Uber Has a Very Rich Enemy in China

February 24, 2016, 10:49 AM UTC
Uber CEO Travis Kalanick speaks at a ceremony at the Baidu headquarters in Beijing on December 17, 2014. Baidu, China's leading search engine, and ride sharing company Uber announced a strategic investment and cooperation agreement on December 17. AFP PHOTO / Greg BAKER (Photo credit should read GREG BAKER/AFP/Getty Images)
Photograph by Greg Baker — AFP via Getty Images

When Uber’s Travis Kalanick admitted last week the company is losing $1 billion a year in China, most reports ascribed the loss to fierce competition from the local ride-hailing startup, Didi Kuaidi. What they then failed to mention is that, in Didi Kuaidi, Uber is facing a fierce competitor with deep pockets and big backers. And that competitor may drive Uber’s billion-dollar losses for a while.

Didi Kuaidi is a merger between two taxi hailing apps that added private cars to mirror Uber’s offerings in China. The ride-sharing startup has the strongest corner of backers in China, including Alibaba, Tencent, and a partner in Lyft, and it announced a $3 billion funding round in September. At last count, it had a valuation of more than $16 billion.

Back in September, Lyft and Didi Kuadi announced their intentions to merge apps so Lyft users in the U.S. could seamlessly use Didi in mainland China and vice versa. Lyft’s tie-up with Didi Kuaidi will expand its services to more than 300 Chinese cities, though a recent report in the Chinese press says the linked app is still a couple months away.

At the time, the partnership appeared to be an admission that both Lyft and Didi Kuadi were falling prey to Uber’s plans for global domination.

Now things seem more complicated.

Uber boasted last year of investing $1 billion in China, but it lost just as much. And its losses aren’t likely to shrink.

That being Uber’s competition—Didi Kuaidi—has very deep pockets, controls about three-quarters of the market, and isn’t going away any time soon.

By last fall, Didi Kuaidi was expected to lose more than $1 billion during the year, according to leaked documents, and its president Jean Liu admitted losses were part of the plan. “We wouldn’t be here today if it wasn’t for burning cash,” she said in September.

When the dust settles, China may end up being a money pit the likes of which Uber has never seen.