Car Sharing in China: A Challenging Necessity
If you’ve ever lived in a major Western European or North American city, it is more than likely that you have observed or personally utilized some form of car sharing service. This comes as no surprise as car sharing companies as well as multinational OEMs have jumped at the opportunity to entice consumers (particularly millennials), who have become reluctant to purchase a vehicle for private use. This hesitation to own a vehicle comes as no surprise, as an automobile continues to be an enormous investment, yet they remain idly parked for an average of 22 hours a day. On top of this, with the efficient public transport in Europe or the Americas, as well as developed bike paths, individuals are more and more reluctant to purchase a car.
How developed is the car sharing landscape in China?
The concept of car sharing seemed like a perfect fit in China during its development, particularly in megacities such as Shanghai, Beijing or Chongqing in order both to combat traffic congestion and to cater for environmental concerns. However, this trend is still relatively unknown amongst the citizens and remains in the early stages of its lifecycle with less than 10 car sharing companies in all of China. These firms all operate on a small scale with fleet sizes ranging from 30 to 300 vehicles, and are exclusively targeting either private members, or operating solely within large industrial parks and universities. Due to this, every company is only capable of offering station-based car sharing, which implies that users must return the vehicle to the station which they borrowed it from, unlike the free-floating model you often encounter in other countries.
What benefits could the Chinese market provide to early movers?
However, as the trend continues to develop and grow exponentially, China could offer car-sharing entities variety of opportunities as well as potential downfalls, which are unique compared to the Western hemisphere. Let us begin with some of the benefits and opportunities that market entrants, start-ups or OEMs may experience, when setting up shop in China:
1. Government – The Chinese government is known to be fast-acting and supportive for trends that they deems necessary or beneficiary. For example, the government did not hesitate when green energy became feasible, and China quickly rose to become the largest investor in green energy technologies within a couple of years. The same goes for car sharing, which they are keeping a keen eye on as a buffer against traffic congestion and automobile pollutants. The lack of governmental bureaucracy allows the Communist Party to swiftly grant subsidies, reduce taxes and provide reserved or even free of charge parking lots to car sharing entities. On top of this, the government is ready to push products to citizens and spread knowledge instantly through the media and by providing incentives to users.
2. Diverse Products – Further opportunities available to market newcomers are the diversified strategies and products that can be offered. Due to the sheer size of the country as well as cultural differences between the provinces, a variety of refined products can be tested and potentially rolled-out. For example, WeiGongJiao, a government funded car sharing program exclusively offers electric vehicles and aims to expand its fleet to over 5,000 vehicles and over 20 stations throughout HangZhou. At the same time, it isn’t far-fetched to think that a car sharing program that offers luxury cars could be successful in some provinces, since there is a societal need regarding status and appearance in more affluent regions.
3. Established Mobile Passes – In most developed Chinese cities, an infrastructure for mobile passes is already in place. In Shanghai for example, commuters can purchase a travel card, deposit a certain amount of money, and simply swipe the card to use subways, buses, trains and even taxis. Mobile passes such as these are still being developed in some parts of Europe and the Americas and if car sharing companies are able to integrate their product with the rest of the transportation options, it could benefit them immensely and allow them to work together to offer certain promotions or benefit packages.
4. Technology-Oriented Society – Due to its recent and rapid development, the majority of the Chinese citizens own a mobile device or personal computer, constantly keeping a keen eye on technological progress. In fact, there are roughly 93.5 cellphones per 100 citizens, which is even more impressive when considering the aging population as well as the various regions which are still under development. If you have a convincing technological solution, you can capture an incredible number of consumers, which is one of the reasons why Connected Cars are so well received and viewed in China.
Variables to keep an eye on
Despite the array of benefits, China as well as its society could easily hinder the progress of car sharing as well, due to the following variables:
1. Intense Competition from Taxis and Public Transport – The public transport landscape in megacities is dominated by highly efficient subway routes as well as an enormous fleet of taxis. Taxis are a frequent choice for commuters due to their competitive pricing and availability. In fact, when compared to other major cities such as Berlin, a Shanghai cab will cost roughly 1/3 less, regardless of the distance traveled (Roland Berger, 2014). Additionally, taxi companies have worked in close cooperation with WeChat (the Asian equivalent of WhatsApp) in order to set up a modern taxi system similar to Uber’s business model. The WeChat App allows users to book taxis, track their distance from their location and pay the fair easily. Uber itself has also set up shop in China, which further heats up the competition, and this is before including the “Black Taxi” services. The Chinese government is also invested heavily in subway lines, as the city of Shanghai is aiming to increase the number of lines from 12 to 22 in order to cope with the overflow of commuters. With prices ranging from 3 to 8RMB, i.e. roughly 0.4-1.1 Euros, car sharing companies will need to offer competitive solutions.
Figure 1: Taxi Fares in Major Cities in PPP & RenMinBi (Roland Berger, 2014)
2. Vehicle as Status Symbol – While this trend is certainly shifting as millennials and cost-conscious purchasers begin to move away from owning a vehicle, traditional thinkers continue to value a vehicle highly. In fact, in a recent survey, 60% of respondents agreed that owning a car boosts the social status of an individual or family, and it remains the second most important factor, following the purchase of a house (Bain & Company, 2015). This culture is unlikely to change in the near future as the middle class continues to grow,. Therefore car sharing companies cannot expect to dominate the market immediately.
3. Limited Parking – Without government support, limited parking spaces may be the single largest hurdle that car sharing providers must bypass. In China most parking lots are privatized and owned by either shopping centers, residential compounds or office complexes. Therefore, one can expect to pay a fee either to a machine or security guard in order to park the vehicle. Adding to this, roadside parking and parking meters are not common in China, especially compared to European cities, further limiting the amount of parking. Due to this a free-floating car sharing model won’t be feasible in the near future and car sharing companies will need to compete or ensure government support for the few available parking spaces remaining.
4. Low Awareness of the Trend – Finally, while car sharing is viewed positively amongst the Chinese population, the greater issue is simply that most people are not familiar with the concept. Seeing as there are few car sharing companies, which operate mainly in industrial/technology parks or university campuses, this does not come as a surprise. However, it is particularly concerning that the awareness and interest in conventional car sharing is very low when compared to other mobility solutions such as bike or motor scooter sharing. Car sharing companies must partner with other mobility solutions and local governments in order to capture the attention of users.
Figure 2: How likely are Chinese consumers to use these mobility solutions in the next 3 years? (Bain & Company, 2015)
What does the future hold?
Car sharing today is still in the very early stages of development and it is very likely that several early movers will fail in the Chinese market. However, in the long-term it is an inevitable trend that both OEMs as well as the government are keen on introducing, as long as they are capable of partnering with local mobility solutions and offering price-competitive models. After considering the opportunities and consequences, what do you think is the right approach to the Chinese market? When do you believe that it will become the largest car sharing market globally, if at all?
