neo_englishneo_english ・ Sep. 12, 2023
With Market Saturation, Chinese Ride-Hailing Industry Is Besieged
After several years of savage growth, the current online ride-hailing market seems to have reached a new milestone. Compared to two years ago, Didi's active users have grown by 9%, while active drivers have grown by 42.6%.

Credit: Visual China

Credit: Visual China

BEIJING, September 12 (TiPost) – "Unlike previous years, now it’s hard to earn money from online ride-hailing," said Huang, an online ride-hailing driver from Beijing who preferred to use his surname only. He lamented that the business of online ride-hailing is not as good as before.

"During the summer vacation, many children are all out playing. This is a rare peak period for orders in the past few months. On weekdays, however, we need to intermittently wait for orders, and it is not common to have one order immediately after another."

Huang also admitted: "Now the earnings depend on time devoted, and if the time you spend in working is not enough, you can't make much money." According to Huang, he is a full-time Didi driver, often works about 15 hours a day, and the income could be around 15,000 yuan a month.

In fact, Huang's experience is not unique in the industry. Since this year, online ride-hailing drivers in many places have had varying degrees of "order concerns".

The discussion on whether the online ride-hailing market in various places has entered a saturated state has also remained heated. It can be seen that in the past few years, the online ride-hailing industry has experienced rapid growth.

However, various factors now indicate that after years of fast growth, the domestic online ride-hailing market seems to have reached the crossroads.

Online ride-hailing market is crowded

Since April this year, transportation departments in many places across China, including Jinan, Wenzhou, Sanya, and Changsha, have issued warnings of online ride-hailing saturation, and some regions have even suspended the issuance of online ride-hailing operation permits and transportation licenses.

Specifically, on May 5, the municipal government in Sanya in China’s southernmost province Hainan announced the suspension of accepting online ride-hailing operation permits applications and issuing transportation license. On May 16, Changsha halted the acceptance of new online ride-hailing transportation license applications; and cities such as Zhuhai, Jinan, Suining, and Wenzhou have issued risk warnings for the online ride-hailing industry.

Among them, the data from Jinan and Dongguan shows that the average daily order volume of online ride-hailing in the two cities is less than 10 orders per car. In Suining, local people who intend to become a ride-hailing driver are reminded that the capacity has been saturated and they should be cautious about it.

Moreover, since early July, the ride hailing market in first tier cities has also gradually on the decline.

The information report on the monitoring indicators of the online ride-hailing market in the first half of 2023 released by the Shenzhen Municipal Transportation Bureau in July showed that as of the end of June, the number of online ride-hailing platforms in Shenzhen has increased to 30, and the scale of compliant online ride-hailing vehicles in the city has exceeded 100,000, of which only 40% receive more than 10 orders per day.

On July 21 this year, the Shanghai Municipal Transportation Bureau also announced that it would suspend the acceptance of the business of verifying the operational capacity of online ride-hailing vehicles from July 22, and suspend the acceptance of the issuance of online ride-hailing transportation permits (newly added) from September 20, 2023. The Shanghai Municipal Transportation Bureau has previously stated that there are currently 76,000 online ride-hailing vehicles with transportation permits in the city, and 50,000 taxies, and the suspension of these services will not impact citizens' life.

According to the data from the online ride-hailing supervision information exchange system of the Ministry of Transport of China, as of June 30 this year, a total of 318 online ride-hailing platform companies have obtained online ride-hailing platform operation permits nationwide, and a total of 5.79 million online ride-hailing driver's licenses have been issued in various places.

As a comparison, as of June 30, 2022, a total of 277 online ride-hailing platform companies have obtained online ride-hailing platform operation permits nationwide, and a total of 4.53 million online ride-hailing driver's licenses have been issued in various places. In other words, within just one year, 41 platforms and as many as 1.26 million drivers entered the online ride-hailing industry.

And this data only counts drivers with complete documents. The industry is also filled with a large number of "unlicensed" drivers. They have not obtained the online ride-hailing driver's license issued by the traffic management bureau, but they still sign contracts with platforms and operate normally. In other words, the actual number of online ride-hailing drivers must be much larger than the regulatory data.

According to the data of Cyanhill Capital, the growth of online ride-hailing drivers in 2023 is too fast. The number of online ride-hailing drivers has increased by 20,000 per day this year, and there are currently about 7 million online ride-hailing drivers running daily. In order to grab more orders, the working hours of drivers are also increasing, with about 75% of drivers working more than 10 hours a day.

In stark contrast, data from the transport ministry shows that the number of online ride-hailing orders has shown signs of recovery this year, but the growth rate of orders has slowed significantly after the second quarter, and even turned negative in April. In July, a total of 821 million orders were received, a 7.6% increase compared to the previous month.

Overall, compared to 2022, the number of orders in the online car-hailing market has definitely rebounded, but the momentum of this "recovery" is not strong. The reasons for the unsustainable growth can be summarized as a lack of new users and close to saturation of capacity, which disrupts the supply-demand balance.

Take Chinese ride-hailing giant Didi, which currently has a market share of over 70%, as an example. According to its recent financial report, compared to two years ago, Didi's active users have grown by 9%, while active drivers have grown by 42.6%.

Last year, online car-hailing was still seen as a Plan B for many people who are searching for jobs, but now since the issuance of permits has been suspended in many cities, people have realized that this Plan B is no longer viable.

With the issuance of warnings about the saturation of the online car-hailing market in various regions, a series of market problems such as a decline in order volume, a decrease in driver income, and a fall in service quality have also emerged. At the same time, this environment also indicates that Chinese online car-hailing market has bid farewell to the incremental economy of scale expansion and entered the elimination stage for the existing players.

From the current market situation, during the 18 months that Didi was delisted, other competitors have increased their efforts to develop the online ride-hailing business. However, whether it is conventional financing, subsidies, or new models such as "fixed price" and "special offer cars," the measures these competitors take has basically not caused fundamental harm to Didi.

According to information disclosed by Analysys, etc., during the year and a half that Didi was "absent," it lost nearly 20% of its market share to other competitors. However, even so, after its "return" in January this year, Didi, with its huge driver resources and user base, still firmly occupies around 70% of the market share.

The remaining market share is mainly taken by platforms such as Meituan Dache and Gaode Dache. Meituan Dache relies on its strong influence in the local life service field and has strong competitiveness in first-tier and new first-tier cities. Gaode Dache leverages its technological advantages in navigation and has achieved good results in some cities.

Overall, Chinese online ride-hailing market's “one dominant, many strong” pattern has not been broken.

Among the reasons for this are the frequent trial and error by Didi's competitors, but fundamentally it is because the domestic online ride-hailing market has entered a "mature stage," and the focus of market competition has shifted to user retention and refined operations.

In response to this, Xiangdao Chuxing also told the TiPost App that the current warning from local authorities in multiple cities about the saturation of local online ride-hailing capacity means that the local online ride-hailing market is gradually entering a stable period, and competition between companies is gradually shifting to competition in branding, services, and other aspects.

The competition is essentially a battle between leading platforms and follow-up players for market share. Starting this year, the industry has ignited a full-scale war around the word "service".

Compliance remains the biggest challenge

Whether for users or drivers, online car-hailing is an industry that heavily relies on subsidies. According to relevant data, the online car-hailing industry spent more than 20 billion yuan in just one year in 2015, with a daily average of over 50 million yuan.

From a financing perspective, after Cao Cao Travel's 3.8 billion yuan Series B financing in September 2021 and T3 Chuxing's 7.7 billion yuan Series A financing in October 2021 set a new record for industry financing, as of 2022, a total of 20 platforms in the mobile travel sector have received financing, with a total financing amount of only about 2.76 billion yuan, a year-on-year decrease of 83.4%.

Since increasing revenue is hopeless, major travel service providers can only focus on reducing expenses. With more drivers entering the market, the balance of supply and demand quietly begins to tilt towards the user side. Models such as "fixed price" or special price orders have become popular among major platforms, and online car-hailing drivers have naturally become the "sacrificial lambs".

The "fixed price" or similar services mentioned here refer to travel service providers estimating mileage, duration, real-time road conditions based on the starting and ending point information, and providing a comprehensive price, which passengers pay directly according to the estimated price. Generally speaking, the order amount under this model will be significantly lower than the price of a regular order.

Of course, generally speaking, according to platform rules, platforms do not require drivers to accept "fixed-price" orders. They can choose to avoid receiving "fixed-price" orders.

But is this really the case? For many full-time online car-hailing drivers, they actually do not have many choices.

According to recent information from the TiPost App, many online car-hailing drivers believe that platforms tend to prioritize dispatching "fixed-price" orders. If they do not accept "fixed-price" orders, they may not receive large orders for several hours, or even any other orders. This forces them to enable the "fixed-price" mode.

As a result, a series of problems arise, such as discounted orders not allowing air conditioning, poor driver service attitude, and excessive order cancellations and changes. In response to this, cities such as Shanghai, Hangzhou, Hefei, Wuhan, and Shijiazhuang have also started to comprehensively clean up and regulate fare rules such as "fixed-price".

However, fundamentally speaking, "fixed-price" is ultimately just a manifestation of the current industry dilemma. The root cause of drivers' survival dilemma lies in the "overcapacity" of the entire industry.

In the continuous competition between major ride-hailing service providers, order prices are being driven lower and lower. In the same year of 2021, Didi's temporary suspension put the online car-hailing market in a "leaderless" state, which also allowed many "latecomers" to see opportunities and join the battle regardless of consequences.

Especially with the rise of the new model of aggregation platforms, the entire online car-hailing industry's "rules of the game" have been completely changed. With the traffic entrance provided by aggregation platforms, various online car-hailing companies can aggregate their transportation resources and collectively confront Didi.

Among them, Gaode and Meituan are outstanding representatives of this new model. Public information shows that Gaode was the first to launch its aggregation ride-hailing service in 2017, only matching resources without providing its own ride-hailing capacity. Meituan has also abandoned its self-operated ride-hailing business and fully transitioned to the aggregation model.

According to Xiangdao Chuxing, the aggregation model of the online car-hailing industry is a combination of market development and technological progress. Relying on navigation maps, online travel (OTA), and other user travel scenarios, the aggregation platform forms the traffic entrance on the demand side, while combining high-quality transportation resources in the online car-hailing industry to match the needs of travel users, thus completing a closed loop of travel services.

They integrate travel demands and match transportation supply in the form of "one-click car-hailing" across various platforms. By holding the traffic entrance, the aggregation platform controls the "lifeline" of many small and medium-sized online car-hailing platforms and drivers. At the same time, this model responds faster, and even has a faster average speed than the industry leader, Didi Chuxing.

However, the operation model of the aggregation platform also has many loopholes. Previously, many media reports pointed out that many of the operating vehicles on aggregation platforms are "black vehicles" lacking operational qualifications, which has led to many service-related complaints. Some netizens even jokingly said, "The aggregation platform is bringing the online car-hailing industry back to the 'black car' era."

The aggregation platform itself does not directly provide online car-hailing services; they are more like "intermediaries." What they mainly do is match the drivers and passengers together, and they usually do not take any operational responsibilities.

For some drivers, as long as aggregation platforms still exist, they can continue to accept orders even if they cancel them arbitrarily or have a bad attitude, as long as they switch to another platform. What this means for passengers, of course, needs no elaboration.

According to the basic operation situation of the online car-hailing industry announced by the Ministry of Transport of China in the first half of the year, under the aggregation platform model, the overall compliance rate of online car-hailing orders is much lower than that of conventional online car-hailing platforms. Didi, ranked first, has a compliance rate of only 72.8%, while Xiangdao, the platform with the highest compliance rate among conventional online car-hailing platforms, is 93.9%.

Coincidentally, the regulation of online car-hailing platforms in various regions reached its peak at the end of July this year.

Recently, the Ministry of Transport, together with the Ministry of Industry and Information Technology, etc., jointly interviewed 11 online car-hailing platform companies, including T3, Meituan Chuxing, Gaode Chuxing, etc.

The interview requires each platform company to examine its own problems, immediately rectify non-compliant behaviors, jointly maintain a fair and competitive market order, and jointly create a good environment for the standardized and healthy development of the online car-hailing industry. This move also indicates that the regulatory rules for the online car-hailing market will continue to be improved, and the regulatory measures will be tightened. Major platforms must prioritize compliance.

In fact, at this stage, whether it is Didi after its return, or other "head followers," the focus of the game has already shifted to services and high-quality drivers. In other words, retaining drivers, especially those with complete qualifications, has become the top priority for major platforms.

According to Xiangdao Chuxing's prediction, as the requirements for standardization and compliance of the online car-hailing market continue to increase, some non-compliant online car-hailing capacities (vehicles and drivers) may be removed, and the supply-demand contradiction in the online car-hailing market will naturally achieve a dynamic balance and sustainable development.

At the same time, with the tightening of government regulation, the construction of compliant capacities will truly determine a platform's supply capacity. Platforms that focus on compliance in the online car-hailing market will also have policy advantages and market competitiveness, and their long-term development will be more stable.

Whither will the online car-hailing industry head?

Online car-hailing is still a standard service industry. After the market basically denies newcomers, service quality will become the new competitive barrier for major platforms in the future.

Seeing this, it is not difficult to understand why Didi is willing to raise prices to appease drivers, even at the cost of displeasing its users. After all, for passengers, improving the compliance rate of operating vehicles and drivers is essentially improving the safety of the online car-hailing market, which is itself the best "service".

In addition to increasing the income of drivers, various supporting measures are also a major boost to compete in services. At the beginning of this year, Gaode set up a driver service center in Wuhan, launched safety navigation voice, long-distance assistant, one-click safety report and other functions, and collaborated with more than 670 traffic management departments to release real-time traffic information to improve the working environment for drivers. Didi Chuxing also launched the "Orange Protection Plan" earlier, providing drivers with multiple guarantees in terms of income, rights, and development.

Of course, as the capacity market gradually saturates, the competition for high-quality capacity in the industry will also slow down. How to make good use of the resources such as drivers, vehicles, and supporting facilities in hand to provide users with better services is the next step for platform operators to consider. This also involves the construction of brand characteristics, and it can only be said that there is still a long way to go.

Where will the online ride-hailing industry go then?

The incremental market of the online ride-hailing industry is actually not completely saturated. T3 Chuxing CEO Cui Dayong has publicly stated that the recovery momentum of the travel industry is leading other industries, and there is still a large growth space for order volume. Specifically, the main orders for online ride-hailing are still concentrated in first- and second-tier cities, while online ride-hailing services in lower-tier cities and towns are still not well developed.

Related semi-annual report data shows that 30% of the national online ride-hailing orders are concentrated in the Guangdong market, and Beijing, Shanghai, Guangzhou, Shenzhen, Chengdu, and Hangzhou are all cities with order volumes in the millions, accounting for about 24%.

In terms of user distribution, the penetration rate in first-tier and new first-tier cities has reached 50.3% and 20.3%, respectively, while the penetration rate in cities below the second-tier is less than 10%. Lower-tier cities, especially rural areas in central China, still face a huge gap in timely and convenient travel demand.

In the past few years, the blue ocean market of online ride-hailing has spawned a batch of ride-hailing platforms. After a period of heavy investment in self-built capacity and self-built systems, these platforms have entered a "survival crisis" due to the shortcomings of insufficient traffic and online operational experience. Meanwhile, a group of regional ride-hailing platforms based on local conditions have achieved impressive growth against the trend by leveraging the industry chain.

Instead of compromising in the face of the temptation of scale expansion and playing a "dangerous game" on the edge of compliance, it is better for ride-hailing platforms to turn their attention to the more demanding sinking market. Especially in the face of saturated competition among users of transportation services in large and medium-sized cities, it is necessary to establish a safe and compliant localized ride-hailing brand that meets both user demand and market development.

Therefore, the exploration of the sinking market is expected to become the new battleground for major ride-hailing service providers in the next stage of competition.

For the head ride-hailing service providers, seeing that Didi's dominant position has not been shaken, they have started to explore a new path by horizontally expanding into local life services.

Take Gaode as an example. In March of this year, it announced the official merger with Alibaba's local life service Koubei. Moreover, all of Alibaba's local life service stores will be unified into Gaode in the future. Subsequently, the company partnered with Starbucks China to launch the "Pick-up Along the Street" service. In the fields of refueling, charging, and fast food, it also launched similar "on the way" services.

In addition to the "on the way" model, Gaode also operates public transportation, subway, train, and air travel services, allowing users to directly purchase train and plane tickets. Yu Yongfu believes that the ultimate goal of the aggregation model is to create an integrated travel service platform.

When it comes to the aggregation model, Yu has his own understanding: "Aggregation is a term for the user side. If we stand on the industry side, a more accurate expression would be deep integration." In his view, the success of a service platform depends on deep integration, and it should not be limited to a single company. The entire ecosystem should make collective progress, with Gaode playing only a role as a platform.

Faced with the trillion-dollar market of local life, Alibaba has taken the first step in breaking the deadlock, providing new "service ideas" for the various ride-hailing service providers who are struggling under the "shadow" of Didi. However, this route may be more challenging for second-tier ride-hailing service providers.

Finally, there is a "clever" direction, which is the self-driving ride-hailing service, or Robotaxi.

The rising operating costs have also led many ride-hailing companies to focus on autonomous driving. They don't need to compete for high-quality transportation resources or worry about implementing service standards, thus "perfectly avoiding" the current industry focus.

Take DiDi Chuxing as an example. As early as 2016, it established an autonomous driving department and announced its first future service concept car, DiDi Neuron, on the eve of this year's Shanghai Auto Show. It clearly stated that the first mass-produced model is planned to be integrated into DiDi's shared travel network by 2025.

Similarly, Xiangdao Chuxing, T3 Chuxing, and others are also increasing their investment in self-driving ride-hailing service.

Xiangdao Chuxing is the first L4 autonomous driving operation platform with a background in the automotive industry. Xiangdao Robotaxi was launched in December 2021 in Jiading District, Shanghai and Xiangcheng District, Suzhou. By June 2023, Xiangdao Robotaxi has completed over 200,000 safe autonomous driving trips, with a customer satisfaction rate of 98.9%.

T3 Chuxing's autonomous driving vehicles have accumulated over 600,000 kilometers of autonomous driving mileage and attracted more than 80,000 people to experience. Next, it will cooperate with leading autonomous driving companies to conduct unmanned driving service commercialization trials in first-tier cities such as Beijing and Guangzhou.

In March of this year, Caocao Chuxing also released its autonomous driving strategy, signing contracts with multiple companies including CICTCI, Innovusion, etc., covering multiple fields, including high-precision maps, LiDAR, chips, and intelligent cabins.

Caocao Chuxing told TiPost App that the automotive industry is undergoing a transformation from electrification to intelligence, and with the rapid development and iterative upgrade of autonomous driving technology, it will become the second battlefield for ride-hailing platforms.

However, it must be admitted that the R&D investment in autonomous driving is comparable to the subsidy war that DiDi waged in its early years. Take Baidu as an example. Since the establishment of the Intelligent Driving Group (IDG) and the launch of the Apollo autonomous driving open platform, its annual R&D investment has exceeded tens of billions of yuan. Starting from 2021, Baidu's R&D expenses in autonomous driving have exceeded 20 billion yuan. In 2022, this figure has risen to around 23 billion yuan, which is ten times the amount spent on autonomous driving research and development ten years ago.

In this regard, compared with autonomous driving entrepreneurs, automakers undoubtedly have deeper accumulations in terms of funding scale, industry experience, and supply chain. Moreover, from the perspective of autonomous driving financing, automakers have gradually become the "main financial backers" behind autonomous driving startups in recent years.

Take SAIC Motor as an example. The L2 and L3 level assisted driving systems developed and incubated through the exploration and practice of the L4 level autonomous driving technology by Xiangdao Robotaxi have been installed in multiple popular production models of the company’s Zhiji and Feifan brands, and have been applied on mass-produced vehicles to achieve initial commercial value.

In response to this, Xiangdao Chuxing explained to TiPost App that due to the different local regulations on the management of Robotaxi by regulatory authorities, the industry is currently in a transitional phase from "demonstration application" to "demonstration operation". Although autonomous driving ride-hailing, namely Robotaxi, has not yet reached the stage of full commercialization, its future is promising.

Whether it is the exploration into the lower-tier city markets, or the development of localized strategies or autonomous driving, the essence is to improve the experience of both the user and the driver, thereby avoiding the escalating "price war" in the industry.

In fact, the controversy in the ride-hailing industry is essentially about balancing the interests of the platform, the driver, and the passenger. From the current competitive situation in the domestic market, "compliance" will be the direction of the industry's development, and it is also a way to solve the "low-price dilemma" of ride-hailing at present.

Where will Chinese ride-hailing industry go in the future? It depends on which travel service provider can seize the new opportunity of "service."

(This article was first published on TiPost App. Reporting by Chang Xiao and editing by Zhang Min)

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