Old Version

Car Sharing in China

Tangled Road

Sharing a car is cool – but the sector has lots of problems to solve before it is also profitable

By NewsChina Updated Jun.1

For young Chinese white-collar workers in megacities like Beijing and Shanghai, sharing a bike via one of the mass hire schemes is not only a perfect solution for traveling between home and the subway, but also a cool lifestyle choice. Many enjoy showing off pictures of themselves biking on their WeChat accounts. 

But for the really hip, biking is now old hat. The new fad is car sharing. Chinese and international giants and startups are keen on expanding the emerging service. The government has also joined the game with policies supporting the business. 
There have been plenty of boasts about the scale of the Chinese consumer base for the online economy in recent years. Everything seems rosy for the moment. But in the end, it will be profitability that determines how big a role car sharing pools can play. Coolness might not translate into profit. Like bike sharing, car sharing companies also face the question of how to attract more consumers to develop a full-fledged market, as well as doubts over whether they are using consumers’ deposits to support outside investments. Like online ride sharing services, car sharing may trigger criticism for worsening, rather than easing, the pressure of traffic, which could in turn result in tighter regulatory restrictions.  

Running Fast

One day in Beijing, 34-year old Yao Silei heard about the car sharing service provided by a startup called TOGO on TV. It so happened that she, along with half of Beijing’s drivers, was banned from taking to the road that day due to the heavy smog – when conditions are bad the capital uses a system based on license plate numbers that removes cars from the road. She submitted her driving license, paid about US$217 as deposit in advance and registered with the TOGO app. A few weeks later, she noticed a Daimler Smart Car provided by TOGO near her home, which she unlocked with Bluetooth. Her 104 minutes of driving that day cost her less than US$10, including a US$3 TOGO coupon. Soon after she parked and left the car, the system showed that the car was driven away by another user.  

Yao, a fan of bike sharing services, was very happy with this car sharing experience and promoted it to her friends. As she told NewsChina, “The cost is similar to the ride-sharing cars or reserved taxis on the Didi platform [China’s Uber-alike] – but Didi charges extra for orders in peak hours.” 

Didi is the largest online ride sharing and taxi hailing platform in China and has acquired Uber’s China operation.  

Zipcar, operating in the US and Europe for more than a decade, is a pioneer of the Internet-based car sharing business and has made it possible for users to reserve a car and pay by the hour. In 2008, Daimler launched its car sharing service, car2go. Avis, a world-leading car rented service provider which acquired Zipcar in 2013, introduced the Internet-based car sharing business into China in 2011. However, the market response had been lukewarm in China, until the concept and practice of the sharing economy became popular in the past two years. Indeed, TOGO was sometimes dubbed as car2go’s China version, as both used Daimler Smart cars.  

After it took off, the market grew very rapidly. Yao said it is very difficult to find a car these days as too many people were trying to grab one. Luo Hanxin, the marketing manager of TOGO told NewsChina that most of their cars were available in areas where there is a concentration of office buildings, shopping malls and hotels, to attract IT, finance and advertising professionals with higher incomes and a fierce appetite for something new. Users can even find fashion magazines or breakfast snacks in those cars. TOGO already has more than a million registered users in Beijing, Shanghai, Guangzhou and Shenzhen and each of them uses the service five to eight times a month on average.  

In April 2016, Chongqing, a mountainous inland municipality, became the landing place of car2go in Asia. Guo Zheng, chief operation officer with car2go’s Chinese branch, was surprised by the enthusiasm of Chinese users. The first day that car2go was launched in Chongqing, he received several middle-aged clients from the city of Zunyi, Guizhou Province, which is more than three hours’ drive from Chongqing. They went all the way just to have a fresh experience. Only half a year later, Guo planned to add 200 cars to the firm’s existing 400 units. “We are in operation in many cities around the world, but Chongqing is the first where we have decided to invest in more cars such a short time after we launched,” he told NewsChina. Data from Daimler showed that a car was reserved every 1.2 minutes in Chongqing, and every 3 seconds in the most bustling areas of the city.  

But analysts are not that surprised by the boom in car sharing. Roland Berger, a global consultancy, forecast in a report in October 2016 that China’s car sharing market, including car sharing and Ubersque online cab hailing services, would reach US$261 billion in 2018. It described this business as a good traffic solution in China’s densely-populated cities where the roads are limited. 

China also has a large number of people who hold driving licenses but no cars. For example, in Beijing, you have to be lucky enough to win a lottery to get permission to buy a car. According to the Traffic Management Bureau of the Ministry of Public Security, by the end of 2016, more than 116 million people with driving licenses had no vehicle. Meanwhile, by the end of 2016, 475 million people had used mobile-based payment systems. The huge potential of the market for online car sharing reservation is crystal clear.

Cautious Driving

And yet the service is far from being recognized as a reliable generator of a sustainable and significant cash flow for operators and their investors. There are a lot of complaints about the insufficient number of vehicles and parking availability, which makes the service less convenient than expected. In addition, getting and maintaining a car is far more expensive than a bike for operators. All the cost and difficulty have raised the question of whether the business will expand rapidly and robustly enough to lead to an economically meaningful market. As Luo Hanxin from TOGO recognized, it will take time for the public to accept the concept of car sharing before a really feasible business model can be discovered.  

There has always been a debate about the concept of the sharing economy itself. Some criticize the existing bike or ride services, including car sharing, for being against the principle of sharing.
Sharing, they argued, is supposed to involve idle resources, such as a room rented via Airbnb, while bike or ride sharing operators add more new bikes or cars to the road. They say that this business is no different from a hotel where the same room accommodates different guests. Indeed, worsening congestion has already been used as one of the major reasons by the government to restrict the online ride sharing reservation business represented by Didi. It will be no surprise if the car sharing service faces similar regulatory barriers if it causes a fast increase of vehicles on the already busy roads.  

The sharing economy’s dependence on trust has also put the integrity of both users and operators to test. A post circulating around China’s social media recently showed bikes for sharing were broken, stolen or dumped all over the place. In some cases, QR codes on those bikes were covered by fake codes that led the user to scam payment links. There is a rising call for regulatory intervention to prevent the huge funds accumulated via users’ deposits from being manipulated as a financial tool by the operators. Anbound, a thinktank in Beijing, thinks that regulatory restrictions on bike sharing will be much more likely to be imposed by financial watchdogs than by transportation authorities. Similar restrictions can be applied to car sharing operators, which charge much higher deposits for each order.  

The most promising part of the car sharing story seems to be in the use of new energy autos. In early March, Beijing transportation authorities unveiled a plan to have 2,000 new energy cars in the car sharing service by the end of the year. A guideline on promoting new energy car sharing in Shanghai set a goal of more than 20,000 electric vehicles by the end of 2020. In January 2017, the Beijing Shouqi Group, a leading car rental and taxi company, reached an agreement with the Beijing Municipal Road & Bridge Group, giving access to spaces for parking and charging points for Gofun, Shouqi’s smartphone-based new energy car sharing division. Tan Yi, Gofun’s chief operating officer, is very optimistic about the prospects of the business. “The government support for new energy is very strong and clear; I have no doubt about the way forward, and I believe it is just a matter of time before the auto ecosystem can be improved, offering the density and convenience [of using the online new energy car sharing service].” Gofun is considering a partnership with bike sharing operators so that users can enjoy seamless transfers. 
But not every player can survive till that day comes. On March 10, uuzuche.com.cn, an online new energy car sharing company in Beijing, declared the suspension of its service due to a lack of financing. In addition, the new standard of subsidies for new energy autos effective in 2017 requires annual service of a minimum of 30,000 kilometers for a new energy auto. Analysts think this will bar new energy car sharing companies from subsidies as the existing scale of market demand is not up to the standard. This is not helpful for a new business thirsty for money. 
Consumers, investors, operators and regulators will have to share the risks and rewards along the road to success – or failure.

Users can locate and reserve cars via the TOGO app

A bus station in Beijing is “besieged” by over 1,000 public bikes