This week on TechBuzz China by Pandaily, our hosts Ying-Ying Lu and Rui Ma talks all about the happenings of the auto industry in China. There is a good news and bad news, which one do you want to hear first?
TechBuzz China by Pandaily is a weekly technology podcast that is all about China’s innovations. It is co-hosted by Ying-Ying Lu and Rui Ma, who are both seasoned China-watchers with years of experience working in the technology space in China. They share and discuss the most important tech news from China every week with commentaries from investors, industry experts, and entrepreneurs.
The bad news that made waves all across China was the alleged rape and murder of a female passenger by a DiDi Hitch driver. Rui and Ying-Ying talks about how the design of the Hitch product is partially responsible for the tragedy and the steps DiDi-Chuxing has taken to address this issue.
The good news is that China has loosened up its policies towards foreign new-energy vehicle carmakers and Tesla was the first to set up their wholly-owned venture in China. Ying-Ying and Rui share their insight on the EV market in China and even make predictions on how everything will play out in the largest EV market in the world.
As always, you can find these stories and the latest development of the DiDi story at pandaily.com. Let us know what you think of the show, don’t forget to follow us on twitter at @thepandaily and like our Facebook page!
(R:Rui Ma; Y:Ying-Ying Lu)
[0:00] Y: This is gonna be a transportation episode. We are gonna talk about two transportation related stories. One tragic. One not so much. Happy, maybe?
R: Yup. The first is gonna be on the brutal alleged rape and murder of a Didi passenger, and the second on the state of electric vehicles in China. Did you hear? Tesla took the first step towards opening up a factory in Shanghai.
[0:48] R: Hi everyone! We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network!We are a new weekly podcast focused on giving you a peek into what’s buzzing within the tech community in China. We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. TechBuzz China is a part of https://pandaily.com/, a new English language site that tells you “everything about China’s innovation.” I‘m one of your two co-hosts Rui Ma， and I live in San Fransisco. And apologies, but I’m a little sick today.
Y: And I’m your other co-host: Ying-Ying Lu. We’d like to give a shoutout to our fans, Tanay Jaipuria, Elliott Ng, Amos Wittenberg, Jan Smejkal, Hai-Ching Yang. We love you! Alright, let’s dive right in.
[1:30] Y: So the first story is the Didi murder. Rui, I know you researched this deeply because you’re headed to China tomorrow. So what happened?
R: Well I wanted to know if I should be using Didi when I’m there! I did do a lot of research. But I think I’m pretty safe.
Y: Why’s that?
R: First off, we do have to acknowledge that a 21 yr old flight attendant named Ms. Li, was raped and killed on the night of May 5th her way home from work in the city of Zhengzhou in Hunan province. Her presumed killer committed suicide shortly thereafter.
Y: She took a Didi 顺风车(hitch), basically short for hitchhiking.
R: And this is where it gets a bit confusing, and also why I think I am probably safe, because this is a separate business from what we think of as typical ride hailing.
[2:13] Y: I think I know where you’re going but before we go there, let’s do a brief overview for our listeners, some of whom may not be as familiar. Didi is China’s Uber, and in fact acquired Uber’s China operations in August 2016.
R: It was founded in 2012, has raised a total $20Bn, and has a valuation of $56Bn. It’s also rumored to go IPO later this year at $80Bn or something like that.
Y: It has most of the same functionality you would find in Uber or Lyft, and has options very similar to Lyft Line or Uber Pool, UberX, or UberBlack. it’s a massive company, and the de facto leader in ridesharing in China.
[2:52] R: So back to 顺风车, it’s mostly for car owners who have a long daily commute and so want to make a few bucks without going too far out of their way. The service is thus very cheap, but also requires the rider to book in advance.
Y: Right, so this Didi hitching function allows the driver to see the time, start and ending points, and decide whether or not to accept the ride.
R: Yes, because it was designed for the traditional concept of commute carpooling, as we have said before.
[3:19] Y: Why did Didi launch this service though, and how does it make money?
R: Well, let’s answer the how they make money question first. It seems that they take a 10% platform fee, as opposed to 20%+ for the other options.
Y: That’s good! But the order total is also lower right? Because the rides are about 50% cheaper? So they probably don’t make that much money.
R: Well, until they publicly disclose their financials, I really have no idea. What I do know is that there aren’t that many full-time drivers in China, sure maybe hundreds of thousands, but there are probably a lot more of the 200mm or so car owners who don’t want to go through the tedious process of becoming a Didi verified driver but don’t mind picking up a friendly face in the neighborhood on their way to work.
Y: So Didi created this to get people to become friends and be neighborly?
R: That’s probably not the only reason. But if you go back to the all the marketing back in 2015 when it was launched, there was a heavy emphasis on transportation social networking in the market. Not that different, if you ask me, from Lyft’s original strategy, where you were supposed to chit chat with your driver and have a good time while getting to where you needed to go.
Y: I never know if I’m supposed to talk to my driver or not.
R: In Didi’s hitch scheme, you were supposed to. Lots of anecdotes floating on the interwebs about people striking up real friendships from these rides, even becoming roommates. And guess what, if you were an untalkative driver, you may get a one-star rating, and that may take you forever to make up.
[4:50] Y: OK, friendships aside, we now know that for this supposedly congenial but definitely cheap option Didi did not have the same procedures for driver verification as their other options.
R: thepaper.cn, part of Shanghai United Media Group, found that as of May 11, Didi still has ridiculously lax rules on registering as a hitch driver.
Y: The reporter found that to register as a driver, the platform requires you to fill in details about your vehicle, and then upload two documents, one is a driver’s license, duh, and the other is similar to what I would probably call your car’s registration.
R: Sounds secure? Not really. Get this, the reporter selected female for gender, and then uploaded a male driver’s license. The system detected it as such but didn’t seem to care and approved the driver.
Y: That means it’s not really checking for anything, just valid ID.
R: People are saying Didi should at least require a live photo of the person holding their ID card next to their face, instead of just a simple upload. That is something already required by many Chinese internet companies and is at least a little more secure.
Y: Didi does have other options to verify the driver’s identity, such as facial recognition, sesame credit verification, which is kinda like your credit score, and your professional certificate, but these were apparently optional.
R: Yup, in two hours, the reporter, despite never submitting those materials, received a text message from Didi that he had been approved, and should start hitting the road.
Y: Yikes. So that’s really no verification at all.
R: No, but before you delete Didi from your phone, the verification process for their non-hitch drivers is actually pretty intense.
R: Like, you can’t have “weird colored hair,” visible tattoos, or communicable diseases. You must have a clean criminal, drug and mental health record. Your car also can’t be older than six years old or be visibly damaged. It can’t even be certain colors. And you must have been driving for at least three years.
[6:54] Y: Sounds pretty reasonable! But why did Didi go so wrong with the hitch option? Because this girl even texted her friend that her driver was a perv after she got in his car, but she didn’t know that he had gotten complaints before.
R: But the commentary is that in trying to make the hitching experience into a social one, Didi went overboard. You know those tags you can use to rate your driver on Lyft? Safe driver, good conversationalist, stuff like that? Well apparently Didi let its 顺风 drivers tag their riders, and the results are pretty disgusting.
Y: I saw that. Apparently the drivers can see the rider’s age, profession, and photo. But more than that, they can tag the rider as “pretty,” “sexy,” “rides alone,” or a host of even more sexually charged terms. And these are visible to other drivers, who may take them into consideration when deciding whether or not to take on the ride.
R: More than that, Didi also allows the driver to decide to “gift” the ride. The initial thought was, if the driver and rider really hit it off, the driver can just hit a button that says, — never mind, this ride is free! Offline social networking, you see.
Y: Didi was especially proud of this, actually, even issued a report saying that male drivers were twice as likely to give the option a free ride to a female rider than a male one and that the most frequent free rides occurred between 10 and 11PM.
R: So now imagine you are Ms. Li, looking for a ride. You might have been already tagged as “very pretty,” and “rides alone” by previous drivers. Your driver is super creepy but you just quietly text your friend and don’t say anything because you are a poor 20 something and you’re hoping by being nice and sociable, you’ll get a free ride.
Y: Of course we are not saying that’s what happened, because we have no idea. But the product definitely did have both design and execution flaws that made it easier for such tragedies to happen.
[8:55] R: And this wasn’t the first murder. A female teacher was also murdered in Shenzhen in 2016 taking a Didi 顺风车.
Y: Well, the reaction this time has been swift and fierce. When Didi offered a reward for the killer’s whereabouts, people thought it was lame, insincere and irresponsible. People are demanding that Didi make real amends, and Didi is voluntarily shutting down its hitching option beginning 5/12 and promises to revamp the product.
[9:23] R: What do you think? Do you think it’s Didi’s fault?
Y: Well yeah! I think there is a basic level of responsibility here that Didi should bear in screening for drivers and designing the product in such a way that it doesn’t encourage bad behavior! Not saying that male riders aren’t also at risk, but the types of tags that were allowed and comments that the hitch drivers put in the backend put female riders in disproportionate danger.
R: I have to agree with you here. It was a great violation of privacy and well, personal dignity. While I can understand that the initial plan was to have the ride experience be more social, it’s simply not OK to be ogling over riders and posting about their sex appeal. And way more intensive background checks need to be done. Here’s to hoping Didi fixes it … fast.
[10:16]Y: Live update here. Literally as we were recording this episode, Didi released a formal statement addressing the very issues we’ve just identified.
R: Titled “Our Phase One Safety Enhancement Plans,” the blog post mentioned that all tags will be eliminated, driver facial recognition will be required for every Hitch trip, and even that the Hitch service will be inoperable between 10PM and 6AM every day.
Y: The post also talked about overall changes to Didi’s services, including a new “Zero Tolerance” policy for matching driver and vehicle IDs. You can find the full document under “Press” on didichuxing.com
R: We think it’s a good start, at least they’re recognizing that these unfortunate events might have been a result of poorly designed app incentives. What do you think? Let us know!
[11:11] R: Last week, China announced that it would allow foreign “new-energy vehicle,” or NEV carmakers to take full ownership of their local ventures. This is a big concession on the part of the government, which is quite strict with every other industry, including fossil fuel powered cars. It won’t be until 2022 until that industry opens up, or so the government says.
Y: And very soon after, on Monday, Reuters broke the news that Tesla had set up a new wholly owned company in Shanghai. The new company, called Tesla (Shanghai) Co Ltd, was registered on May 10. This means that Tesla is that much closer to producing its own electric vehicles in China, and to establishing its first gigafactory outside of the U.S. Tesla stocks were up 1.2% on Monday. Good for them!
R: The new company in Shanghai has registered capital of $15.8 million and its business scope will be the development and services of electric vehicles, auto parts, energy storage facilities, and even photovoltaic – or solar panel – products.
Y: Nice. Tesla already owns 24 stores, over 100 supercharging stations, and over 300 regular charging stations in China. It is one of only three non-Chinese EV brands for sale today in China. (The other two being Nissan Leaf and Denza.)
R: Yup, Elon has been keen on China for a while. As early as 2014 he even exchanged emails with Pandaily’s founder Kevin, asking our then-journalist friend’s advice about where he should locate his charging stations and who he should speak with to make progress for Tesla in China. So this is a major dream come true, even if it’s just the first step.
[12:43] Y: But Tesla should know that it has dozens of Chinese competitors in the making, even though Beijing has basically taken away the safety net and decided to let the strongest win. Most of you know about Tesla, but what about the other Chinese home made brands?
R: Well, there are plenty of them. In 2017, Chinese brands accounted for 96 percent of the roughly 700,000 EVs built and sold in China. The major companies are BYD, Beijing Electric Vehicle Corp, 知豆, and Shanghai Auto. After subsidies– and these have been pretty generous– among the five best-selling EVs, three of them retail for under $10,000. We can think of the typical “Chinese EV” as low-price, low-range, and low-speed.
[13:29] Y: I’d add that there are a much of new EV challengers, such as NIO, Byton, Iconiq, WM Motors, and XPENG.
R: Right. China has more than 50 EV startups!
Y: I got the chance to meet and spend quite a bit of time with the cofounder of XPENG, or “Xiaopeng” Motors, the current leading EV startup. The company is literally named after the founder 何小鹏. he was an angel investor in the accelerator I used to work for. The last time we met was in the middle of last year, while he was here in the Valley on a massive hiring spree.
R: This is a man who is already an established entrepreneur, probably best known for co-founding UCWeb, a browser company, back in 2004. UCWeb was acquired by Alibaba in June 2014, in an undisclosed deal supposedly worth $4Bn.
Y: And when we spoke, it was probably less than a month after he had officially left Alibaba to work Xiaopeng full-time as Chairman, and he was already going on a hiring spree here in the Valley, largely for technical talent. I just checked our WeChat records and it was the week of Sept 7… Chinese entrepreneurs move fast!
R: So here is a company formed by founders who essentially have no background in creating electric cars or running EV companies… and yet because of the team’s background in founding previous companies, they were able to attract funding from folks like Alibaba, GGV, Shunwei, Matrix, Morningside, and IDG.
Y: What an incredible list of backers! And they’re already past Series C and have raised over 700 million dollars.
R: We asked Xiaopeng what he thinks about the change in regulation, but he was cautious because he’s not a native English speaker, and he also didn’t want to comment on Tesla.
[15:33] R: China is the world’s largest market for EVs. With the government pushing this market, the number for vehicles is expected to nearly 10x between now and 2025, to 7 million units.
Y: And it’s worth noting that though we’ve focused on Chinese and US brands, there are a lot more players in the market. Folks like Japan’s Toyota Motor have announced plans to produce EVs in China around 2020. They’ve also got plans to make hybrids and to produce more core components such as batteries.
R: BMV has talked about plans to produce an electric sport utility vehicle and to release it in China before anywhere else! Then we’ve got Volkswagen, which has stated plans to invest 18 billion USD in China by 2022, which is more than 40% of the total funds they’ve got earmarked for investment. The money is flowing. Yingying, I know you have some opinions on how it will play out.
Y: My verdict is that these new EV makers, especially the younger upstarts such as Xiaopeng and even BYD, are not to be overlooked. I hope that we’ve been able to drive home that Tesla is really just the tip of the iceberg in terms of major players and innovators. While I really like Tesla and think that they have beautiful design and powerful vision, I do think auto is one of those sectors “Chinese innovation” so to speak has an excellent shot. Especially if you’re going for wider adoption by the masses and not just looking at the high-end of the market. To really go big, local market knowledge and alliances here are key. That’s not to say that Tesla and other makers won’t lead the pack in people’s minds, but again, they may not be the top manufacturer, especially in driving mass EV adoption.
[17:11] R: And the big thing in all of this is that China really has a chance to become the world’s first all-electric vehicle ecosystem. You know, we’re used to thinking of all of the major cities in China being super polluted. But China has promised to meet air quality standards by 2035, and it knows it needs systemic change. The fact is that China’s auto industry as a whole is quickly turning all-electric.
Y: That’s right. That stat we gave you at the beginning, about the 700,000 all-electric cars manufactured? That is more than the rest of the world combined. And it is growing faster than the rest of the world’s as well. We could really have an entire series of episodes about the details of this phenomenon, but let’s just say that perhaps government-led growth in this area will continue to be a boon. As it stands, China is a leader in both the supply and demand for EVs.
R: And I think that’s why from the perspective of the government, lifting some of the restrictions and allowing for more competition is ultimately a good thing for the country and the population and definitely the air! even if it means greater competition for domestic players.
[18:22] Y: We’d like to give a shoutout to our partners at SupChina. In addition to our podcast here with Pandaily, they publish the excellent Sinica podcast, a weekly discussion of current affairs on China with journalists, writers, academics, policy makers, and business people. So while we only focus on tech, they really give you the entire overview.
R: SupChina, hand in hand with GGV, also publishes the GGV 996 podcast, which interviews top tech leaders in China tech and investment. Hans, Zara and team are phenomenal and we are big fans. Have a listen!
Follow us on twitter, at @thepandaily, @techbuzzchina, @ruima and @ginyginy. Thanks to our producers Carol Yin and Kaiser Kuo.