Disruptive changes in the car-sharing landscape are to be expected from the Chinese market, pushed by an increasing demand for connected vehicles and by the impellent emergency of pollution and cars congestion. On one side, according to estimates from Goldman Sachs, people born between 1980 and 1990 made up roughly 30% of China’s total population in 2015. They are more urban, more affluent almost all digital natives. These connected consumers are now turning their attention to the country’s car market, demanding connected cars at far higher rates than elsewhere. On the other, Chinese officials are seeking to harness the flood of private cars on urban streets. But the effort required seems like some that only the legendary ruler Yu the Great, who tamed raging floodwaters, could do.
Driving a car in China is getting harder
The number of local car plates grew by 150% from 2004 to 2015, to over 5 million vehicles. In that same period, roads for driving expanded by only 58%. These numbers don’t include cars with out-of-town plates. Yu the Great’s wisdom in channeling floodwaters instead of trying to block them may hold lessons for modern Chinese authorities as well. In fact the efforts to restrict vehicle registration and use in Beijing and Shanghai have been met by public outcry. Nowadays, driving a private car in Beijing is a privilege for those lucky enough to win a car plate in the local lottery. Authorities said clearly that they will start charging congestion fees. Cars with out-of-town plates are restricted in access to elevated ring roads in Shanghai (where counts for 30% of the 4 million total cars), and limits on where and when they can drive are very strict in Beijing. In Shanghai, local car plates are given out through auctions at prices of more than 80 thousands RMB and soon to participate in auctions. Bidders who don’t have Shanghai permanent residency, will be required to show proof of residency, and an active personal tax payments in the city for the past three years. Soon a (relatively) clean driving record will be mandatory too.
The movement toward car-sharing services
A common back-door solution is to technically rent someone else’s unused car plate while waiting for one’s luck to change in auctions or lotteries. The other way around is to buy an electric car. As part of government efforts to clean up the air, green vehicles come with the promise of semi-automatic free car plates in both Shanghai and Beijing. In a creative attempt to ease the pain without killing the patient, the central government has proposed that closed apartment complexes open up throughways to increase capillary roads in big cities, but the idea has met resistance from those communities. But this would only help delaying the problems. To try to go a bit deeper in the solution (and to save their own business), carmakers are teaming up with car-sharing operators to give people alternatives to mass transit without having to give up the experience of motoring.
Globally, urban residents appear to be losing interest in owning their own cars. In urban areas, cars simply aren’t a requirement, and public transport and ride-sharing apps can easily fulfil their needs. Millennials face affordability issues; some live with their parents or in shared households and put off home ownership for this reason. The movement toward car-sharing and ride-sharing services will be driven in large part by the dramatic reductions in transportation costs that are expected with connected cars. Meanwhile, in China – where members of the growing middle class still dream about owning their own cars – new drivers already expect highly sophisticated levels of connectivity and services in the cars they buy.
Car-sharing scenarios in China
Car-sharing, one of the fastest growing urban mobility innovations worldwide, did not reach China until 2009, but is quickly becoming more mainstream in Chinese cities. Estimates from the United States, say that one car-sharing vehicle is able to replace 6 to 23 cars. According to a recent market research report, car-sharing in China is expected to grow by about 80% annually for the next five years, with total vehicles reaching 16,000 by 2018 if the government continues offering strong support to the industry. Though this number is small compared to the more than 120 million cars owned in the country, it creates an important foundation for China’s car-sharing industry.
There are multiple challenges facing the car-sharing industry in China, first of all the cultural preference towards car ownership that’s still prevalent in China compared to other countries. It may take time for local governments to develop operational policies that suits Chinese cities. Some have supported electric vehicle car-sharing programs, but most local governments are generally unaware of the potentials for sustainable transport solution that car-sharing can have. As the industry evolves, support from city governments through policies such as dedicated parking for shared vehicles and exemption to vehicle license restrictions will be vital to the industry’s growth. If more governments can provide an accommodating policy environment, the rise of car-sharing programs in China could be part of a strategy to make cities more sustainable and liveable while minimising car ownership.
The rise of station-based car-sharing in China
Car-sharing is still an emerging industry in China. In 2012 there were only two car-sharing operators, with a total of 39 vehicles in Chinese cities. In 2016 this has grown to a total of one thousand vehicles within 5 active operators in Beijing, Hangzhou, Wuhan, Shenzhen and Changsha. The composition of these operators in China has also evolved: from domestic independent start-ups to a mix of municipal governments and foreign and domestic vehicle manufactures. Among the independent operators, Eduo Auto and Evnet are more established, while Weigongjiao and E-car receive government support and operate only electric vehicles. 微公交 Weigongjiao, which means “mini-bus,” creatively uses vending-machine-like parking garages with electric vehicle charging infrastructure. Finally, Car2Go is the first car-sharing program supported by a foreign OEM in China. Smartly launched in Shenzhen, the only of the first tier Chinese city where driving is a priority, in February 2014, it is operated by the international Car2Share. It’s currently piloting its first project.
The emergence of private peer-to-peer car-sharing
Peer-to-peer car-sharing has recently seen its birth in China, though it has been operating in North America for more than a decade. These type of companies provide platforms for members to rent vehicles owned by other members in the network. Peer-to-peer car-sharing has been regarded as the next revolution in the car rental industry, as it can cheaply mobilise unused resources to provide vehicle access across a wide area. Two of the most notable Peer-to-peer companies in China are PPZuche and ATzuche. PPZuche has been growing by 50% per month since its launch in Beijing in 2015. It now operates in Shanghai, Shenzhen, and Guangzhou with over 20,000 members. ATzuche began operations in Shanghai in 2016, and has already received attention due to its comprehensive service package, innovative vehicle tracking, and remote keyless entry device that can plug directly into cars without any vehicle modification. Still, these companies face questions regarding the liability of vehicle owners and the legitimacy of renting personal vehicles for commercial use. They operate in the belief that both central and local governments will soon adapt their policy due to the benefits that their services provide in terms of reduction of both traffic congestion and pollution.
While Toyota decided to invest in Uber, other major car brands decided to partner up with other peer-to-peer operators or launch subscription based sub-brands.
Brands investments to adjust their business models
- General Motors’ investment in Yi Wei Xing Technology Co. General Motors decided to invest in kickstarting its car-sharing business through an affiliation with a Chinese technology company to explore new mobility in the world’s biggest car market. General Motors’ investment in Yi Wei Xing Technology Co. builds upon its launch of Maven, its U.S. peer-to-peer car-sharing brand. Yi Wei Xing’s product, Feezu, a cloud-based platform for car rental and car sharing, will be the Chinese counterpart of Maven. In North America, General Motors also partnered up with Lyft, a US car-for-hire operator (competitor of Uber), as in the words of its own vice president for strategy and global portfolio planning, they are switching their business model from selling cars by the number to “selling them by vehicle miles.” GM has developed a subscription plan to give Lyft drivers access to GM-made cars at affordable prices. General Motors also released a statement saying that an ideal pattern for environmental use of vehicles would be a combination of car sharing and vehicle electrification, as well as autonomous driving and Internet connected autos. So far GM’s Lyft has no involvement in China’s current car-sharing economy, which is dominated by domestic operators Didi and Yidao and whose market for has proven particularly tough for foreign car-for-hire operators (see Uber).
- Ford Internet-assisted trial parking program. According to Baidu, more than 30% of traffic in big Chinese cities is generated by futile searches for parking spots. At the 2016 Mobile World Congress in Shanghai, Ford launched an Internet-assisted trial parking program in Shanghai for its employees. It allows users to call for valet services to park cars or to remotely check on the availability of nearby parking spots and “unlock” no-parking barriers via a smartphone or Ford’s SYNC in-vehicle infotainment system.
- Baidu’s CarLife connectivity platform. Two of the country’s largest tech companies, Baidu and Alibaba, are already pushing hard to develop their own platforms for connected cars. Baidu, has secured Volkswagen, General Motors, Audi, BMW, Mercedes-Benz, Ford, and Hyundai, as well as China’s own BYD, to use its CarLife connectivity platform, which, like Apple’s CarPlay or Android Auto, enables cars’ internal infotainment systems to connect with smartphones. Baidu is also working on a telematics service for cars, called MyCar, that would monitor car- and traffic-related data, which will also aid the company in its ongoing effort to develop an autonomous vehicle. At the same time, American leader in connected vehicle technologies Airbiquity, announced a partnership with Baidu, to provide connected car Internet services to the Chinese automotive market.
- Alibaba-SAIC’s RX5 Internet car. Alibaba, in partnership with Chinese automaker SAIC, unveiled the RX5, a so-called Internet car, in 2016. The car’s features include Alibaba’s Alipay payments service, allowing drivers to pay for parking spaces, fill up with gas, or buy coffee. In addition, it offers three LED screens and space for as many as four detachable 360-degree cameras to record video and take photos, a smart rearview mirror, support for voice controls, and an onboard “intelligent” mapping system. Meanwhile, France’s PSA, which makes Peugeots and Citroëns, will equip some of its cars with a Wi-Fi hotspot in collaboration with Alibaba, and offer an app to remotely check the vehicle’s location and fuel levels.
- Huawei’s agreement with Dongfeng and Changan. Dongfeng and Changan, two Chinese domestic automakers, signed agreements in 2014 with telecom giant Huawei Technologies, establishing technological cooperation on vehicle connectivity and autonomous driving.
- Audi partnership with Tencent. Audi announced plans to work with Tencent, which operates the country’s hugely popular messaging service WeChat, to allow location sharing in vehicles.
- China Mobile and Deutsche Telekom have also signed a deal to create a platform for Internet-connected cars in China.
- Volvo-Geely launched Lynk & Co. Last but not least, Chinese owned Volvo released in Berlin Autoshow its own connected-car sub-brand. Working in cooperation with its own mother-company Geely, they launched Lynk & Co. This new brand will feature a subscription based sale model combined with a peer-to-peer functionality to target fast-fashion educated urban youth.
So far only few companies in the automotive industry – or any other – have managed to make customers subscribe to lifetime services. Consider the struggles of music streamer Spotify to shift its users to a subscription model; to date, just 30 percent have done so. If you wish to establish connected services as a source of revenue, you must learn to sell not the technologies themselves but a premium experience. The key is to study from companies like Apple on how to use digital services to maintain premium pricing in the market. Think in particular about cloud-based services that can create stickiness: migrating their data to another provider could be painful enough to make customers hesitate. Core mobility services might be complemented with services like “Siri”, learning from the behaviour of drivers. Users would have to start “training” their cars all over again if they switched brands.
The growth of connected cars and autonomous vehicle technologies makes the Chinese market even more critical. The country’s automakers and suppliers already seem to have a distinct advantage over their foreign competitors, thanks to a virtuous circle of connected consumers, advanced technologies, and supportive government. In 2015 in fact, the Chinese State Council announced its 10 years plan, calling it “Made in China 2025,” with the goal of transforming the country into an innovation hub in a variety of sectors, including the auto industry. China may take the lead in the worldwide race to build connected cars.
Ps: let’s not forget about the two-wheeled Mobike!
A more radical solution to both traffic and pollution came in late 2015 from the former Uber Shanghai General Manager, who has shifted from four wheels to two with his own startup, Mobike. Mobike is a bike sharing network where users grab a ride through an app. Mobike already expanded to Beijing and secured a US$10 million round of funding from Panda Capital. The bike-lending service costs just US$0.15 per hour, along with a US$45 security deposit. To hitch a ride, a user opens the app, uses his or her phone to scan the QR code on the bike, and then that unlocks the bike’s smart lock and begins the timer on the Uber-esque ride. Since Mobike doesn’t use a parking station on the street, unlike some city-run bike-sharing schemes, the bikes can be parked anywhere with the app-controlled smart lock. The design of the bike itself has successfully attracted the young audience, and has become some sort of a fashion icon, with stylish Mobike riders being featured on different street fashion blogs.
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