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Time is ripe for Didi to seize the wheel of a Chinese carmaker

Valuations of Chinese automakers are falling, while competition from the likes of Waymo is rising

Didi boss Cheng Wei has already inked tie-ups with local automakers like BAIC Group, as well as German car-parts giant Continental. The goal is "purpose-built" vehicles shared by drivers.

Hong Kong

CHINA'S Didi Chuxing will seize the wheel of a carmaker in 2019. Similar to global peers, the US$56 billion ride-hailing unicorn has tied up with traditional manufacturers. Falling valuations in China's car sector will inspire boss Cheng Wei to buy a brand.

The lines between technology outfits and the auto sector are blurring rapidly. In 2018, Didi unveiled a car-sharing network with a dozen manufacturers. It followed up with an even bolder alliance of 31 companies, including Japanese giant Toyota , to cooperate on sales and financing, plus jointly develop new energy vehicles and industry standards.

But the biggest prize would be a fleet of Didi cars. Mr Cheng has already inked tie-ups with local automakers like BAIC Group, as well as German car-parts giant Continental. The goal is "purpose-built" vehicles shared by drivers. The 35-year-old founder has also quietly built up an in-house team of engineers and designers, sources told Reuters in April.

He has good reason veer into car-making. His company, with half a billion users on its apps, is racing against tech and auto rivals such as Waymo, the self-driving unit of the US$730 billion Alphabet, to dominate autonomous driving.

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Vertical integration - controlling the algorithms and data alongside the car design and manufacturing process - would give Didi an advantage.

The privately-held company last raised US$4 billion in 2017.

That boosted Didi's cash reserves to US$12 billion, the Wall Street Journal reported at the time. Since then, the company has charged into new markets, bolstered passenger safety - albeit after a rider was murdered by a driver - and expanded its car services business.

Half of that war chest should be sufficient to acquire a manufacturer. Slowing Chinese consumption has hit the sector hard, with full-year sales for 2018 on track to fall year-on-year for the first time since the 1990s, Fitch reckons.

As of mid-December, the MSCI China Automobiles index is down 46 per cent since the start of 2018.

Didi can rule out stodgy, state-owned outfits; nimbler candidates look more suitable. That might include the Alibaba-backed Xpeng, the electric-car maker last valued at US$4 billion, or Future Mobility Corp, a high-tech Tesla-challenger founded by former BMW and Nissan Motor executives. A bold deal will put Mr Cheng firmly ahead.

Automobile sales in China fell 13.9 per cent year on year to 2.55 million vehicles in November, monthly data from the China Association of Automobile Manufacturers show. This is the fifth straight month of year-on-year declines.

Full year sales volumes for 2018 are forecast to fall for the first time since the 1990s, Fitch Ratings said in a note published in November, and "further declines are likely in the first half of 2019". REUTERS

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