Didi Chuxing, the Chinese e-cab hailing giant, announced on August 5 that it has spun off its autonomous driving arm into an independent company, following a month of talks with its investors that includes Japanese venture capital firm SoftBank. Didi’s self-driving unit was started in 2016 and has grown to employ over 200 people spread across China and the U.S.
The company’s statement explained that this move would “integrate the resources and technological advantages of Didi’s platform, continue to increase investment in R&D of core innovative technologies, and deepen collaboration with upstream and downstream auto industry partners.” Zhang Bo, the chief technology officer of Didi, will become the CEO of the new spinoff.
That said, the autonomous driving market of China has several parallels with its peer segment in the U.S., including the development timeline, the ecosystem’s composition and the government inclination towards creating regulations that expedite testing and eventual deployment. For instance, both markets have bred a fertile rivalry between incumbent IT majors, on-demand cab-hailing companies, and ecommerce companies. All are currently engaged in a race to test self-driving vehicles on public roads.
The Chinese government has shown great interest in fashioning technology standards and industry regulations for the autonomous driving segment in line with the U.S., building test sites and allowing tests on public roads in certain cities. In early 2018, Beijing became China’s first city to allow open road testing for self-driving cars, with smart car demonstration zones being developed in cities like Hangzhou, Shanghai and Wuhan.
Didi has been active in its pursuit of autonomous vehicle testing, gaining approval to test its vehicles in California, apart from testing its vehicles in China. Nonetheless, the company has long been playing catch-up, lagging behind its American competitors like Waymo and GE by a fair distance, especially in the number of miles clocked in public road testing.
Ground zero in China, Didi is still far behind search engine giant Baidu, which has registered nearly 90,000 miles testing on Beijing-area roads alone. Over 90 percent of all the self-driving miles recorded in Beijing have been by Baidu.
Just like Uber, Didi finds itself in a sticky situation in the context of profitability. Didi’s cab-hailing business model is unsustainable in the long run as it banks heavily on venture capital money and incurs considerable losses every quarter – a position that is justified at this time due to aggressive market expansion. Didi understands that to truly realize a profitable venture in its cab-hailing business, eliminating the taxi drivers is key, because now a significant percentage of its revenue goes into the drivers’ pockets.
The SoftBank factor in the decision to spinoff Didi’s self-driving unit must have been vital, as the firm is its largest stakeholder, and has a major say in the company’s activities. SoftBank, with its $100 billion Vision Fund, has been known to loosen its purse in the autonomous driving sector, investing heavily in Uber’s self-driving unit, self-driving delivery startup Nuro, and even in a self-driving car service platform called Monet – a joint venture between SoftBank Corporation and Toyota Motors.