt in 2011 in Europe, and with ReachNow in the US.
China’s first electric vehicle rental service EVCARD is operated by Global Car Sharing, which was established by SAIC Group, China's largest automaker and the world's seventh largest. By the end of 2017, EVCARD had put 6,000 Roewe ERX5, produced by SAIC, into operation.
The automakers have an inherent advantage in the market. “Some car makers use their self-manufactured vehicles, including obsolete models or those that don’t sell so well, for car sharing. It’s good to deplete stock,” an unnamed investor told the Caijing newspaper.
Automakers are turning into service providers, rather than being just the vehicle suppliers of car-sharing platforms. Besides the minimal cost of acquiring vehicles, the automakers also see other potential benefits. Through their frequent interactions with consumers in the car-sharing service, automakers can better understand driving and travel preferences and habits, and get valuable feedback. When such information is incorporated into product design and development, automakers are more likely to be able to create products that consumers really want.
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