- Reasons for the growth of the sector
- Major players and main types of operators
Car sharing is basically defined as a short-time need-based car rental service (typically charged by the hour). Hence, depending on an individual’s car rental requirement, a smartphone app is needed to find and unlock a car. Thereafter, a vehicle can be ridden which can be parked anywhere or in designated parking lots.
China continues to be the largest car market in the world ever since it overtook the U.S. in 2009. In tandem with the explosive sales growth in the auto sector, the country’s local car plates grew by c.150% between 2004 to 2015.
Moreover, increase in the number of vehicles resulted in high levels of toxic smog and clogging of roads (roads grew by just 58%) in the same period. While the factors that contributed to increasing the air pollution ranged a broad spectrum from car to factory exhaust. Thereby, several initiatives were taken both at the regional as well as the national level to improve the air quality and reduce the harmful effects of these on the inhabitants. One of the significant measures was to control the number of cars plying on roads. Hence, China introduced an annual public lottery system for issuance of number plate licenses. While this tackled the air pollution to an extent, it invariably reduced the options for transportation. For instance, it was estimated that there were only 110 cars per 1000 people in China (at the end of 2016). Furthermore, it is anticipated that by 2020, there will be 195 million cars for 355 million licensed drivers in the country.
Thus, China’s car sharing industry was born out of the challenging necessity. In addition, urbanization grew at a faster pace than the development of public transportation. For example, while the population of Beijing grew 1.4% per year (2004-14), the number of taxis increased by a mere 0.3% per year in the same period and totalled 67,500 against the population of 13,334,000. In order to overcome these constraints, new business models such as bike sharing and the present car sharing emerged as potential solutions for commuting. It is believed that car sharing could significantly cut down the purchase of 13 cars according to the study by China’s State Information Center, 2016.
In the early days, CC Clubs was a car sharing operator in China (founded in 2010). The market growth was quite slow in those days and the total fleet size was less than 1,000 in 2013. However, the car sharing market gained a significant momentum since 2015 with fleet size touching 30,000 vehicles at the beginning of 2017 (primarily in tier 1 and 2 cities) accounting for an average yearly growth rate of 200%.
In monetary terms, the car sharing market is expected to be around 8.5 billion yuan by 2020 from 1.1 billion yuan in 2017.
Although the concept of car sharing entered at a later stage in China as compared to other nations like the U.S., it gained traction since 2015. The key factors for this were the government support and a peculiar readiness of commuters towards embracing the car sharing mobility model. According to the global study ‘The Future of Automotive Mobility’ by Arthur D. Little (covered more than 6,500 respondents), it was found that 42% of Chinese were willing to replace their private cars with a suitable car share and other new modes of mobility services. This was almost double in comparison with the global average of 22%. It is important to note that car sharing business boomed in China due to a rapid adoption of ‘proximity mobile payment’ technology through smartphone apps such as WeChat and Alipay by which money is transferred with a simple scan of QR code for payments. In China, c.195 million people adopted this technology (2016), while only c.37 million people in the U.S. embraced the idea. The Chinese government paid a close attention to the development of this market as stated above. In 2016, the country promulgated one of the world’s first national law on the sharing economy apart from organizing a number of high-level dialogues on the growing industry, including the World Economic Forum’s annual meeting of the New Champions 2016 at Tianjin.
Consequently, several players with varied backgrounds entered the Chinese market and functioned with different operational models since 2015, these also established their unique competitive advantages. The total number reached more than 100 at the beginning of 2017. Currently, there are three main types of car sharing players in the market; Original Equipment Manufacturers ([OEMs], [~75% market share]), car-rental companies (~5%) and third-party technology companies (mostly start-ups funded by venture capitalists, ~20%).
This bandwagon was joined by foreign OEMs (Daimler, BMW and Volkswagen), which launched their car sharing businesses in China, albeit their market share is much lower than the local operators. The central government issued New Energy Vehicle (NEV) credit as well as fuel consumption requirements for OEMs, thereby setting the NEV penetration goal for 2020. The car sharing business can turn out to be critical for OEMs to absorb the NEV volume quota set for these players by the Chinese government. Presently, 90% of the share cars operating in the Chinese market are NEVs and only ~10% are ICE (Internal Combustion Engine) cars. While the sharing business could be a potential threat for OEMs/automakers, it may also turn out to be an opportunity. It may affect the new car sales market, automakers could partly make up for the loss by operating the services on their own. Additionally, with an intent to stay in the race for subsidies, parking spaces or business plates from the government, the foreign OEMs are also proactively moving towards manufacturing of NEVs in order to capture the market share. It is interesting to note that recently China’s ride-hailing giant Didi Chuxing teamed with 12 OEMs/automakers to build an all exclusive electric-vehicle-sharing network. This involved BYD, Geely Auto, BAIC BJEV, Chery Automobile Group, Changan Automobile Group, First Auto Works, Dongfeng Passenger Vehicle, JAC Motors, Zotye Auto, KIA Motors, Renault-Nissan-Mitsubishi and Hawtai Motor.
The car sharing business in China is growing rapidly from almost nothing a few years ago, as there is a demand from the millennials for a mobile lifestyle without hassle, cost of buying and maintaining cars. Although, the car sharing business is not yet profitable, the market is expected to experience growth and more entrants. In the future, the industry is bound to face consolidation as different players would fight for the acquisition of both scale and essential resources such as parking lots and number plates.