Car sharing market booming in China, but industry still in nascent stage

12 April 2017 Consultancy.uk

The car-sharing market in China is booming, in part as the government responds to mobility and pollution issues faced by residents of some of its largest cities. While the market is projected to increase its fleet size from 26,000 vehicles last year to more than 100,000 by 2020, break even business models remain fleeting. A new report considers the wider market dynamics, the challenges that lie ahead, as well as possible ways towards self-sufficiency within the industry.

Many of China’s major cities and metropolitan areas suffer considerably from air pollution. While the causes are multivariate, from factory exhaust to car exhaust, moves to improve the air, and reduce the health impact on inhabitants, has seen local, regional and national initiatives put into place. One initiative in Beijing, and elsewhere, is to reduce the number of cars on the road.

The removal of cars from the road has the benefit of reducing pollution, however, it also affects inhabitants by reducing their travel options. To boost the number of available travel options, Chinese national and local authorities have supported the development of car-sharing.

Car-sharing fleet in China

In a new report from Roland Berger, titled ‘Car Sharing in China’, the consulting firm explores current trends within the car-sharing space within China. The car-sharing market began in China in 2010, with the launch of CCClub. By 2013 a number of competitors had joined the space, offering a total of around 780 vehicles, with the largest five players owning around 50 vehicles apiece.

The industry, which is subsidised by local and national government policies, grew to 14,000 vehicles in 2015, before hitting 26,000 vehicles last year. The service has in particular grown in tier 1 and tier 2 cities, such as Beijing, Shanghai, Hangzhou, Shenzhen, Changsha and Wuhan.

The phenomenon of car-sharing is, according to the firm’s analysis of the situation on the ground, set to continue to grow apace. The firm projects that by 2020 there will be around 100,000 cars within the car-sharing pool in the country, which, by 2025 is set to grow to 600,000. The CAGR will, according to the analysis, stand at 45% between 2015 and 2025.

Mapping of car-sharing providers and fleet size estimation

The car-sharing space in China is broadly divided between three categories of players, OEM owned, 3rd party backed by OEM and 3rd party technology companies. These come in two varieties, global players and local players.

The research finds that players are largely local in origin. With the largest group of active players the 3rd party backed by OEM, which has around 16,000 cars. OEM owned players have the smallest share at 2,500, with around 1,500 coming from two global players: Car2go and Car2share.

Models and challenges

As it stands there are three major business models operating in the space in China. There is the ‘round trip’ model, that brings passengers from A to A, this is the model used by Car2share, the largest provider of its type; the ‘one way’ model, brings a passenger from A to B, and is a model used by Evcard; while the free-floating service is offered by Car2go.

Despite the variety of models, getting services off the ground, and eventually profitable, remains difficult – particularly for global entrants. The firm notes a range of challenges that, in different respects, affects the different models.

While the industry is heavily subsidised, accessing the industry, and those subsidies, requires knowledge of a range of local laws and procedures. A second challenge is selecting the right model for the specific region, city, as without the right use case and customer proposition, setting up can be difficult – according to the firm. The high-setup costs is an additional challenge, given the general expense of vehicles, as well as insurance and regulatory costs. The low-cost of other services, from public transport to taxis, means that the respective pricing for the service remains relatively low. Additionally, companies face a range of challenges from loss of keys, traffic violations and other customer behaviour, which costs time and money to fix.

As it stands the average utilisation rate for vehicles is around 12%, with the break-even point, according to the firm’s financial calculations coming in at 20%.

Car Sharing ecosystem

To create a robust car-sharing service that continues to operate sustainably, partnerships within the wider ecosystem may present considerable benefits. Partnerships may involve access to hotspots where customers are in abundance, such as firms, hotels, universities, airports, train stations, etc. Discounting fuel, or access to charging stations, could create incentives for both customers, stations and car-share service providers, while government could play a key role in creating wider infrastructure for the services, outside of direct subsidies. OEMs in addition could offer a range of services to reduce the cost of ownership of vehicles, while local partners could support co-marketing operations.

Aside from leveraging synergies through partnerships, companies can also create value through the creation of bespoke offerings for customers; being innovative and thinking beyond cars, creating a China and city specific pricing strategy; investing in strong operational capabilities; as well as leveraging digital technologies to reduce back- and front-end costs.

According to Ron Zheng from Roland Berger China, "The industry is still in a nascent stage. New entrants therefore have the chance to give themselves a first-mover advantage and capture market share, just as companies did many years ago in the early days of the automotive industry in China. Meticulous planning will, however, be crucial."

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