Industry Insights | Didi Chuxing Re-launched, Can the Online Car-Hailing Market Make a Comeback?

The online car-hailing industry in China has gone through four stages: the budding phase, the growth phase, the rapid expansion phase, and the regulatory adjustment phase.

• germination stage

During the infancy of the industry, the online car-hailing service model began to be introduced into the Chinese market. The official establishment of Yidaoche in 2010 marked the beginning of China's online car-hailing industry to some extent. After that, online car-hailing brands such as Didi Chuxing and Kuaidi Taxi were established one after another. Various travel service providers started exploring different ways to implement the online car-hailing model in the Chinese market, attempting to launch diversified service categories from taxis to private cars, and gradually expanding the number of operating cities from first-tier cities to across the country.

• growth period

During the industry's growth phase, multiple online car-hailing service platforms emerged, and the leading companies began to assert their dominance. During this period, Didi and Kuaidi merged and acquired Uber's China operations, taking a leading position in the competition for online car-hailing services in China; at the same time, the B2C model of online car-hailing platforms represented by Cao Cao Chuxing also appeared for the first time, gradually becoming a more promising model.

In addition, industry policies such as the 'Interim Measures for the Administration of Online Car-hailing Operations' and the 'Guiding Opinions of the General Office of the State Council on Deepening Reforms to Promote the Healthy Development of the Online Car-hailing Industry' issued by the Chinese government have confirmed the legal status of online car-hailing travel services, encouraged relevant enterprises to provide personalized transportation services for the public, and provided a favorable policy environment foundation for the development of the online car-hailing industry.

• Rapid expansion phase

Driven by capital, China's online car-hailing industry has entered a period of rapid expansion. Products in various market segments for online car-hailing have emerged continuously, and market entities are diversifying. Traditional automakers such as Geely, SAIC Motor, and FAW Group have begun to layout the online car-hailing market by supplying customized vehicles. Internet giants like Baidu Maps and Meituan have also joined in, innovating platform aggregation models. By reducing customer acquisition costs and leveraging their massive user base, they have addressed the pain points of traditional online car-hailing services.

In 2020, the General Office of the State Council issued the 'New Energy Vehicle Industry Development Plan (2021-2035)', encouraging localities to increase support for vehicle operations in areas such as shared mobility. With the introduction of related policies such as 'carbon neutrality' and 'carbon peak', the shared mobility industry has gradually entered a mature phase, and new opportunities have also emerged.

• Specification Adjustment Period

With the continuous development and maturation of the market, China's online car-hailing industry has gradually entered a period of regulatory adjustment over the past two years. Policy supervision has become stricter to promote the orderly expansion of standardized enterprises. In 2021, industry leader Didi Chuxing was announced by the Cyberspace Administration of China as having committed serious violations and was forced to remove its app from the market. Other online car-hailing service providers in the industry quickly launched a new round of discount promotions to seize the vacant market share, making industry competition increasingly fierce. Among them, platforms represented by Cao'cai Chuxing and T3 Chuxing have seen a rapid expansion of market share.

In addition, intelligent driving has also begun to become a new development trend in the shared mobility industry. Many platforms such as Cao Cao Mobility and Xiangdao Mobility have started to experiment with services like robot taxis.

Source: Analysis by Frost & Sullivan

China has the world's largest online car-hailing market, ranking first globally in terms of both market size and number of users.

• Before the epidemic

In 2015, the market scale of China's online car-hailing industry was 405 billion yuan, with a compound annual growth rate of 65.4% from 2015 to 2018, marking a period of rapid development for the industry. The industry experienced significant growth and competition. During this period, several online car-hailing companies rose to prominence in China, among which Didi and Uber China became industry leaders. Both companies made substantial investments, such as offering considerable discounts to users and incentives to drivers to expand their market share, thereby leading to rapid growth in the online car-hailing market.

After Didi announced the acquisition of Uber China in 2016, there was a preliminary restructuring in the online car-hailing market, and the legal status of online car-hailing was also initially confirmed. By 2018, the market scale of China's online car-hailing industry was 183 billion yuan.

In 2019, the Chinese government introduced several policies aimed at regulating the domestic online car-hailing industry. The most important policy is the implementation of new national standards aimed at improving industry safety and service quality. At the same time, to strengthen industry management and supervision, the government has also issued a series of relevant regulations, including requiring online car-hailing drivers to obtain corresponding professional qualification certificates, vehicles must undergo regular safety inspections, and online car-hailing companies must protect passenger data.

In addition, to address some issues in the online car-hailing industry, the government has piloted new management measures in some cities, such as requiring online car-hailing companies to use locally registered vehicles for services and conducting background checks on drivers. The release of these policies has led the entire online car-hailing industry into a more standardized and transparent development phase. Strict policies resulted in only a slight growth in the online car-hailing industry in 2019. In 2019, the market scale of China's online car-hailing industry was 193 billion yuan, with a compound annual growth rate of only 6% compared to 2018.

• During the epidemic

In 2020, the market scale of China's online car-hailing industry was 185.7 billion yuan, with a compound annual growth rate of 1.7% from 2020 to 2022. In 2020, the market scale of online car-hailing in China declined significantly due to the COVID-19 pandemic. The pandemic led people to choose to stay at home to avoid the risk of infection, significantly reducing the demand for online car-hailing services. In addition, the Chinese government implemented strict lockdown measures and travel restrictions to control virus transmission, further reducing the demand for online car-hailing services.

After the easing of the pandemic, the online car-hailing market began to gradually recover at the end of 2020, a trend that continued into 2021. In July 2021, the Chinese government announced a cybersecurity review of Didi Group, causing Didi's applications to be taken off the Chinese app store. At the same time, some Chinese online car-hailing companies have started expanding their services in certain areas and competing for Didi's market share. In addition, the Chinese government has introduced a series of policies to support the online car-hailing industry. The regulatory policies introduced in 2021 aim to protect the rights of drivers and passengers and create a more competitive environment for online car-hailing companies. Therefore, the scale of China's online car-hailing market showed an upward trend in 2021, reaching 222.8 billion yuan.

Compared with 2020, the online car-hailing market in China faced stricter epidemic prevention and control policies in 2022, resulting in a market scale that dropped to 192.2 billion yuan. Due to the epidemic, some cities implemented lockdown measures, such as Shanghai's nearly three-month lockdown and Beijing's nearly two-month lockdown, which also had a significant impact on the online car-hailing market.

Overall, although the online car-hailing market in China showed a growth trend in 2021, during this pandemic period, the market scale of the online car-hailing industry did not experience significant growth.

• Post-pandemic era

It is estimated that by 2027, the market scale of online car-hailing services in China will reach 621.9 billion yuan, with a compound annual growth rate of about 25.2% from 2023 to 2027. In 2023, with the full relaxation of epidemic prevention and control measures and policies issued by national and local governments, it can be seen that overall policies are positive for the online car-hailing industry. At the same time, continuous updates of norms and standards are being made to ensure the future development of the online car-hailing industry.

Another potential positive factor is the continuous growth and development of the sharing economy. With the continuous development of technology and interconnectivity, the sharing economy will continue to expand and evolve, thereby creating new opportunities for online car-hailing companies. Overall, the online car-hailing market will enter a recovery phase in the post-pandemic era in 2023, followed by a stable growth trend.

Source: Analysis by Frost & Sullivan

In July 2021, a few days after Didi Chuxing went public in the US, the Chinese government announced a cybersecurity review of the company. This review led to the removal of Didi's app from Chinese app stores and required improvements to comply with regulatory requirements. At the same time, some Chinese ride-hailing platforms have begun expanding their services in certain areas and competing for Didi's market share. For example, some ride-hailing platforms focus on providing high-quality services such as private cars or new energy vehicles, while others offer services tailored to specific regions or user groups. As a result, the competitive landscape of the ride-hailing market has shifted from an 'Uber-dominated' model to one characterized by 'one superpower with multiple strong competitors'.

Compared to 2016 when 90% of the market share in China's online car-hailing sector was held by Didi, user traffic is now more dispersed. In 2021, the market share of the top five online car-hailing platforms based on transaction volume was about 80%.

Source: Analysis by Frost & Sullivan

The development of China's online car-hailing industry is mainly driven by factors on both the supply and demand sides.

• supply side

✔ The increasing application of new energy vehicles:Compared to traditional internal combustion engine vehicles, new energy vehicles often have lower maintenance and energy costs, making them more suitable for online car-hailing operations that prefer cost savings. In addition, the more environmentally friendly energy characteristics of new energy vehicles also prompt governments to continuously introduce policies to promote the development of new energy vehicles. The increasing application of new energy vehicles will significantly reduce the operating costs of online car-hailing drivers and increase the profitability of online car-hailing platforms, thereby further driving the growth of the online car-hailing industry market size.

✔ Development and updates of custom vehicles:Customized vehicles refer to types of cars developed specifically for the online car-hailing service scenario, which prioritize practicality and cost-effectiveness during manufacturing. Therefore, customized vehicles often omit other functions not required for providing online car-hailing services, and focus more on energy efficiency and the use of more durable materials to extend the vehicle's lifespan, thereby reducing maintenance costs and making online car-hailing operations more favorable. In the future, the development and updates of customized vehicles will bring an improved working environment and operational threshold for online car-hailing drivers, thereby promoting an increase in the supply of drivers in the online car-hailing market.

• Demand side

✔ Continuous advancement of urbanization:Compared with developed countries, China's current urbanization rate is still relatively low, reaching only 64.7% in 2021. In the future, as the urbanization process continues, urban culture will spread more widely to rural areas and influence the lifestyles of more residents. Urbanization travel methods such as online car-hailing will become more prevalent. Nowadays, the online car-hailing industry has entered an era of stock competition, and activating the potential demand in markets in third- and fourth-tier cities to achieve user growth will become an important opportunity for online car-hailing platforms to increase their revenue.

✔ Consumption habit changes and service experience optimization:With the development of network information technology, the Z generation has gradually become the main consumer group. The popularity of mobile internet applications in China continues to rise, with user growth reaching 1.029 billion in 2021, and penetration reaching 72.9%. People rely more on services provided by mobile internet in their daily consumption, which is conducive to the popularization of online and offline services such as ride-hailing. In addition, the improvement of platform functions and services has also optimized the user experience, attracting more user needs.

✔ Upgrading of consumer spending:In the past five years, with the rapid development of the economic level, China's per capita disposable income has increased by a compound annual rate of 8.4%, from 26,000 yuan in 2017 to 35,000 yuan in 2021. This has driven consumer spending to gradually expand from meeting basic needs to improving the quality of life. In terms of travel, consumers have also begun to pay more attention to service quality. The allocation of more large commercial vehicles such as MPVs and the experience of higher-quality travel services will be favored by more users.

1) Win-win cooperation between aggregated and non-aggregated platforms

In recent years, several internet platforms have begun to enter the online car-hailing market in an aggregated model. Relying on their light-asset model and traffic advantage, their market share has expanded from 0.7% in 2017 to 25.5% in 2022. However, in the Chinese online car-hailing market, due to the early entry of online car-hailing platforms, a large user base, and strong user stickiness, they still occupy a major market position for many years. In 2022, non-aggregated platforms completed 74.5% of the total national online car-hailing orders. In the future, online car-hailing platforms will continue to maintain their dominant market position and cooperate with aggregated platforms to mutually drive traffic and develop together.

In recent years, the government has been increasingly strict in regulating the online car-hailing industry, making compliance by platforms, vehicles, and drivers an inevitable trend for the development of the online car-hailing industry. In recent years, many cities in China have begun requiring that new capacity supplied by online car-hailing platforms must be from compliant vehicles and drivers, leading to a tightening overall supply capacity in the online car-hailing market. On the other hand, most users have formed the consumption habit of using online car-hailing for travel, and market demand continues to be released, further resulting in competition over compliance capabilities becoming the main focus of competition among major platforms in the future online car-hailing market.

Today, the domestic online car-hailing market is increasingly saturated, which will accelerate its gradual transformation into a service-oriented industry. With increased income and enhanced consumption capabilities, consumers' demand for travel comfort is also growing higher. Express cars are usually of grade A or below, with smaller interior space and lower service standards, resulting in a poor consumer experience; whereas dedicated cars are of grade B or above, equipped with standardized service processes trained uniformly, providing value-added services such as in-car drinking water and charging, offering consumers a high-quality service experience. It is expected that in the future, the dedicated car service market, which is more adaptable to the upgrade of travel consumption, will drive the growth of the online car-hailing industry at a faster pace.