After listing, what story will Didi tell?

Produced | Tiger Sniffing Car Group

Author | Wang Xiaoyu

High-profile is easy, low-profile is difficult.

On June 30, Beijing time, Didi was officially listed on the New York Stock Exchange under the stock code “DIDI”. The issuance price is US$14/ADS, and the market value of the issuance is more than US$67 billion (approximately RMB430 billion). This time, Didi raised at least US$4.4 billion, which is the second largest Chinese company listing in the United States since Alibaba’s listing in the United States in 2014.

After the market opened last night, Didi’s share price soared by nearly 20%, and its market value exceeded $80 billion. As of the close, it was reported at 14.14 US dollars/ADS, an increase of 1%, and the market value was 67.79 billion US dollars (approximately 437.734 billion yuan).

In accordance with the practice of the domestic venture capital circle in recent years, the listing bell ringing ceremony will invite a large number of investors, users, employees, and the media to come together to witness this bright moment. You know, Didi has completed nearly 20 rounds of financing in 8 years since its angel round of financing of 800,000 yuan in 2012, becoming the company with the most financing in China.

After listing, what story will Didi tell?

The listing process of Didi was extremely confidential, and it only took 20 days from “submission” to “listing”. On the day of listing, not only there were no press conferences or bell ringing ceremonies, but even no celebrations were held within the company. “Didi hopes to be dispatched low,” a person in the investment circle said to Huxi.

30% of the IPO funds raised will be used to expand business in international markets outside of China; about 30% will be used to improve technical capabilities including shared travel, electric vehicles and autonomous driving; about 20% will be used to launch new products and expand current There are product categories to continuously improve the user experience; the remaining part may be used for working capital requirements and potential strategic investments.

Didi’s low-key listing may have other secrets.

1. There is a bottleneck in profit improvement

Didi founder and CEO Cheng Wei said in a letter to investors that on that winter night in Beijing in 2012, there was a heavy snowfall with goose feathers, and his jacket could not stop the cold wind at all. “I was standing in a long line with many people waiting for a taxi. I was frozen and shivering. Everyone became more and more anxious. I have never had a driver’s license. This experience is common to me and many Beijingers. However, for me, that night was very special. I was actually not that frustrated because I already had a plan.”

Since its inception, Didi has been doing a very simple business: a C2C taxi platform that can maximize the value of almost zero marginal cost. On one side, drivers provide transportation capacity, and on the other side, users take taxis. Consumers get a taxi through the platform, the platform matches the vehicle to complete the service, the consumer pays, and the platform draws a commission from the transaction amount.

Since its establishment in 2012, Didi has 493 million global annual active users, 15 million drivers, an average daily order volume of more than 41 million, and a total annual transaction volume of 341 billion, making Didi the world’s largest mobile travel company worthy of its name.

After listing, what story will Didi tell?

At present, Didi’s operating income mainly comes from three major businesses: domestic travel business, international business and other businesses. Among them, the domestic travel business includes China’s online car-hailing, taxi, agent driving and ride-hailing services.

Since 2019, Didi’s domestic travel business has begun to make a profit. The EBITA (Adjusted Earnings Before Interest and Tax) in 2018, 2019 and 2020 will be -274 million yuan, 3.844 billion yuan and 3.96 billion yuan, respectively, and it will reach 3.618 billion yuan in the first quarter of 2021.

However, Didi’s travel business revenue mainly comes from commissions, and Didi and its drivers almost maintain a “two-to-eight split logic.” In May of this year, Didi online car-hailing issued a statement on the “credit”: In 2020, Didi car-hailing driver income accounted for 79.1% of the total passenger payable. According to the prospectus, the total operating costs of Didi in 2020 will be 155.524 billion yuan, of which operating costs will be 125.824 billion yuan, accounting for 81%.

In addition, the domestic travel business is Didi’s core business, and its revenue accounts for more than 90%. The final embarrassment was that although the domestic travel business was profitable, the overall profit performance of Didi “dropped to a freezing point” after including the money-burning international business and other businesses. In 2018, 2019 and 2020, Didi had net losses of 14.979 billion yuan, 9.733 billion yuan and 10.608 billion yuan respectively.

If you want to make a profit, there are basically three ways: one, increase commissions, two, reduce subsidies, and third, increase revenue space. But raising commissions and lowering subsidies will undoubtedly bring huge risks for drivers and passengers to flow to other platforms. Because in the online car-hailing market, a series of platforms, including Shouqi Car-hailing, Dida Travel, etc., are all chasing after each business. Even car giants are eyeing this business. On June 30, FAW-Volkswagen invested 400 million yuan to establish an online car-hailing company, Mojie Travel.

However, the increase in revenue space is more dependent on the overall market size, and the shrinking of the online car-hailing market is no longer news. According to statistics, the size of my country’s online car-hailing market in 2019 was 304.41 billion yuan, and the growth rate dropped to 3.42%. In 2020, affected by the epidemic, the domestic online car-hailing market has experienced negative growth, and the overall scale has dropped to 298 billion yuan. Stock period.

In the past few years, Didi has tried horizontal development and has continued to enter new areas. From sharing two rounds of business, to Didi Cargo, to Orange Heart. New businesses will undoubtedly fall into a cycle-financing subsidies, seizing the market, and raising prices to make money.

According to the prospectus, Qingju Bike’s latest valuation is US$1.9 billion, and Didi holds 88.3% of its shares. Didi Cargo completed a round of financing in the first quarter of this year. Its latest valuation is $2.8 billion, and Didi holds 57.6% of its shares. The latest valuation of Didi’s community group buying business, Orange Heart, is $1.8 billion, and Didi holds a 32.8% stake in Orange Heart. It was split at the end of March this year and is no longer included in the consolidated financial statements.

Relying on external blood transfusions is Didi’s consistent approach to new businesses. For these sub-businesses, either asset-heavy operations, severe homogeneity, or the supply chain has been firmly controlled by other platforms. In general , Didi’s horizontal business expansion at the C-side brings about future imagination, which is obviously very limited.

2. Building a car is a matter of time

The way to break the ceiling is to jump to a new market, a market with a higher ceiling. The logic of Huawei and Xiaomi’s entry into the automotive field is roughly the same.

On March 30 this year, Xiaomi founder Lei Jun announced that he would personally lead a team to build a car. A few days later, bigwigs from the automobile and investment circles gathered in the Xiaomi Science and Technology Park. Some investors joked, “If you have not received an invitation, it means that you are still far from the mainstream circle of China’s new energy vehicles.” Coincidentally, Didi founder Cheng Wei attended this “car-making feast.”

Compared with Didi’s existing “three major businesses”, the “four core strategic sectors” will be the focus of Didi’s development after the IPO, namely shared travel , car service solutions , travel electrification and autonomous driving . In Didi’s view, this will promote changes in the future of travel.

After listing, what story will Didi tell?

Didi also believes that electrification of travel is the next key component of their vision. Fully electrifying cars will make the travel network more price-friendly and more sustainable. With a little bit of imagination, this company may eventually become a huge self-driving car-hailing operator , covering a series of businesses such as research and development, manufacturing, rental, maintenance, charging, etc., playing the role of a full life cycle manager of electric vehicles , The purpose is to maximize the operational efficiency and user experience of online car-hailing.

This is not a pipe dream. As of the end of 2020, there are 5.5 million registered electric vehicles in China, of which there are 1 million electric vehicles on the Didi platform. These electric vehicles used for shared travel will contribute 38% of China’s total electric vehicle mileage in 2020. And Didi’s Xiaoju Charging has 88,000 public charging piles so far. In the first quarter of 2021, the company’s charging network accounted for 30% of China’s total electric vehicle charging capacity. Didi is already alive, the travel service operator coveted by car companies.

A good story always needs a good beginning.

On November 16 last year, Didi officially released the world’s first customized online car D1, which is the world’s first highly customized model for the online car-hailing scene. It started operations in Changsha, Hunan last December, and entered Ningbo, Xiamen, Suzhou, Guangzhou and other cities this year. Design based on user needs, combined with the latest new energy vehicle technology-the emergence of D1, is a practice of Didi’s deepening of the automotive supply chain.

After listing, what story will Didi tell?

Earlier news reported that Didi started to build a car project. The person in charge is Yang Jun , the chief product officer of the online custom car D1 jointly released by Didi and BYD , and it is also the vice president of Didi and general manager of Xiaoju’s car service. At present, the team has begun to dig people from various new energy car companies. After Xiaomi’s high-profile announcement to build a car, Didi has been acting secretly in this matter.

Huxun found that Didi began to systematically recruit talents related to automobile manufacturing from April 2021 on the recruitment information on Didi’s official website. From the perspective of the positions recruited, the Didi Automobile project covers all aspects of project management, engineering research and development, procurement, and manufacturing. The positions required for car manufacturing are basically complete. The most recent update of the recruitment information was on the day when Didi was listed on the market-on June 30, in the post of SQE interior specialist updated, the first article of the job description reads: Participate in the development of new vehicle products .

After listing, what story will Didi tell?

Having said that, although the secondary market has high expectations for car manufacturing, judging from the fundamentals of new car manufacturers, the profitability of these companies is not strong. The financial report for the first quarter of this year showed that Weilai Automobile had a net loss of 4.875 billion yuan, Xiaopeng Automobile had a net loss of 786 million yuan, and an ideal car had a net loss of 360 million yuan. The three auto companies had a total loss of more than 6 billion yuan in the first quarter of 2021.

For Didi, the most direct help in building cars now is to reduce costs.

Not long ago, T3 Travel revealed to Huxi that a new generation of customized vehicles that the company cooperated with OEMs will soon be put into operation. Similar to the Didi D1, it is equipped with a single-sided electric sliding door, face recognition, in-vehicle monitoring, and one-button alarm. In terms of cost, it is about 20% more optimized than traditional car TCO (Total Cost of Ownership).

In the prospectus, Didi also analyzed the operating cost per kilometer of shared travel. The operating cost per kilometer of a fuel vehicle is 1.1 yuan, of which 0.6 yuan is fuel consumption and maintenance. After switching to electric vehicles, these two projects The expenditure per kilometer will be reduced to 0.3 yuan, which reduces the operating cost per kilometer to 0.8 yuan.

When Didi Chuxing and Ideal Auto announced their cooperation in 2018, Ideal Auto’s founder Li Xiang said: China’s travel market has huge demand, but the cost structure of passenger car models based on standard fuel vehicles is very unreasonable. Designing a special model through the use of online car-hailing scenarios will aim to control the input and operation cost per kilometer, rather than being limited to the cost of the car itself. In the end, it can increase the driver’s income per kilometer by 20%-30%. 

Regarding the self-driving online car-hailing, Li Xiang also said at the time that although the sensor is not cheap, the self-driving online car-hailing car can continue to operate, and the cost will continue to decrease as the number of operating mileage increases.

3. Autonomous driving is still catching up

Zhang Lei, the founder of Hillhouse Capital, has always mentioned creativity in “Value”. The biggest moat of a company is not its users, not its brand, but its creativity.

Cheng Wei publicly stated last year that by 2025, shared cars equipped with autonomous driving are expected to be popularized on the Didi platform by more than 1 million units, and the new iterative version can be equipped with Didi’s self-developed driverless module. By 2030, “I hope to remove the cockpit and realize fully autonomous driving.”

After listing, what story will Didi tell?

Robotaxi, a self-driving online car-hailing system, has been controversial in the industry. Su Qing, President of Huawei Intelligent Driving, once said: “You will not be able to do Robotaxi if you die. At this stage, all companies doing Robotaxi will be finished. Robotaxi is a result rather than a commercial goal. The ride-hailing experience in the Chinese market is already very good. Autonomous driving will not let you This experience is better.”

In June last year, Didi Chuxing opened its self-driving service to the public for the first time, and invited CCTV host Zhu Guangquan to demonstrate the “autonomous driving online car-hailing” live broadcast. Due to heavy rain that affected the perception system of autonomous driving, there were some episodes in the live demonstration. At that time, Liu Ge, a financial commentator on CCTV, stated on Weibo, “Didi claims that this time it is investing in L4 level intelligent driving unmanned vehicles in Shanghai. However, during the live broadcast, the driver took over the steering wheel many times and encountered complex scenes. Seek help remotely. First time to show up, a serious overturned.”

After that, Didi began to move forward silently on the road of autonomous driving. In April of this year, Didi Autonomous Driving released a five-hour continuous video of autonomous driving without taking over. Sebastian Thrun, the former vice president of Google and co-founder of Google X Lab, commented on this video: Didi’s autonomous driving is indeed moving in the right direction in terms of safety and intelligence.

On the road of Robotaxi, Didi itself does not have high-profile capital . Uber sold its ATG autonomous driving business at the end of last year, and Lyft sold its autonomous driving business to Toyota. Therefore, only Didi will continue to independently research and develop self-driving online car-hailing platforms around the world. The industry has not yet discussed a clear answer to the commercialization of autonomous driving and online car-hailing.

After listing, what story will Didi tell?

More importantly, the leader on the Robotaxi track cannot be surpassed by Didi in a short time.

Waymo, a self-driving company under Google’s parent company, started as early as 2009 and became independent from its spin-off in 2016. In contrast, Didi only established an autonomous driving technology research and development department in 2016, and in August 2019, it upgraded the autonomous driving department to an independent company. The first-mover advantage is mainly reflected in talents. As early as 2019, Waymo has more than 950 employees. By 2020, the company has more than 1,500 employees, two-thirds of which are engineering and technical personnel.

In contrast, Didi Autonomous Driving currently has a team size of around 500 people. As early as 2017, when Cheng Wei went to Tsinghua University for a recruitment presentation, he even directly used the PPT of the vision of the future urban intelligent transportation system to attract Tsinghua graduates. Generally speaking, the industry will use patents, measured mileage and other data as one of the reference standards for judging the technical strength of an autonomous driving company. However, the autopilot field is highly dependent on talents, and scarce is also extremely high, so the importance of grabbing people is far more important than grabbing money.

On July 1, Ideal Auto Li Xiang wrote in the company’s 6th Anniversary Manual: “Autonomous driving has reached an unknown no man’s land-not one or two smart people want to understand, but a group of smart people’run out’ .”

As of March 31, 2021, Didi Autopilot is valued at US$3.4 billion. In contrast, Waymo’s latest valuation, which has just completed a new round of US$2.5 billion in financing last month, exceeded US$30 billion. The closed-loop business model of self-driving online car-hailing, self-driving freight distribution, and self-driving technology authorization built by Waymo has left latecomers behind.

After listing, what story will Didi tell?

In fact, Didi’s innate advantage in autonomous driving comes from its accumulation in its online car-hailing business. For example, the use of mixed dispatch (automatic driving, human driver mixed) method to reduce the capital requirements for cold start. Even if only a small number of self-driving vehicles are deployed, it will not affect the ride-hailing experience of passengers. In addition, the operational scheduling experience of the platform is an important factor in determining the commercialization efficiency of Robotaxi services.

The biggest advantage of Didi lies in the real road traffic data accumulated by huge operating vehicles.

To put it simply, every vehicle under the Didi platform is a potential data collection device. Every time a taxi driver takes a single on the road, he collects data for Didi for free. At the same time, Didi Orange also collects a lot of data for autonomous driving. Realistic data of travel scenarios. Compared with the collection of special test vehicles by other autonomous driving companies, the cost is lower. Moreover, by creating a closed loop of crowdsourcing big data + algorithm research and development, the long tail problem in autonomous driving technology can be solved.

However, the data itself has no value. Mining and using it will produce value. The data processing collected from the autopilot test requires the support of sorting, training, simulation, computing power, and algorithms. In essence, the realization of autonomous driving requires continuous “feeding” of data so that vehicles can “learn” how humans drive proficiently This is an extremely money-burning and long-term money-burning thing.

Write at the end

In the prospectus, Didi uses 60 pages to introduce multiple risks that its various businesses are facing.

Whether it is the existing online car-hailing business or the self-driving online car-hailing that may be commercialized in the future, policy and supervision will always be variable factors that cannot be bypassed. A low-key listing may be a good thing for Didi.

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