China's green light for Didi, Uber may push partnership

Now that China has issued guidelines making car-hailing services like Uber technologies and DidiChuxing legal starting in November, the two leaders in the world's largest market may seek a partnership and automakers may become even more active participants in the sector, observers said.

Uber and Didi, the world's largest on-demand ride providers,have operated in a legal gray area in China, but regulations released by the Transport Ministry on July 28 sanction and govern their operations with rules ranging from drivers' qualifications to how long a car can stay on the road – no more than 380,000 miles. The guidelinesalso free Uber and Didi to compete for drivers and riders.

Susan Shaheen, a professor and co-director of the Transportation Sustainability Research Center at the University of California Berkeley, said the government's action will probably boost the market value of Didi and Uber.

"Most likely the valuations are going to increase dramatically as this would enable being able to legally provide rides to one of the largest (if not the largest) global markets," she wrote in an email.

A Reuters story in June estimated that Uber was valued at about $62.5 billion after a Saudi Arabian sovereign wealth fund invested $3.5 billion and a partnership deal with automaker Toyota Motor Corp that also included an investment stake.

Didi raised $4.5 billion in June that values it at close to $28 billion, according to a Bloomberg.

Uber is the leading ride service in the US and much of the world, while Didi claims 87 percent of the Chinese market. In July, Bloomberg reported that investors in Uber and Didi were pushing for a partnership agreement between the two to mitigate the costly battle over market share in the mainland.

Joseph Schwieterman, director of the Chaddick Institute for Metropolitan Development at DePaul University in Chicago, said the pressure to consolidate is great due to inefficiencies of operating parallel networks over vast geographic regions.

"(A) partnership is likely a first step toward creating a consolidated service that offers quicker pickup and more opportunities for promoting carpooling and other specialized services. Ride-hailing providers like Uber work best (when) the demand isn't spread out over more than a few operators. There are striking parallels to the airline business, with its economies of scope from building large hubs," he said in an email.

General Motors acquired a stake in Lyft, another US ride-sharing service, earlier this year.

"Automakers are already investing heavily in shared mobility companies and technologies. Many are hoping to become `mobility providers' and General Motors' investment in Lyft and acquisition of (ride-hailing company) Sidecar back in January is an example of that," she said.

"The auto manufacturers are moving at full speed to get into the game, both with regard to carsharing and ridesharing. GM knows that its business model is changing and can't afford to be caught waiting on the sideline. Expect more of this in the next six months. China is no doubt a focal point right now," added Schwieterman.