December 18, 2018 / 3:48 AM / a year ago

Breakingviews - Didi will seize the wheel of a Chinese carmaker

The company logo of the Didi ride hailing app is seen on a car door at the IEEV New Energy Vehicles Exhibition in Beijing, China October 18, 2018. Picture taken October 18, 2018. REUTERS/Thomas Peter

HONG KONG (Reuters Breakingviews) - China’s Didi Chuxing will seize the wheel of a carmaker in 2019. Similar to global peers, the $56 billion ride-hailing unicorn has tied up with traditional manufacturers. Falling valuations in China’s car sector will inspire boss Cheng Wei to buy a brand.

The lines between technology outfits and the auto sector are blurring rapidly. In 2018, Didi unveiled a car-sharing network with a dozen manufacturers. It followed up with an even bolder alliance of 31 companies, including Japanese giant Toyota, to cooperate on sales and financing, plus jointly develop new energy vehicles and industry standards.

But the biggest prize would be a fleet of Didi cars. Cheng has already inked tie-ups with local automakers like BAIC Group, as well as German car-parts giant Continental. The goal is “purpose-built” vehicles shared by drivers. The 35-year-old founder has also quietly built up an in-house team of engineers and designers, sources told Reuters in April.

He has good reason veer into car-making. His company, with half a billion users on its apps, is racing against tech and auto rivals such as Waymo, the self-driving unit of the $730 billion Alphabet, to dominate autonomous driving. Vertical integration - controlling the algorithms and data alongside the car design and manufacturing process - would give Didi an advantage.

The privately held company last raised $4 billion in 2017. That boosted Didi’s cash reserves to $12 billion, the Wall Street Journal reported at the time. Since then, the company has charged into new markets, bolstered passenger safety - albeit after a rider was murdered by a driver - and expanded its car services business.

Half of that warchest should be sufficient to acquire a manufacturer. Slowing Chinese consumption has hit the sector hard, with full-year sales for 2018 on track to fall year-on-year for the first time since the 1990s, Fitch reckons. As of mid-December, the MSCI China Automobiles index is down 46 percent since the start of 2018.

    Didi can rule out stodgy, state-owned outfits; nimbler candidates look more suitable. That might include the Alibaba-backed Xpeng, the electric-car maker last valued at $4 billion, or Future Mobility Corp, a high-tech Tesla-challenger founded by former BMW and Nissan Motor executives. A bold deal will put Cheng firmly ahead.

The headline of this item has been corrected to read "will seize" instead of "seizes". This is a Breakingviews prediction for 2019. To see more of our predictions, click 


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