Didi, China’s rival to Uber, explains why it makes no profit
Ride-hailing services around the world struggle to keep up with expenses
Some people have questioned whether ride-hailing can ever be a viable business. A company has to charge passengers enough to keep drivers happy and make money, but not so much that riders flee to a competitor. It’s a challenge so difficult that industry giants like Uber, Lyft and Didi Chuxing have yet to turn a profit.
(Abacus is a unit of the South China Morning Post, which is owned by Alibaba, an investor of Didi.)
In Didi’s case, a recent online Q&A session with an executive offered a rare glimpse into the financial struggles at the privately-held company. On average, Didi takes 19% of the fare as commission while the rest goes to the driver. However, the company also needs to spend the equivalent of 21% of the fare on operational costs.
These costs include:
- Bonuses for drivers during rush hours
- Research, safety, customer support, human resources and offline operational costs
- Tax, online payment processing
In other words, Didi is shelling out the equivalent of 2% of each fare from its own pocket for every ride. And when you have 550 million users on your platform, that quickly adds up to hundreds of millions of dollars in losses each year.
Didi has been upfront about the fact that it operates on a low margin. Last year, in the aftermath of two high-profile killings of Didi passengers allegedly committed by their drivers, company founder and CEO Cheng Wei sent out an internal letter to employees.
“Didi is by no means an evil company, and would never prioritize generating profit above anything else,” it read. “We have not been profitable over the past six years.”
Whether by choice or not, Didi’s negative balance sheet is hardly uncommon in the world of ride-sharing. Even though both Lyft and Uber collected more revenue per fare than Didi, they still recorded deep losses last year of nearly US$1 billion and US$1.8 billion respectively.
Didi’s unprofitability has caught the attention of China’s transport watchdog. Last month, a transport minister accused ride-hailing platforms of failing to build “profitable or sustainable” businesses. During the Q&A session, Didi’s Chen said his company has been working to “optimize” 2,000 jobs and vigorously reduce expenses.