Why Uber’s Chinese nemesis Didi Chuxing just raised $7 billion more

Sometimes the world of tech news makes you sit back in disbelief and wonder what can happen next.
There was once a time, long in the past, when Uber raising a billion dollars in funding stood out as a huge topic of discussion, a landmark of where things were moving to. Well, we’re there now. These days, the company can pull in a record $3.5 billion round and precious few eyebrows are raised — it’s just another piece of news that day.
But here’s one Uber-related funding development that did stun people: Didi Chuxing, the company that is beating Uber in China, just landed an incredible $7.3 billion in fresh financing.
Seven billion U.S. dollars!
But there’s more. Four-year-old Didi said it already has billions in the bank from its previous fundraising — which amounts to more than $10 billion — and this fresh influx takes it to more than $10 billion of cash in hand.
That’s right: MORE THAN $10 BILLION
While it has alliances and investments in Lyft, India’s Ola and Grab in Southeast Asia — the enemy of my enemy is my friend — Didi operates in China and China alone. China is the world’s largest country, but why on earth does Didi require $10 billion when Uber, which is global, claims to have over $11 billion on its balance sheet.

Subsidies war

Didi claims 14 million drivers and over 300 million active users with 10 million rides per day. The industry is bereft of reliable data for China, but watchers are generally in agreement that Didi is ahead of Uber, even though China remains Uber’s “most important” market, according to the head of Uber China — who also believes Uber can take the top spot in China over the next year.
The most logical thought for the money is that it is an insurance policy against future subsidies wars. That’s to say that Uber and its rivals commonly incentivize drivers, paying them more than the fare for a trip is common, and offer deep discounts to sway passengers into using to their services.
Such programs are expensive — a draining subsidy war in China saw Didi formed after rivals Didi Kuaidi and Didi Dache joined forces via a merger last year — but they are intended to create loyalty and bring new customers into the fold.

Uber and Didi (and others) are lessening their focus on the subsidy model as they aim for profitability — Didi claims to be profitable in around half of its 400 cities in China, Uber said it is profitable in parts of the U.S. and will be in China in two years — so a $10 billion war chest is a deterrent to prevent the other party from playing the subsidies game. (Because one will always react if the other increases its subsidies efforts unless it wants to lose business.)
This is where things get more than a little Cold War-like — the way the U.S. and Russia used their arsenals of nuclear weapons and mutually assured destruction to ensure that neither would ever engage in a fight. The U.S. knew that if it fired a rocket, Russia would respond with an attack of equal measure and devastation, so it never did.
“Hey Uber, we know you’re well funded and all, but we’ve got this $10 billion balance sheet, so if you do go on a subsidies spree, we’ll jump in and things will get messy… we’ll see who is left alive at the end.”

Didi <3 money

But, as it turns out, despite the sound theory, Didi isn’t raising money for a subsidy war. Or at least that’s what people in the know have told TechCrunch. Sources close to this week’s colossal fundraising told us that Didi is bringing in money more because, basically, it likes money and there’s plenty of investors who want to hand it over.

Didi “would rather have money than not have money”

The line-up is impressive: Apple, China Life (also an Uber investor) and Alibaba’s Ant Financial — China’s top digital payments firm — were among the new investors who partook, but the round also included contributions from existing backers like Tencent, Alibaba, SoftBank and China Merchants Bank.
Others not mentioned in press statements but confirmed to us by a source include Uber investor BlackRock, as we reported, investment bank Oppenheimer and Hong Kong’s Bank Of Communications
Didi has been keen to stress that it has a constant pipeline of top-tier investors (who return to future rounds) and that, unlike Uber, it hasn’t needed to tap into private and high-net worth individuals for capital. Uber, of course, recently went to Saudi Arabia’s Public Investment Fund for $3.5 billion as it expands its sources of money.
Only a portion of this $10 billion-plus money on-hand is likely to be spent. Beyond raising for the sake of raising — Didi “would rather have money than not have money,” we were told — Didi is looking to invest in a range of areas that include market expansion, greater efficiency, and new services.

More services and increased efficiency

Didi already offers a lot more services that Uber — regular taxis, peer-to-peer taxis, carpooling, buses, chauffeuring and even test drives — so it isn’t clear exactly how it can expand its offerings. One possible scenario is the introduction of some of its newer products that are presently only active in some parts of China to more cities in the country.
One area where Didi will certainly invest is in the underlying technology that powers its service.

Speaking at the Rise conference in Hong Kong earlier this month, Li Zijian — senior director for international strategy at Didi — explained Didi is building its own answer to Uber’s surge pricing.
“In the past, if 100 people in this room want to get a car and there’s only 50 drivers around, the conventional way to do it is just to increase the price so that only 50 people who are willing to pay the price [can take a ride,]” he said.
“But our big data team is working on another way. We are actually building a prediction and intervention model so basically we can predict in advance, 15 mins from now, what the demand will be. So if we predict there will be 100 people in this room taking a ride, we can advance this patch or activate cars to this area in advance,” Li explained.
Li said this is just one way that Didi will “use our capital more efficiently work on big data to help our passengers and drivers.”

He also denied that the company is planning to expand overseas, either by launching its own services or buying/merging with Ola, Grab and Lyft, the members of its anti-Uber alliance.
“The Chinese market is huge, that’s our focus right now. We are only penetrating 1.1 percent so we really want to deeper penetrate the Chinese market — there’s lots to be done,” he said.
Li pegged the on-demand transportation industry in China to be worth $200 billion over the next five years, so there is certainly lots to be done.