The $4.4 billion China-based ride-hailing firm Didi raised in its initial public offering on June 30 could help support its goal of growth in more foreign markets, possibly including the United States. If Didi enters the U.S., some analysts suspect ride-hail prices could fall but wait times could worsen.
In a U.S. Securities and Exchange Commission filing, Didi indicated it plans to "enter new markets strategically." The company has not specified any markets where it plans to expand. Outside of China, Didi operates in 14 countries across Africa, the Asia-Pacific region, Europe and Latin America.
An entry from Didi into the U.S. would challenge the giant American ride-hail providers Uber and Lyft on their own turf. That would be a tall order in the best of times, but Didi also would face a new hurdle in 2021: a shortage of drivers available for hire.
"It makes no sense to me why you would enter the U.S. market when Uber and Lyft and all chauffeur-driven vehicle companies are currently desperately looking for drivers," DK Consulting Group CEO David Kilduff said.
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Uber and Lyft have offered "millions" in incentives to lure drivers back to their platforms, said Gridwise cofounder and CEO Ryan Green. Didi would have to pay a high price to be competitive for the small supply of drivers, according to Kilduff.
"You think Didi is going to pay that much more money?" Kilduff said. "If they are, that means their prices will have to go up and/or have absolutely no profitability, which will result in massive losses, which long-term is not going to be good" for a public company, he said.
In addition, Didi's ability to afford such incentives could be hampered by recent regulatory actions in China, where 93 percent of Didi's mobility service revenue was generated in 2020. On July 2, China's Cyberspace Administration launched a cybersecurity review of Didi and banned the company from accepting new users in China, stating the company was collecting users' personal data in violation of domestic laws and regulations. On July 4, the regulator ordered mobile app stores to stop offering Didi's main app in China. On July 9, the regulator expanded the ban to include 25 more apps operated by Didi.
Regardless of affordability, the incentives offered by Uber and Lyft have had limited success, according to Green. "A lot of those drivers who were more active in ride-hailing have converted over to delivery and maybe making a little less from a wage standpoint but a lot more convenience that they have from that or the ability to not deal with passengers," Green said.
Although likely unhelpful today due to their murky legality, Didi might have a long-term advantage in its autonomous vehicle development. Didi has invested in its autonomous vehicle division since 2016, while both Uber and Lyft each have sold their autonomous vehicle divisions.
"It could be a long-term advantage because they will have full vertical ownership of the technology in addition to the consumer service that they provide as well," Green said. "They'll still have to go through all the regulatory hurdles." In a U.S. Securities and Exchange Commission filing, the ride-hail provider indicated it expects the commercialization of autonomous driving to accelerate.
At the moment, however, riders are facing higher prices and longer wait times. "We have seen a rise in rideshare prices," Green said.
"Right now, Uber and Lyft are doing horrible with [customer service] because they are gouging people with surge pricing, and the drivers aren't showing up, and it's hard to get a driver," Kilduff said.
Didi's entry could lead to lower prices, Green said. "An entry of a prominent service like Didi is immediately bringing prices down, in addition to other economic factors that start to compress consumer prices as well," Green said.
Whether wait times would improve is uncertain, according to Green. A new competitor would cause more fragmentation of the existing driver supply. "[Drivers] can be actively signed up on Uber, Lyft and Didi, but if they have only Lyft on at a given time, then that's going to hurt the wait times on Uber and Didi," Green said. "It's all going to come down to driver supply behaviors and how well the platforms can ensure that the online time of drivers is as engaged as possible relative to other services."
The U.S.: Not China
Didi famously pushed Uber out of China after a bitter price war and became the country's dominant ride-hail operator. In Uber and Lyft's home market, it must overcome some hurdles, including a potential perception of data sharing between Chinese firms and the Chinese government.
"There's going to be a certain amount of corporate customers that aren't going to travel on Didi because their companies are not comfortable with a Chinese-based firm knowing their travel data," Kilduff said. Didi's Enterprise Solutions division services corporates.
In the past year, analysts and the U.S. government have questioned relationships between some Chinese tech firms and the Chinese government. "When you think of consumer apps like TikTok or business apps like Zoom, [they have had] pretty negative PR when it comes down to the perceived aspects of sharing data with the Chinese government," Green said. "Even then, they've been able to overcome those hurdles due to the value they provide consumers." One potential entry point for Didi to gain a foothold in the U.S. could be Chinese visitors. However,
the U.S. currently restricts travel to and from China due to the Covid-19 pandemic.