Analysts expect tougher competition in fast-growing ride-sharing industry
Beijing-based Leshi Information Technology Co (Letv) announced on Tuesday that it would acquire a 70 percent stake in Yidao Yongche, a leading Chinese car-hailing services provider.
Separately, Letv's electric vehicle business unit said the investment would complete the company's electric car strategy. It previously established cooperation agreements with Aston Martin and BAIC Motor and invested in a string of upstream and downstream companies, according to an announcement the company sent to the Global Times Tuesday.
By cooperating with those companies, Letv said it completed its presence in the Internet-based smart electric car industry.
Letv's cooperation with Yidao Yongche came after another deal between two major players in China's car-hailing industry. UCAR Technology Inc and Edaijia announced on October 15 that they will jointly promote the brand in the domestic market and seek cooperation in terms of capital.
The investment makes Letv the largest shareholder of Yidao Yongche.
Founded in 2010, Yidao Yongche covers 77 cities nationwide and 24 cities overseas including New York and Tokyo, according to the company's website.
Letv is also another new Internet giant, joining China's three Internet mammoths - Baidu Inc, Alibaba Group Holding and Tencent Holdings - in the move into the car-hailing industry.
Baidu has had a cooperation arrangement with Uber Technologies Inc since 2014 while the other two have been backing Didi Chuxing since 2013.
"Letv can better deploy its Internet-based ecosystem in the automotive industry through its investment in Yidao," Fu Zhiyong, managing director of ACME Consulting in Beijing, told the Global Times on Tuesday. "Because of its connection with the Internet-powered car-hailing industry, Yidao is expected to bring more customers to Letv," Fu noted.
Xu Wei, a Beijing-based online secondhand car dealer, told the Global Times that Letv is trying to build a broader business ecosystem, for example an Internet-based smart car industry chain.
"Yidao as a well-performing car company in the online-to-offline area is an ideal partner," Xu said, noting that Letv is expected to diversify its products by cooperating with Yidao, which will attract more users.
The potential market scale is expected to exceed 400 billion yuan ($63 billion), according to media reports, citing a report released by China International Capital Corp in July.
In Fu's view, the increasingly fierce competition from competitors, especially from Didi and UCAR, forced Yidao to seek cooperation with Letv, a stronger market player.
In the second quarter, UCAR was the third-largest Internet car-hailing firm in the Chinese mainland with 466,520 active users of its car-hailing platform, after Didi Chuxing with 3.59 million and Uber with 649,640, Analysys International said in a report in August.
Fu said that after the cooperation, Yidao could gain a competitive edge in the car-hailing industry.
Fu noted that recent government regulations are conducive to the private car-hailing market, "so Letv is willing to enter the fast-growing industry," he said.
The Ministry of Transportation announced the newest regulations on October 10 to supervise the car-hailing market.
Fu is optimistic on the future of the car-hailing industry "as the huge market demand and legalization by the government both boost the market."
However, the deal between Letv and Yidao will intensify competition in the car-hailing industry.
"There will be more capital entering the industry, which may lead to more merger and acquisition deals in the future," Fu said.
Xue said that the government has showed its willingness to encourage the sound development of the car-hailing sector. "Competition will increase but players in this industry have to comply with the government's policy guidelines."
"The money-burning activities, which are viewed as a nonstandard competitive method, will decrease then," Xue noted.
