China’s largest car-hailing company is facing relentless pressure from all fronts. Beijing-based Didi Chuxing reportedly lost a staggering 10.9 billion yuan ($1.6 billion) in 2018, according to financial data that Chinese news site 36Kr obtained.
For some context, Uber posted a net loss of $939 million on a pro forma basis and an EBITA loss at $527 million during Q3 2018. Didi has not responded to TechCrunch’s inquiry about its losses, but an internal letter leaked in September offers a glimpse at the depth of Didi’s troubles. According to the memo from founder and chief executive Cheng Wei, Didi had been operating in the red for six consecutive years and lost 4 billion yuan in the first half of 2018. At this moment, the transportation giant’s predicament appears to be multipronged.Public backlash
The ride-booking app capped off 2018 with a bleak outlook after two female passengers were killed by their Didi drivers in separate instances, drawing ire of the government and triggered a nationwide backlash underpinned by a #DeleteDidi campaign that’s reminiscent of the #DeleteUber movement. Didi responded with a fold of security measures, including stricter identity checks on drivers and a major reorganization to place customer safety ahead of growth. Hitch, the carpooling service that was complicit in both accidents and was popular among riders for its relatively cheap fares, is suspended indefinitely, a move that could exclude the more price-sensitive consumers.Cash-burning model
Didi’s struggles had preceded the passenger murders. Cheng admitted in his memo that the company’s expansion was getting out of hand. “The expansion frenzy planted seeds of trouble and our internal system couldn’t keep up with our expansion.” During the first six months of 2018, Didi shelled out about $1.7 billion in subsidies for drivers and steep discounts for passengers as competition intensified, Bloomberg reported citing sources. In the entire year, Didi burnt through a total of 11.3 billion yuan ($1.67 billion) on driver subsidies according to the 36Kr report.Subsidies have played a key role in the rise of Didi and many other aspiring consumer-facing services in China. Investors dole out big bucks for early movers to gain market share rather than strive for profitability. That tactic has helped catapult tiny startups into billion-dollar businesses such as bike-rental service Mobike, but it has also led to the dramatic fall of some, Mobike’s peer Ofo being one alarming example.