China’s Premium Chauffeured Car Market Has Potential
According to Roland Berger’s recently released “Analysis o f Ch in a ’ s p r emi um chauffeured car market”, it shows that premium chauffeured cars accounted for only a small share of China’s overall transportation market in 2015. The actual market was measured at RMB 7.7 billion and is projected to maintain rapid growth in the mid term.
Premium chauffeured cars help meet demand for upgraded urban transportation services currently unmet by existing modes of transportation, such as taxies, private cars, rental cars and unlicensed vehicles.
Roland Berger estimates that, by 2020, the size of premium-chauffeuredcar market will reach about RMB 500 billion, rising at compound annual growth rate of up to 129.3% between 2015 and 2020. Analysts believe that, by 2020, there will be potential demand for 22.1 million rides in premium chauffeured cars per day, which would represent a market value of approximately RMB 1.1 trillion.
The premium chauffeured car market grew rapidly
The report divides the current car-rental and car-hailing market into premium chauffeured cars and nonpremium chauffeured cars, based on vehicle classification and pricing, which is at least 20% higher than traditional taxi services in premium chauffeured cars. In 2015, the premium chauffeured car market grew rapidly, as daily orders increased from an average of 90,000 in January to 630,000 in December.
Three primary drivers have been identified to explain this almost overnight growth: firstly, attractive subsidies offered by various, market players fostered early market development; secondly, corresponding subsidies for drivers stimulated a rapid influx of active vehicles into the premium-chauffeuredcar market, leading to a four-fold increase in vehicle supply; thirdly, competing platforms made ambitious forays into new markets, recognizing that 3rd- and 4thtier cities possess greater growth potential for premium chauffeured cars.
After the initial surge in market growth, platforms began reducing subsidies to passengers and drivers in response to the inevitable pressure from cash- f low concerns. The
After the initial surge in market growth, platforms began reducing subsidies to passengers and drivers in response to the inevitable pressure from cash-flow concerns.
substantial subsidies offered in the initial phases of growth were seen by the government as an infringement on the interests of taxi industry, sparking announcements by various government bodies that new rules to regulate the market would be forthcoming. The subsidy cuts and potential legal risks decelerated growth in the ranks of drivers to a more sustainable rate.
Roland Berger predicts that premium-chauffeured-car services will gradually expand into other modes of travel, supported by increased driver and vehicle supply, coverage of more cities, the gradual development of consumer habits, improved public transportation systems in urban areas and future policy support from the government.
The replacement of demand for private cars due to factors such as the implementation of licenseplate-based traffic restriction policies and the scarcity of parking spaces is expected to account for around 43% of the overall demand for premium chauffeured cars; replacement of demand for traditional taxis due to higher requirements for the in- car environment and quality of service is predicted to account for 29%; an additional 19% is expected to come from government customers, which are substantially cutting back their vehicle fleets; replacement of demand for non-premium cars could account for 5%; and market share snatched f rom unl icensed vehic les and rental- car companies is expected to contribute the remaining 4%.
New regulations will have a far-reaching impact
New regulations issued in 2015 introduced restrictions on vehicle classes, driver qualifications, operators and the scope of operations allowed for premium-chauffeured-car services. The new rules pushed operators to position premium chauffeured cars as a mid-tohigh-end service, to differentiate their services from those of traditional taxis more clearly and to establish or expand fleets of self-owned vehicles. Although painful for some, these directives are helping to progressively standardize the domestic premium-chauffeured-car industry.
Roland Berger expects the implementation of these restrictions to have a far-reaching impact: 1. most of the private car owners currently participating in the industry as drivers, especially part-time drivers, will pull out of the business, creating a substantial supply deficit; 2. the new regulations require that a single legal entity must manage the vehicles, drivers and platform, which strongly favors self-operated platforms; 3. differentiated models of management will accelerate the development of the premium-chauffeured-car market; and 4. continued changes in express bus services will cause more people to turn to premium chauffeured cars.
After analyzing the operational models of China’s current online carrental and car- hailing companies, Roland Berger believes that UCAR Inc., which operates a fully- owned fleet to provide premium-chauffeuredcar services and ranks high in market share, growth rate and customer retention, is exposed to the least risk from policy and regulations. Didi Kuaidi, which offers a full line of services and has accumulated the largest user base, faces greater regulatory risks because its vehicles are sourced from a community of private owners, with a smaller share contributed by car-leasing companies. Uber is progressing in the market steadily, but it faces the highest policy and regulatory risks: its vehicles mainly comprise private cars, and it focuses primarily on the non-premium- car business. Yongche Inc. is also catching up as a new market entrant, but the newcomer also faces significant risks, as most of its vehicles are private cars, and half of its business comes from non-premium-car services.
These directives are helping to progressively standardize the domestic premium-chauffeured-car industry.