Credit: Mark Warner

Uber's $1bn China loss is par for the course

CEO Travis Kalanick admits the ride-hailing app is struggling to defeat China's Didi Kuaidi.

by Adam Gale
Last Updated: 19 Feb 2016

Disgruntled cabbies may have had little success in their legal battles against Uber in the UK, but they might take some comfort in the news that the company is losing a whopping $1bn (£690) a year in its largest international market, China.

CEO Travis Kalanick made the admission at a private event in Vancouver, but his company later confirmed the figure to Reuters. Is anyone really surprised? Uber’s still a relatively fresh-faced start-up in China, but it’s expanding at break-neck pace thanks to a $7bn war chest from investors such as Goldman Sachs, Microsoft and Google. Since launching there in 2014, it’s spread to at least 40 cities and wants another hundred by September. All that costs money.

There’s another reason though, beyond simple start-up growing pains, that Uber’s losses in China are so eye-wateringly high. It’s in a race with local rival Didi Kuaidi to establish itself as the dominant player. That’s forcing both of them to expand faster than they would otherwise want to, and to fork out huge subsidies to entice drivers to sign up.

‘We have a fierce competitor that's unprofitable in every city they exist in, but they're buying up market share. I wish the world wasn't that way,’ Kalanick lamented. Is that the pot calling the kettle black (or subcontracting pots that in no way constitute employees to call the kettle black)?

Didi Kuaidi is doing to Uber exactly what Uber has done to everyone else – using its immense resources (the Chinese firm is backed by Alibaba and Tencent holdings) to get the crucial first mover advantage and stamp out competition before it really has the chance to develop. And Didi is ahead of Uber in China, with an estimated 85% market share.

Uber said that the competition is forcing Didi to spend ‘many multiples’ more than it is, which Didi denies, insisting instead that ‘smaller competitors [like Uber] have to bleed subsidies to make up for their insufficient driver and rider network’. Fierce indeed.

Just because Uber’s finding things tough doesn’t mean it’s losing, of course. Its market share largely corresponds to the number of cities it’s in compared to Didi (around 40 against roughly 250), rather than success rates in those cities. Where it’s in the fight, it’s clearly close. Uber may not be the biggest in China once the dust settles and the race is over, but it is still likely to become profitable there, just as it is in the more mature markets of the US and the UK (just about). Anyone hoping for signs of the app’s demise is likely to be disappointed.     

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