Didi Chuxing has received $1bn from Apple as part of a reputed $3bn round and is said to be planning an IPO in 2017, but the deal heralds an alliance that could end up helping to shape transport itself.
Electronic device manufacturer Apple’s $1bn investment in China-based ride hailing platform Didi Chuxing last week signifies its expansion into a genuine rival for US-based competitor Uber, and gives clues as toits long-term strategy.
Formed in February 2015 from the merger of China’s two largest ride ordering apps, Didi Dache and Kuaidi Dache, Didi Chuxing currently operates in around 400 Chinese cities and is responsible for some 11 million rides ordered each day. It claims to have an 87% market share in the country.
Apple committed the money as part of a $3bn funding round Didi Chuxing, formerly known as Didi Kuaidi, is in the process of raising at a $26bn valuation, people familiar with the matter told Bloomberg today. Internet services group Tencent and e-commerce firm Alibaba are said to also be among the round’s participants.
The company, which closed a $3bn round in September 2015, planned in April to raise $1.5bn, only to lift the target to $2bn at the start of this month before increasing it again to $3bn with Apple’s investment.
Taking into account the cash secured by its founding companies, Didi Chuxing has now raised about $5.5bn altogether, including $3bn in the 2015 round, which featured Tencent, Alibaba, insurance firm Ping An, Singaporean state-backed fund Temasek, China Investment Corp, Capital International Private Equity Fund and Coatue Management. It valued Didi Chuxing at $16bn.
Other investors in Didi Chuxing include online messaging company Sina Weibo, which invested $142m in 2015; telecommunications firm SoftBank and car rental service eHi, both of which backed Kuaidi Dache pre-merger; Chinese state-owned carmaker Beijing Automotive, DST Global, Matrix Partners, New Horizon Fund and Citic PE.
The Apple funding is indicative of Didi Chuxing’s success but it also raises questionsprovides hints to its strategy. In the nearer term, people familiar with the matter have told Bloomberg the company is considering an initial public offering in the US next year, though it is yet to hire banks for an offering and the timing will depend on how its China-based duel with Uber is progressing.
For the moment, the battle is going well. Uber has pledged to invest $1bn in its Chinese operations, and raised cash from travel and airline group HNA Group, automaker Guangzhou Automobile and insurer China Life Insurance in January 2016 at a $7bn valuation. It is also funnelling money from its profitable markets – the 30 most successful of which reportedly generate $1bn of profits – to support its Chinese drive, which involves a great deal of discounted rides.
Didi Chuxing however is said to be present in four times as many urban centres as Uber in China, and claims it is at the break-even point in around half those markets. It is also looking to stretch Uber’s resources internationally by forming strategic partnerships with other regional ride ordering apps, and has picked up stakes in two of them: US-based Lyft and India-based Ola.
Those investments point the way to a possible expansion route, should it manage to definitively win the war with Uber in its home country, but the Apple deal highlights a different route to growth, one that is altogether more science fiction-oriented.
Apple’s biggest transport-related offering right now is CarPlay, a plug-in system that lets users control their in-car infotainment systems through their iPhones. However, like Google’s holding company Alphabet, Apple is reportedly heavily involved with the development of an autonomous, self-driving vehicle.
The firm, which has some $233bn in cash on hand, has hired engineers as part of a reportedly 1,000-strong team and investigated testing sites for the initiative, known as Project Titan. Access to Didi Chuxing could also give it invaluable data concerning driving habits.
Apple is betting on the future of the automotive industry, where self-driving cars could connect with electric car technology and ride sharing apps to result in fleets of autonomous cars that can be summoned from a smartphone at any time. The idea isn’t new – it’s already been seen in futuristic sci-fi films like Demolition Man or Total Recall – but never before has the concept been considered in reach.
Getting there will require a union of autonomous car technology, which Apple is working on, the kind of ride ordering system Didi Chuxing oversees, and the car building expertise of a company like Didi Chuxing backer Beijing Automotive. Competitors like Alphabet and Baidu, which is working with BMW, are forming similar alliances. The structure is being built, and Apple wants to ensure it has a place at the table.
