China's ride-hailing boom hits saturation, the future is uncertain

Yang Jian
The lucrative industry is a magnet for drivers, but with their numbers rising faster than demand and robotic vehicles looming to replace them, the future looks grim.
Yang Jian
China's ride-hailing boom hits saturation, the future is uncertain

Passengers wait for online-hailing cars and taxis at a bus station in Shanghai.

China's ride-hailing drivers are feeling the pinch of a saturated market. The once lucrative gig is now a grind, with drivers navigating the complexities of a market that's rapidly running out of room for expansion.

The number of licensed ride-hailing drivers surged from 2.9 million at the end of 2020 to 6.8 million by March 2024, while public demand for such services increased only by about 45 percent, according to the National Ride-Hailing Regulatory Information Platform.

Shanghai resident Zhao, who drives under the Caocao platform app, has personally felt the pinch. He started driving a ride-hailing car after his business failed and he needed income to support his daughter through college.

"Initially, I could earn over 10,000 yuan (US$1,379) a month due to platform bonuses and fewer drivers," Zhao told Shanghai Daily. "Since 2019, however, more drivers entered the market and my income began to decline."

Indeed, the market saturation results from too many people seeking to capitalize on a business that really needs only a driver's license and a car – sometimes a rental electric vehicle. Drivers often see ride-hailing as a flexible employment option, a side job or a temporary solution during career transitions.

Several Chinese cities have issued warnings to caution those thinking about entering the industry.

After the COVID-19 pandemic, the crunch on business became more acute. Driver Zhao said it became increasingly difficult to get ride orders. Now, making only about 6,000 yuan a month, he said he is considering other part-time jobs.

China's ride-hailing boom hits saturation, the future is uncertain

Passengers line up for online-hailing taxis at Pudong International Airport.

A Shanghai Daily reporter joined a ride-hailing drivers' group on WeChat, where over 200 drivers from across the country exchange tips and share grievances. One driver posted his day's work, showing only two ride orders and 62 yuan in fares. Another driver responded immediately, showing four orders a day with total earnings of less than 100 yuan.

"If I don't turn on the 'special offer' button on the app, which means accepting lower fares, it's very hard to get orders," one driver complained to Shanghai Daily.

Another driver noted that driving a ride-hailing car is no more profitable than working as food deliveryman.

"You invest over 100,000 yuan to buy a car, then have to pay platform fees and electricity for battery charging," he said. "In the end, you make about the same as a guy delivering meals."

Netizens frequently complain of "smelly cars" driven by ride-hailers. That's probably due to the fact that many drivers sleep in their cars to save time and money. They might go home or book into cheap hotels once every three or four days just to shower and change clothes.

While some netizens sympathize with the drivers' plight, others find it hard to tolerate the unpleasant experience of a foul-smelling car interior.

China's ride-hailing boom hits saturation, the future is uncertain

Online ride-hailing cars and taxis queue up at Pudong airport.

Some cities' regulatory authorities have stepped in to try to address problems in the ride-hailing industry.

The transport enforcement brigade in the city of Hefei in east China's Anhui Province announced a crackdown on illegal ride-hailing. It requires ride-hailing platforms to remove non-compliant vehicles and drivers by a given deadline.

The cities of Shijiazhuang, Linyi and Wuhan have also announced deadlines for clearing out non-compliant operators, while municipal authorities in Jinan and Guyuan have suspended the issuance of new vehicle permits.

To limit the numbers of drivers, Shanghai's regulations require ride-hailing cars to be registered locally and driven by local residents.

However, many ride-hailing drivers from out of town have found loopholes and are still entering the market. They rent electric cars from leasing companies and sign employment agreements with them, effectively becoming company employees rather than private drivers.

Xu Ming, the manager at a local leasing company, said that most full-time drivers who rent cars at his business are from out of town.

On good days, earnings used to total 800 yuan, but that figure has dropped to 200 yuan due to increased competition and price wars among ride-hailing platforms, Xu said.

China's ride-hailing boom hits saturation, the future is uncertain

Online hailing cars and taxis are readily available at Pudong airport.

Another reason for the market saturation is that aggregation of platforms like AutoNavi, Baidu and Meituan, which have gathered together many smaller local ride-hailing companies that had relaxed entry standards for drivers and vehicles.

These platforms, due to their broader positioning, have limited ability to manage and control these affiliates, leading to inconsistent user experiences and even potential safety risks, Xu said.

In 2017, Alibaba's AutoNavi pioneered the aggregation model, providing a matchmaking service for drivers and passengers.

During the period when platform ride-hailing company Didi was penalized and removed from app stores, platforms like Meituan and Baidu quickly rose in prominence.

According to the Ministry of Transport, by March 2024, aggregation platforms handled about 30 percent of all ride-hailing orders, a figure unchanged from a year earlier.

Platforms are struggling to remain profitable. Major players like Didi, T3, and Caocao have faced significant financial challenges. Many are opting for initial public offerings on stock exchanges to cover their losses.

For instance, Caocao, backed by Zhejiang Geely Holding Group, reported substantial losses over the past three years. Despite efforts to diversify its business, its main revenue still comes from ride-hailing.

Similar issues plague other companies like Ruqi, which continues to operate at a loss despite increasing revenues.

China's ride-hailing boom hits saturation, the future is uncertain

Baidu's automated driving, online-hailing taxi debuts in the Zhejiang Province town of Wuzhen.

Experts believe that the industry needs a more attractive exit mechanism for non-compliant vehicles and drivers to alleviate the saturation problem.

Gu Daisong from Southeast University told China National Radio that improved regulation and monitoring could help manage the surplus.

Yang Xiaoguang from Tongji University emphasized the need for the industry to move toward high-quality, differentiated services – integrating advanced technologies to improve efficiency.

"Improved regulation, better service quality and technological advancements could be the key to addressing these challenges and ensuring the industry's sustainable development," Yang said.

Ruqi's prospectus for an initial public offering in Hong Kong highlights several innovation opportunities in the ride-hailing industry, such as autonomous driving and Robotaxi technology.

The prospectus says the company plans to allocate 40 percent of the funds raised to research and development in these areas. Robotaxi is a key focus for Ruqi's future growth.

Didi, Caocao and T3 are also investing in autonomous driving, making the Robotaxi the next big step forward for ride-hailing platforms.

According to Frost & Sullivan, China's Robotaxi market is projected to reach 488.8 billion yuan by 2030, accounting for about 60 percent of the global market.

This trend is ominous for drivers because their role will essentially become obsolete.

China's ride-hailing boom hits saturation, the future is uncertain

A robot taxi has begun operating on two designated routes in Hangzhou.

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