The car-sharing market is rapidly gaining traction in China. Fleets, having encompassed less than 1,000 vehicles each in 2013, reached 30,000 in large cities (“Tier 1 and 2”) in 2017.
The practice of renting cars for small amounts of time – hours instead of days – has challenged the longer-term-rental and taxi markets by appealing to users who only need cars for as-needed use. Average yearly growth in China in Tier 1 and 2 cities have hit annual growth rates of more than 200 percent.
One major contributor to the boom in growth is that the Chinese government leverages car sharing to stimulate the new energy vehicle (NEV) market and increase individual mobility efficiency.
In June 2017, the central government released a draft of guidance for the car-sharing industry, in which supporting policies for car sharing were set up. It specified requirements for car-sharing businesses, defined their role in urban mobility, and offered high-level support measures such as parking spaces. Prior to this, many local governments had already established support policies for car sharing.
For example, in February 2016, the Shanghai government set a target for car sharing to achieve 6,000 service spots, a fleet of 20,000 electrical vehicles (EVs) and 30,000 charging poles by 2020. Free parking spaces were provided to car-sharing companies in government-controlled parking lots, e.g., at government organizations, state-owned enterprises (SOEs) and airports. Subsidies are granted for operations and car-sharing platform development. For instance, for 2017 and 2018, they cover 30 percent of the cost of parking spaces, charging infrastructure and electricity, with an upper limit of 3 million RMB per year.
Another motivating factor is that public transportation is still insufficient in China. For instance, average bus ownership is 0.3 per thousand people in China, while that number is 0.5 in the UK. The average subway length in Shanghai was 25 meters per thousand people in 2016, which is about half of that in London. Private-vehicle ownership is also low in China, at approximately 110 per thousand people as of the end of 2016 (only 1/8 of that of the US and 1/5 of the UK).
In addition, in certain large cities, such as Shanghai and Beijing, registered car plates are strictly controlled by government due to traffic jams, which consequently restrains citizens from owning cars. Even for those with cars, there is inconvenience due to traffic control on private cars in cities such as Beijing and Hangzhou.
As a result, car sharing as an alternative solution has been well received by Chinese customers. According to Arthur D. Little’s recent global study of over 6,500 customers, “The Future of Automotive Mobility”, 42 percent of Chinese customers are willing to replace private cars with appropriate car sharing and other new mobility services, in comparison with the global average of 22 percent.
Three categories of car-sharing providers in the market
Since 2015, a large number of players have entered this market. By early 2017 the total number had reached over 100. Currently, there are three main types of car-sharing players in the market – OEMs (approximately 75 percent of the market share), car-rental companies (roughly 5 percent), and third-party technology companies (mostly start-ups funded by venture capitals, about 20 percent).
For example, Microcity, founded in 2013, the largest player so far in China, has strong support from Geely. All of its vehicles are provided by Kandi EV, the joint venture between Geely (50 percent) and Kandi Group (50 percent). With substantial support from the Hangzhou government, including free parking spaces and a subsidy for infrastructure construction and charging, it had approximately 11,000 vehicles in operation by late 2016. Besides its network inside Hangzhou, it has built up service spots in neighboring tier-3 and -4 tourism cities. Tourists can drive the cars from Hangzhou to these places of interest nearby very conveniently.
Foreign OEMs have also launched car-sharing businesses in China, although the market share is much lower than for local ones. Considering most supporting policies of local governments focus on NEVs only, foreign OEMs will be at a disadvantage in the future in terms of getting subsidies, business plates and parking spaces if they do not have NEV fleets.
The Chinese central government has released fuel consumption and NEV credit requirements for OEMs, defining the NEV penetration target for 2020. Car sharing can be a major way for OEMs to digest the NEV volume quota for OEMs. Currently, 90 percent of the shared cars in the market are NEVs (major models including Kandi EV, Lifan EV, BAIC EV160, ROEWE E50, Chery EQ and so on), and 10 percent are ICE cars, mainly run by the brands of TOGO (models including Smart, Mini, Citroen C3-XR, ROEWE 550, Peugeot 2008) and Car2go (Smart).
In addition, according to ADL’s global study, the classic automotive pyramid is changing due to the development of shared mobility, autonomous driving and electric vehicles. The new role of “customer mobility interface provider” is taking access to, and relationships with, end customers from OEMs. Moreover, they are likely to have higher bargaining power due to large procurement volumes. Given these risks, OEMs have strong motivation to be engaged in this role.
Of all the new mobility services, chauffeur and car-sharing services are considered to have high potential in China. However, Chinese local governments have launched very strict controls over chauffeur services, such as the size of the wheel base of the chauffer car and a requirement for chauffeur drivers in tier-1 cities to have residency in those cities.
Operational difficulties to overcome
Although car sharing is booming, the business faces multiple challenges. Most players are not profitable and struggling to overcome various operational difficulties.
The price of car sharing is relatively low in China. The major competitor of car sharing is taxi, which is also low priced compared with that in developed countries. As a result, the price of car sharing is even lower. In the long run, with salary levels of taxi drivers increasing (due to the rapid increase of labor cost in China), relative competiveness of car sharing versus taxi will improve. On the other hand, utilization of vehicles is low – less than 20 percent as of Q1 2017. The major reason is the limited number of service spots, which are scattered among different players, as well as operational hurdles such as tides (insufficient supply during rush hour, while cars are idle during non-rush hour).
In addition, The fixed cost of vehicles is high, including depreciation, vehicle insurance and parking. Operational difficulties include limited parking spaces and a restriction on the number of business plates (license place for business vehicles such as car-sharing and taxis) issued in tier-1 cites.
Growing despite the challenges
Despite the challenges above, car sharing will grow with big momentum, with more players entering the battle. In the near future, the sector will further consolidate, as the business requires scale and the necessary resources, such as plates and parking lots, are limited. Industry consolidation and improved customer acceptance, or even loyalty, will lead to higher fleet utilization and scale of economy. Breakeven of the business case will then be achieved. However, given the challenging environment, players need to outperform in several key areas to survive and achieve competitive advantages.
 More details are available in Arthur D. Little’s study, “The Future of Automotive Mobility”, 2017