New design: A worker assembles a car at the Volkswagen car assembly unit in Relizane, Algeria. Volkswagen and Chinese ride-hailing company Didi plan to eventually collaborate to design and develop dedicated vehicles. Picture: REUTERS
New design: A worker assembles a car at the Volkswagen car assembly unit in Relizane, Algeria. Volkswagen and Chinese ride-hailing company Didi plan to eventually collaborate to design and develop dedicated vehicles. Picture: REUTERS

Beijing — Volkswagen, the world’s biggest car maker, is in talks to form a joint venture with China’s Didi Chuxing to manage part of the ride-hailing company’s car fleet and help develop purpose-built vehicles for Didi’s services.

As part of the deal between Volkswagen and China’s biggest ride-hailing service, expected to be signed early in June, the German car maker will initially manage a fleet of about 100,000 new vehicles for Didi, of which two-thirds will be Volkswagen Group cars, said a senior executive at the car maker.

Volkswagen will also buy some new cars with Didi to enable the Chinese company to expand its fleet. The two eventually plan to collaborate to design and develop dedicated vehicles, he said, speaking on condition of anonymity as the details are still private.

The executive did not give financial details of the deal but said that Volkswagen would get a slice of the revenue once the venture develops.

The growing popularity of ride-hailing services for commuting and running errands in congested cities such as Beijing and Shanghai is showing early signs of reducing private car ownership. It could hit car makers and is forcing companies such as Volkswagen to reinvent their businesses and seek out future revenue streams.

"To succeed as a car company in this new ecosystem, we need to know who our customer is, what their journey is and what our strategy should be," the executive said.

He said that this deal would eventually give Volkswagen access to some of Didi’s enormous trove of data on customer behaviour collected through the 30-million rides Didi provides in China daily.

The ultimate goal is the production and use of autonomous cars, the executive said.

Riding alone

Volkswagen’s partnership with Didi is the first known project Didi has begun pursuing as part of a broad alliance the Chinese company recently formed with 31 car makers and suppliers of parts.

Didi has said it formed the alliance to collaborate on eventually developing cars purpose-built for its services.

As many as 80% of Didi customers rode alone for instance and do not need a big four-seater car, the executive said.

While current vehicles have engines and other technology that allow them to go as fast as 250km/h, dedicated ride-sharing vehicles would always travel much slower, so they would not need to be aerodynamic or have a powerful engine.

That could allow for fewer seats and more room for luggage, he said.

Didi has also predicted much of its future fleet would be electric. The company has begun working with Chinese car makers GAC Motor and CHJ Automotive to design electric vehicles, sources have said.

Three Didi officials said the ultimate shape of a new ride-sharing market was still unclear and no one knows what role car manufacturers and Didi itself will play in it.

Open questions for Didi are how to repair, maintain and direct a fleet of autonomous vehicles, one of the officials said. "Our understanding right now is that probably car makers don’t know 100% how to do all that. Didi also doesn’t know either," the official said.

A representative for Didi said both sides were still working out the details of how the partnership would look. "Potentially, both parties will focus on building together a fleet operation business, and look into other potential areas such as designing new car models for ride-hailing," the person said.

The Didi officials did not want to be named because they are not authorised to release information to the media.

After years of resistance and efforts to keep technology-based ride companies at arm’s length and vowing never to be like contract manufacturers are to the mobile phone sellers, car makers are now becoming more flexible.

The car industry fears becoming like Taipei-headquartered electronics company Foxconn, which manufactures millions of phones for the likes of Apple but only gets a slim share of the profits in return.

Car makers such as Fiat, Jaguar Land Rover and Honda Motor entered into an agreement earlier in 2018 to provide thousands of cars to Alphabet’s self-driving unit, Waymo.

Volvo and Daimler said in 2017 they would supply cars to Uber.

Reuters