Shaping a Mobility Ecosystem: The Case of car2go in

Shaping a Mobility Ecosystem: The Case of car2go in China

Shaping a Mobility Ecosystem: The Case of car2go in China Case Study

Authors Thorsten Reiter, MIB, M.Sc. Institute of Management, University of St. Gallen & Joachim Stonig, M.A. Institute of Management, University of St. Gallen & Maximilian Dexheimer, M.A. Institute of Management, University of St. Gallen & Prof. Dr. Christoph Lechner Institute of Management, University of St. Gallen

This case is part of the University of St. Gallen case collection at the Case Centre: http://www.thecasecentre.org/educators/ordering/whatsavailable/collections/stgallen. © January 2019, Version 9.0, University of St. Gallen No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

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1. THE BATTLE FOR LEADERSHIP IN THE AUTOMOTIVE INDUSTRY In the coming decade, a number of megatrends will not only profoundly alter the way we use cars but also affect our perceptions of mobility. Advances in connectivity and computing technology mean that self-driving cars are no longer a futuristic fantasy but likely to be a reality in the coming decade. Electric motors are challenging the internal combustion engine, requiring new infrastructure for electricity provision. Increasing urbanization is altering the nature of commuting and creating new issues of traffic congestion. Environmental concerns, particularly concerning air pollution and climate change, are becoming more pressing, resulting in additional regulations for the automotive industry. Societal changes are slowly decreasing the value of ownership relative to the benefit of usage, as seen in the entertainment industry, where subscription services are replacing purchases of songs and films. Nowhere are these trends as pronounced as in China, the world’s most populous country and largest car market. Chinese megacities create unique challenges for traffic, environmental issues are particularly acute, and governmental regulations favour a shift towards new kinds of cars and new types of mobility.

1.1. China as the Main Driver of the Mobility Market For the last decade, China has been the growth engine of the automotive industry. The Chinese passenger car market is the biggest in the world, with around 25 million cars sold in 2017. 1 This dwarfs the 18 million cars sold on the European continent and the 12 million cars sold in North America. 2 Despite the recent slowdown in growth, the Chinese market continues to extend its global lead in terms of market size. P0F

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However, car ownership, which has long been a status symbol in Chinese society, is decreasing in importance. In a recent survey by McKinsey & Company, 42% of respondents stated that the value of owning a car had decreased because of the high maintenance costs and traffic problems. More than 25% of respondents said they were open to co-ownership or car sharing. 3 P2 F

Behind these trends is the extreme amount of traffic congestion and pollution in many Chinese cities. Transportation by car can take significantly longer than public transportation. In addition, the costs of owning a car, especially a foreign brand, are high. Import duties increase the purchase price, while fuel and maintenance add to the costs. Moreover, parking is hard to find as well as prohibitively expensive. 1

Chinese Association of Automobile Manufacturers (http://www.caam.org.cn). International Association of Automobile Manufacturers (http://www.oica.net/category/productionstatistics/2017-statistics/). 3 McKinsey Chinese Auto Consumer Survey, “Finding the fast lane: Emerging trends in China’s auto market”, 2016. 2

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These characteristics make China a particularly attractive market for innovative forms of mobility. Nevertheless, the regional differences in this vast country are critical, and it would be an oversimplification to speak of “one” Chinese mobility market. Affluent cities in the east, like Shanghai, Hong Kong, and Beijing, contribute a large portion of the economic output, while vast parts of the mainland remain rural and still are developing economically. However, even in these mainland areas, many cities exhibit phenomenal growth, such as Chongqing, a city believed to be home to approximately 30 million people. The developments in the Chinese market, where the global mobility trends are particularly significant, pose challenges for the incumbent car producers. The value of a traditional, combustion-engine vehicle is decreasing, especially in large Chinese cities with traffic congestion and strict governmental regulation. In this regard, strategic changes are imperative for organisations wishing to remain competitive. The increase in China’s importance in the distribution of global demand for mobility services highlights this aspect – in 2015, China only represented 3% of the global demand for these services, but this figure is expected to rise to more than 35% by 2025 (see Figure 1).

Figure 1: Global shift demand for mobility services, 2015-2025 (Source: Roland Berger & Lazard, 2018, from Statista Website: https://de.statista.com/statistik/daten/studie/796395/umfrage/prognose-des-fahrzeugabsatzes-fuer-newmobility-service-nach-regionen/)

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1.2. From Car Producers to Mobility Providers In response to these trends, one of Germany’s largest premium car producers, Daimler, profoundly changed its strategy. In 2015, Daimler’s CEO Dieter Zetsche highlighted the importance of mobility in the company’s corporate strategy, stating “Mercedes-Benz is changing from an automobile producer to a connected mobility provider” 4 . P3F

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In order to remain competitive in this changing sector, merely manufacturing cars is no longer sufficient. Daimler has become increasingly concerned about new technologies and business models that might disrupt its core business. Enabling and shaping the mobility of the future, in close cooperation with the customer, has become critical for sustained success. However, the idea of becoming a mobility provider is not unique to Daimler. For example, Matthias Müller, former CEO of Volkswagen, publicly announced in 2016, “We aim to become a world-leading mobility provider by 2025” 5 . Other companies, like Toyota, have also expanded their strategic scope. “We would like to explore new ways of delivering secure, convenient and attractive mobility services to customers”, said Shigeki Tomoyama, Toyota’s Senior Managing Officer, in a statement to the NY Times. By 2018, most original equipment manufacturers (OEMs) in the automobile industry had integrated a focus on mobility as a core strategic priority. P4F

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The battle for the mobility of the future has already started. In addition to the traditional OEMs, new companies like Uber and Lyft have entered the scene. For Daimler, the success of its mobility-provider strategy will depend on how well and how fast it can translate this strategic goal into attractive offerings for customers.

1.3. Daimler and its Mobility Services Daimler has decided that it cannot become a leading mobility provider on its own. “We aim to build a holistic mobility ecosystem” 6 is one of its central strategic objectives. P5 F

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The primary element in this ecosystem is the sharing of cars, which is a response to the increasing number of customers shifting from buying a car to consuming mobility as a service. Other elements of this future mobility ecosystem are connectivity, autonomous driving, and electrification. 7 P6F

In the area of mobility as a service, Daimler has developed three primary businesses: car sharing (with the brands car2go and Turo), ride-hailing (with the brands mytaxi, clevertaxi, Beat, Cauffeur Privé, Flixbus, Blacklane, Via and Careem) and multimodal transport (with the moovel application). Car2go, which is Daimler’s main car-sharing brand, offers 14,000

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Press conference at the IAA on the 15th of September 2015. Volkswagen Press Release, 2016. 6 Daimler Financial Services Investor Presentation, 2018. 7 Daimler Financial Services Investor Presentation, 2018. 5

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cars around the globe and has 3 million customers. mytaxi is an application for taxi services that is mainly used in Europe and currently serves 11 million users. The moovel application offers the possibility of transport, regardless of whether if it is by car, bus or train. It allows its 4 million users to buy access to various combinations of these transport options. Founded in 2008, car2go is the oldest piece of Daimler’s mobility ecosystem, followed by mytaxi and moovel. One key feature of Daimler’s ecosystem is that it relies on a range of partners to provide mobility services to customers. Figure 2 shows the types of transportation services that Daimler envisions as part of its ecosystem.

Figure 2: Daimler’s mobility ecosystem, including examples of companies co-owned by Daimler (Source: https://www.mercedes-seite.de/auto-allgemein/2015/02/app-sofort-mit-moovel-bahn-undtaxifahrten-buchen-und-bezahlen/)

Car2go is a central part of Daimler’s mobility ecosystem. It mainly offers car-sharing services in European and North American cities, including Munich, Berlin, Amsterdam, Milan, Seattle and Toronto. China, which is home to the biggest car market in the world, is currently only a small part of the Car2Go business. To become a true leader in global mobility services, Daimler needs to roll out its mobility system in the world’s largest mobility market: China. In this regard, Daimler faces not only challenges associated with implementing an innovative business model but also the need to deal with the idiosyncrasies of the Chinese market.

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2. THE “CAR2GO” ECOSYSTEM IN CHINA Daimler’s choice of China as a focus area for establishing a mobility ecosystem was not an accident. The traffic situation has made China, especially its Tier I and II megacities, particularly likely to accept a shared-mobility concept. The increasing congestion and pollution in the inner cities, including Beijing, Shanghai, Shenzhen and Guangzhou, has led the Chinese government to place restrictions on newly registered cars. For example, authorities implemented higher registration fees in order to reduce the registration of new cars. At the same time, the government limited the number of available license plates. In 2016, for instance, only 0.15% of new car registrations were accepted in Beijing. Also, some cities have implemented car circulation restrictions, which refuse access to some intra-city areas during specific weekdays or daytimes. 8 All of these restrictions have resulted in a situation in which a high number of people have a driver’s license but are unable to register a car. 9 This disparity favours the demand for additional mobility services and comprehensive alternatives to private vehicles. P7F

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Moreover, China has a highly inefficient public-transportation system. In addition, the country’s population growth exceeds the growth rate for mobility options, such as the taxi business. While Beijing’s population grew by 1.4% annually in the ten years prior to 2014, the number of taxis only increased by 0.3% per year. Especially during busy times such as the morning and evening rush hours, this results in a shortage of available taxi services. The first car-sharing concept was introduced by Baojia in 2009. The company had an initial fleet of 1,000 cars in a peer-to-peer (P2P) system. Since then, the number of cars involved in car-sharing services has increased steadily and many new players have entered the market. 10 P9F

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Customers benefit from car-sharing systems, which offer flexible, individual transport, and allow them to avoid the problems of registering, storing, and maintaining a car. However, car-sharing operators have to deal with these issues to provide an attractive customer experience. Two main car-sharing models have emerged over time. Station-based car sharing relies on cars parked at designated spots, where users can pick them up and return them. Most often, these spots are located on company parking lots or in large real-estate compounds. Users can easily find cars and enjoy exclusive parking spots, but they always need to make the return trip to the same location. Free-floating car sharing relies on a fleet of cars that has no specific location. Users can find cars via an application, use them, and leave them anywhere within a given perimeter. This increases flexibility by, for example, allowing for one-way trips, but it is also more unpredictable. A user does not know ex ante where to find a car, and he or she has to find an available parking spot at the final destination.

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Beijing Review, “Orderly Development Is Necessary for the Car-Sharing Industry”, 13.07.2017. Statista, “The Chinese Passenger Car Market”, 2017. 10 Roland Berger, “Car sharing in China: How to operate a successful business”, 2017. 9

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2.1. Car2share For its mobility ecosystem in China, Daimler initially chose station-based car sharing. To establish this system, Daimler needed to find a range of partners. The company’s CEO in 2018 clearly stated: “Our aim with car2go China is that by providing users with services perfect for any occasion, more and more Chinese customers can choose alternate mobility solutions for their daily travels. With the expertise of Daimler in both free-floating and station-based services, we can provide customers with an even better mobility service experience” 11 . P10F

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2.2. Tencent The first ecosystem partner Daimler engaged when launching its pilot project named “car2share” provided an initial customer base as well as the infrastructure for car parking. This partner was Tencent, China’s second-largest internet corporation and Alibaba’s largest competitor on the Asian continent. Daimler launched the collaboration in 2013 on Tencent’s corporate campus in Shenzhen, a city located in China’s southern Guangdong province. By targeting Tencent’s employees, Daimler went after a customer segment that was young, educated, interested in technology and with limited options to purchase cars. 12 Daimler started with a fleet of 30 “smart fortwo” vehicles and made them available for Tencent’s employees to book online for personal or business-related use. Registered users were simply charged by the hour and were not bound to any long-term commitments. 13 P11 F

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2.3. WeChat The second ecosystem partner was inside Tencent itself. WeChat – Asia’s equivalent to Whatsapp, Facebook and Tinder – was Tencent’s flagship product and almost every employee used it. The application also allowed for money transfers as well as other in-app features, such as fitness and shopping. Daimler built its car-sharing application on the WeChat foundation. Hence, the digital infrastructure Daimler used to process registrations, rentals and payments was already available. During the four months of the pilot project, more than 10,000 Tencent employees gained access to the program. 14 Car2share offered station-based sharing in which the vehicle had to be picked up at and returned to the same location, 15 which could easily be spotted using the WeChat application. In addition, the booking process could be completely integrated within the existing digital infrastructure of WeChat and Tencent. P13 F

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Internal strategic communication made available to the authors in 2018. Press Release Daimler AG, 21.09.2017. 13 Bloomberg, “Apple Pays Bargain Price – $1 Billion – for China Taxi Company, 13.05.2016. 14 Foreign Affairs NZ, “Daimler prepares car2share at Beijing Fair, 16.05.2016. 15 Press Release Daimler AG, 26.09.2017. 12

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Using their corporate email addresses as their logins, users could book the desired vehicle spontaneously or in advance through the company’s official WeChat account. They would then pick up the car from the company’s parking lot and keep it for a few hours, overnight or for a weekend. Once back at the office location, the car had to be returned to the same parking lot. Payment could be completed on return using WeChat Pay, a feature of the WeChat application, which involved scanning a uniquely generated quick-response code. 16 Figure 3 shows the integration of car2share with the existing infrastructure of Tencent and WeChat. P15 F

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Figure 3: Integration of car2share into the Tencent and WeChat infrastructure (Source: Internal presentation of Daimler AG, 2016)

The pricing scheme focused on ease of use and easy access to the sharing service, which was designed as a genuine alternative to public transport, taxis and chauffeur services in China’s busy central business districts. In addition to a one-time registration fee of RMB 99 (approximately EUR 14), the pricing scheme was based on pay-per-use, meaning that users were only charged for the time the car was used and the distance they travelled. This fee covered all costs, including fuelling by onsite service staff, insurance and maintenance. A minute-by-minute charge suited business needs and short trips, such as those taken during lunch breaks. An overnight package entailed a flat fee for vehicle usage between 6 p.m. and 9 a.m. the next day and was relevant for commutes or evening events. The weekend package involved a flat fee that covered the timespan from Friday at 6 p.m. to Monday at 9 a.m., and allowed for weekend excursions in both business and private contexts. 17 P16F

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Press Release Daimler Innovation Lab, 15.04.2015. Press Release Daimler Innovation Lab, 15.04.2015.

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2.4. The Government The pilot project on Tencent’s corporate campuses was a success. Therefore, Daimler needed a new strategic partner to take the sharing service’s first steps into other cities and towards expansion. Local and municipal governments as well as the transportation authorities were pivotal partners for the ecosystem. They were essential for gaining access to public parking lots, license plates and permission to use motorways. With these strategic partners on board, car2share officially launched in September 2015. The concept was rolled out across multiple Tier 1 cities in China. 18 P17F

2.5. SOHO Daimler further advanced its expansion with the help of another strategic partner: a property company known as SOHO, one of the largest real-estate development businesses in China. In October 2016, this new partnership offered two strategic opportunities. First, SOHO owned numerous real-estate complexes in the business districts of Beijing and Shanghai. Therefore, it could provide exclusive access to parking garages in its buildings and it could attract other customers working nearby. Second, for many Chinese, SOHO was synonymous with modern Chinese architecture, such as the China World Trade Center in Beijing. Exclusive car2share vehicles were now parked outside these iconic buildings where they were highly visible to non-customers, thereby offering the potential to capture new customers. 19 18 F

However, Daimler’s branch-out was not only geographically directed. With the onboarding of new partners came other business-enhancing opportunities, as well as the possibility of connecting the sharing ecosystem with Daimler’s core business of selling cars.

2.6. Expansion of Corporate Partners In the three years after its launch, car2share expanded its fleet to 300 vehicles and experienced a 650% increase in its user base. By the end of Q2 2017, more than 170,000 users from more than 100 leading Chinese and foreign firms had registered with the service, which operated 70 rental stations. These firms included Skyworth, HP, Amazon, Philips, Huawei, Pfizer, JD, Xiaomi, Parkview Green, Microsoft, Skyworth, Caterpillar, Lenovo, Emerson, Rockwell Automation, Johnson & Johnson, JD.com and Xiaomi. 20 P19F

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In late 2016, car2share announced that it would broaden its fleet with additional vehicle options, including SUVs (e.g., the Mercedes Benz GLA) and compact cars (e.g., “smart forfour” and Mercedes Benz A-Class). This expansion of the vehicle range was intended

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Press Release Daimler Innovation Lab, 15.04.2015. Press Release Daimler Innovation Lab, 15.04.2015. 20 Press Release Daimler AG, 21.09.2017. 19

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to plant the seeds for future purchases of these vehicles. For many clients, the use of car2share was an expression of their status and their executive role within their firms. When using car2share, they were able to test Daimler’s cars, become familiar with them, and become ambassadors of both the car2share service brand and the smart and MercedesBenz product brands. 21 This enabled Daimler’s car2share to branch out geographically and to connect the two existing business models within the corporation. P20F

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After these initial experiences in the Chinese car-sharing market, Daimler decided to roll out a free-floating car-sharing concept in China. This business model was already established in the group in the form of the car2go brand. Car2go was founded in Europe in 2008 as a joint venture between Europcar and Daimler. In July 2017, it operated a fleet of over 14,000 vehicles worldwide, which served more than 2,500,000 customers in 8 countries and 26 cities on three continents. 22 P21 F

2.7. Car2go In 2015, Daimler decided that is was time to enter China with an initial team of 24 people and 400 “smart fortwo” vehicles. One year later, car2go was officially introduced to the market with the brand phrase "JiXing". It was the first international company to bring the concept of free-floating car sharing to China. 23 The key features of car2go are depicted in Figure 4. Which city offered the ideal setup to ensure a success story right from the beginning? Daimler’s choice was Chongqing – a megacity city in southwestern China. P

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Figure 4: Key features of Car2Go (Source: Internal presentation of Daimler AG, 2017) 21

Press Release Daimler Innovation Lab, 21.01. 2016. IHS Global Insight Daily Analysis, “Car2Go registers 250,000 users in China, to offer 4,000 cars for rental”, 2017. 23 Press Release Daimler Greater China, 07.06.2016. 22

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Around 30 million residents lived in Chongqing, one of the largest cities in the world. Of these, 4.3 million lived in the city’s high-density urban core. Chongqing was also home to many industrial enterprises, which contributed to its commercial success. In 2015, Chongqing contributed 11% of China’s gross domestic product and capturing the highest growth rate among other leading Chinese cities. Geographically, Chongqing was located at the confluence of the Yangtze and Jialing Rivers, and it was built in a hilly landscape and had many steep streets. This made it an unfavourable location for bike-rental firms, which were serious competitors in the Chinese market for urban mobility. Daimler, especially in the form of car2go, worked closely with the Chongqing municipal government, which supported the development of car-sharing schemes by offering free, exclusive parking spaces. This partnership was essential for developing a lean cost structure. 24 P23F

The chosen location was a success. In its first two months of operation, car2go served 78,000 customers and completed more than 40,000 vehicle rentals. In order to match the fast-paced growth in the user base, car2go had to increase its fleet size by 50%, to 600 cars, only eighteen months after the launch in China. By February 2017, car2go had more than 180,000 registered customers and it had been engaged in more than 115,000 mobilityrelated transactions in Chongqing. This meant that the city became Daimler’s largest location for its car2go services worldwide – in less than a year. 25 P24F

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Even though car2go and car2share had similar success stories, the services differed substantially. Car2go offered spontaneous access to individual mobility, mainly for short trips within urban areas, as the service did not require the vehicles to be picked up and returned at designated stations. Instead, customers could start and end the rental period at any legal parking space, such as public parking spaces, predefined private parking garages or exclusive free parking spaces in car parks. They were only limited by a geographically designated rental service area. In addition, car2go had its own smartphone application, which enabled customers to locate vehicles within a range of 86 square kilometres, and view their booking status and the car’s fuel gauge (in the case of gasoline-powered cars) or the battery’s charge (in the case of electric vehicles). When a customer located the vehicle, it could be accessed using a personal electronic chip glued onto the user’s driving license or through the official car2go smartphone application. The rental could then be started without any commitment regarding when and where the rental period would end. Reservations were not required, as most rental periods were short-term (usually 10 to 20 minutes). As a result, free-floating vehicle sharing offered customers a much higher degree of flexibility, but it lacked the advantages of scheduling a trip in advance. In addition, the charging scheme was different than for car2share, as it depended on both the distance and time travelled. However, the fee covered all related costs, such as fuel, mileage, parking, cleaning, taxes, insurance and maintenance. 26 P25 F

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Press Release Daimler AG, 21.09.2017. Automobil Industrie, “car2go-Start in China geglückt”, 08.06.2017. 26 Press Release Daimler Greater China, 07.06.2016. 25

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As such, the car2go service was more expensive than car2share. However, it provided more flexibility – a key component of a mobility ecosystem. Along these lines, the registration process for new customers did not depend on an employer. Via the car2go smartphone application, new users only needed to upload a photo of their driver’s license and a photo of themselves, after which they could utilize the mobility service.

2.8. The Merger of car2share and car2go In March 2017, Daimler announced the merger of car2go and car2share under the roof of Mercedes-Benz Auto Finance Ltd. As of May 2017, the consolidated brand operated locations in seven Chinese cities: Beijing, Shanghai, Shenzhen, Hangzhou, Chengdu, Chongqing and Guangzhou. 27 P26F

Daimler merged the two businesses for various strategic reasons. 28 However, the combined company’s business model in China differed from city to city. In Chongqing, the car2go service enabled users to pick up and park the cars in almost all major downtown public parking spaces. In other cities, the car2share model remained in place, such that users were required to fetch cars from predetermined places and return them to the same places. The different operational modes were adjusted to account for the different city sizes. 29 In other words, bigger cities meant more flexibility for the customer. P27F

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This combination of different modes of operation did not keep Daimler’s mobility ecosystem from succeeding. In December 2016, the number of users registered for at least one of the services exceeded 250,000, which implied a twelve-fold growth from the previous year. Customers had travelled more than 5,000,000 kilometres since 2013 in a fleet of more than 1,000 vehicles. Daimler had no plans to shut down its mobility ecosystem. In fact, in 2017, the company made another 4,000 vehicles available for rental in the existing seven cities, and it expanded the number of parking and pickup locations. 30 P29F

While the ecosystem is operating smoothly, new obstacles are emerging beyond the closed circle of Daimler and its strategic partners.

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Just-Auto, “The car sharing economy”, 05.05.2017. Just-Auto, “Daimler merges car sharing units in China”, 28.05.2017. 29 China Daily, “Daimler continues growth via localization”, 18.04.2017. 30 ENP Newswire, “DAIMLER - One year of ’JiXing’: car2go is establishing flexible carsharing in China”, 01.05.2017. 28

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3. COMPETITION AMONG CAR-SHARING ECOSYSTEMS Car2go is not the only option when it comes to car sharing in China. Table 1 provides an overview of some competitors in the space. Car Sharing Operator Volkswagen VRent Car Clubs

Year est. 2013 2010

Business Model Two-way corporate car sharing Two-way car sharing Two-way car sharing

Business Details No. of Fleet User stations Size Base 1 30 n.a.

Beijing

80

200

40,000

Hangzhou

800

1,000

300,000

40

2,500

n.a.

Beijing, Changsha, Chengdu, Chongqing, Hangzhou, Nanjing, Shenzhen, Suzhou, Wuhan Hangzhou

60

300

3,000

Shanghai

30

700

15,000

Beijing

50

100

2,000

Yantai

1

30

n.a.

Yi Dian Zuche

2009

Weigongjiao

2013

EVCARD

2013

Green Go

2014

GX Zuche

2014

PPZuche

2013

Two-way car sharing Two-way car sharing Two-way car sharing Two-way car sharing P2P car sharing

UU Zuche

2014

P2P car sharing

40

n.a.

n.a.

ATZuche

2010

P2P car sharing

80

200

40,000

Baojia

2009

P2P car sharing

800

1,000

300,000

Location

Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou, Nanjing, Chengdu, Wuhan, Chang- sha, Sanya, Haikou, Suzhou, Nanning, Xi’an, Dalian, Hefei Beijing, Shanghai, Chengdu, Shenzhen, Sanya Shanghai, Nanjing, Hangzhou, Guangzhou, Shen- zhen, Beijing, Chongqing, Haikou, Qingdao, Chengdu, Xi’an, Sanya Beijing, Shenzhen, Hangzhou, Guangzhou, Shang- hai, Zhengzhou, Changsha, Chengdu, and 28 other cities

Table 1: Overview of car-sharing companies in China (Source: Own depiction based on Frost & Sullivan, 2016, and Roland Berger, 2017)

Many of car2go’s competitors are focused on one city, but several have established themselves in multiple cities across China. Daimler, with around 600 car2go cars in Chongqing and car2share options in several other cities, is only a medium-sized player when compared to some of its competitors.

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Several large Chinese OEMs have started car-sharing operations. SAIC, for example, started a subsidiary EvCard, which was operating 8,400 electric cars in 20 cities as of June this 2017. 31 Notably, the Chinese government strongly supports the use of electric vehicles. Some car-sharing companies have directly copied aspects of car2go’s business model. For instance, ToGo, a subsidiary of Kandi technologies, also has a fleet of Smart cars in Beijing with a colour scheme that is similar to that of car2go (see Figure 5). P30F

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Figure 5: ToGo’s cars – similar to car2go’s vehicles (Source: china.org.cn). Other than OEMs and car manufacturers, ride-hailing companies like Didi Chuxing have plans to enter the car-sharing market. In addition to offering its cars to share, Didi plans to create a marketplace that will link car-rental companies with customers. 32 P31F

3.1. Alternative business models The rapid development of the car-sharing industry has already produced its first victims. Ezzy, a start-up in Beijing that operated around 500 premium cars, ceased operations after only 18 months. This illustrates the tough road to profitability for car-sharing services in China. One of the main challenges is the availability of many cheap mobility alternatives. Taxis are vital competitors for the car-sharing model. Around one million taxis operate in Chinese cities, according to the Chinese Ministry of Transportation. The ample supply of labour keeps prices down – in large cities, taxi prices per kilometre are around CNY 2 to CNY 4 (EUR 0.30-0.40).

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South China Morning Post, “Car-sharing seen saviour of China electric vehicle sector”, 15.05.2017. South China Morning Post, “Will car-sharing prove the white knight to save Chinas flagging electricvehicle industry?”, 14.05.2017.

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Figure 6: Costs of owned cars, taxis, and car sharing per kilometer (Source: Accenture, “Car Sharing Service Outlook in China”, 2018)

Taxi and ride-hailing services have become even more attractive with the introduction of ride-hailing applications that allow customers to order cars at any time and from any place. The applications also offer convenient payment options via WeChat. The largest Chinese company with this type of business model is Didi, which is backed by Alibaba, Tencent and Baidu – China’s largest technology companies. Didi’s service enables 25 million rides per day, making it the largest ride-hailing company in the world, far ahead of firms like Uber. Hence, Didi holds a dominant position in China’s ride-hailing market with a market share of around 80% in 2017. 33 For short distances, bike-sharing companies are an alternative to car sharing that is less affected by traffic congestion. In addition, the government is making significant investments in public transportation (i.e., trains, subways, and buses). P32F

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3.2. Car2go’s Merger with BMW’s DriveNow Size is important in the market for mobility. In early 2018, Daimler and BMW announced a merger of their mobility services. BMW’s Peter Schwarzenbauer announced the strategy of the combined firm: “We want to become a major player”. 34 Both firms viewed the merger as a way to achieve the scale needed to be profitable in the global car-sharing market. P33F

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In China, car2go has opted for a premium positioning with higher prices but premium cars and premium service. A challenge will be to grow the service into a major mobility offering that is available in cities other than Chongqing and has the scale to operate profitably. The 33 34

Roland Berger, “Car sharing in China: How to operate a successful Business”, 2017. Cash.ch, “BMW sucht Carsharing-Partner in China und USA”, 3.5.2018.

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merger with BMW is of little help in this respect. BMW operates its mobility service, DriveNow, in the city of Chengdu. Moreover, the service was only established in 2017. BMW plans to introduce 25 car-sharing stations in Chengdu, which are to be located around high-end areas, such as premium residential areas, office buildings that are home to large companies, government compounds and five-star hotels. Users will need to pick up and drop off the cars from those stations. In early 2018, the Geely group, a large Chinese OEM, bought a 10% stake in Daimler. Its CEO, Li Shufu, told Frankfurter Allgemeine Zeitung that "extensive alliances" in the mobility space had to be explored. Geely owns the ride-hailing service Cao Cao, which operates electric vehicles in more than a dozen cities in China and has around 10 million users. Analysts speculate that Geely’s mobility services could be combined with Daimler/BMW’s offering.

4. OUTLOOK Even though the story of car2go in China is mostly one of success for Daimler, the future is still unknown. That future will depend on the actions Daimler takes in response to new megatrends and various developments that affect the mobility ecosystem. Whether Daimler will be able to shape those trends and become a champion among the players at the forefront of technological development remains unclear. Daimler has identified several trends that may determine the future of mobility. First, as 70 percent of the world's population will live in urban areas by 2050, the number of global car-sharing users is expected to be five times higher in 2025 than it is today. 35 P34F

Second, by 2030, about 70% of all new cars will be equipped with self-driving features and about 15% might be completely autonomous. 36 Daimler admits that this trend of “selfdriving cars and vehicles, that are capable of sensing their environment and navigating without human input will change car sharing significantly”. 37 In particular, the company assumes that the ability to better predict demand for mobility services will reduce the fleet sizes necessary to serve those demands. In addition to the reduction in fleet sizes, Daimler expects the time used to travel will decline. Today, for examples, every US citizen spends an average of 212 hours annually commuting. 38 This figure can probably be reduced significantly, as can the number of accidents caused by human error (1.2 million people die in car accidents every year). 39 The economic aspects of the autonomy trend – the “passenger economy” – make it clear that services such as on-demand transportation and commercial logistics together with health-care, hospitality and service deliveries will P35F

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Frost & Sullivan, “Chinese Car Sharing Market – Opportunity Analysis, Forecast to 2021”, 2016. McKinsey, “Automotive revolution – perspective towards 2030”, 2018. 37 Daimler, “Autonomous driving”, 2018. 38 US Census, “Commuting (Journey to Work)”, 2018. 39 NHATSA, “Facts + Statistics: Highway safety”, 2018. 36

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account for USD 800 billion in 2035 and USD 7 trillion by 2050 in revenues. 40 Figure 7 visualizes the potential effects of this trend on the utilization of individually operated cars. P39F

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Figure 7: Estimated distribution of individually utilized vehicle types in 2030 (Source: PwC and Statista, 2018, from Statista's Website: https://de.statista.com/statistik/daten/studie/757571/umfrage/verteilung-der-fahrzeugtypen-im-motorisiertenindividualverkehr-weltweit/)

Third, an increasing number of cars offer some form of networking capability. This will eventually mean a flow of data not only among cars but also between cars and the infrastructure around them, which will have an impact on all actors in the ecosystem, including car2go. Diagnostics and analytical tools for the cars’ safety mechanisms and infotainment features will affect the ways that consumers travel and their activities while travelling. This function is expected to be standard as early as 2020. 41 P40F

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Fourth, Daimler acknowledges that “the future of car sharing is electric”. 42 An increasing number of countries are introducing bans on gas-fuelled cars. Norway’s ban will come into effect by 2025, India’s by 2030, Scotland’s by 2032, France’s by 2040 and the UK’s by 2050. Even though China has not yet shown a significant interest in sustainability improvement, the fact that other developing countries, such as India, are making such commitments foreshadows a landscape that organizations such as Daimler will have to cope soon. P41 F

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Intel and Strategy Analytics, “Accelerating the Future: The Economic Impact of the Emerging Passenger Economy”, 2018. 41 McKinsey & Blackrock, “Future of the vehicle”, 2018. 42 Press Release Daimler, 10.04.2018.

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Fifth, car-sharing technologies offer a basis for other solutions, such as automated valet parking in which cars will proceed without a driver to their assigned parking space in response to a command issued by smartphone. 43 However, Daimler will have to incorporate more than changing technological factors into its business. It must also address behavioural shifts in its consumer base. Car sharing will increasingly be divided into vehicle sharing and ride sharing. The competition from Didi adds to the pressure on the vehicle-sharing idea. P42F

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Although these trends entail challenges for Daimler and its car2go ecosystem, they also represent significant opportunities. The combination of new services and advanced technologies will increase the value of the automotive market by USD 1.5 trillion by 2030. 44 As an ecosystem leader, Daimler has to think carefully and act wisely if it wishes to capture its share. P43F

43 44

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Press Release Daimler, 10.04.2018. McKinsey, “Automotive revolution – perspective towards 2030”, 2018.

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Case Study Questions Question number 1 What is the value proposition of the car2go ecosystem?

Question number 2 Which activities form this ecosystem? Which of these activities are critical and why?

Question number 3 Which activities are conducted by the individual players? Who plays what roles? What are the pros and cons of these roles?

Question number 4 Which ecosystem strategy would you recommend?

Question number 5 Why did Daimler merge car2share with car2go?

Question number 6 What options does car2go have for competing with other car-sharing and ride-hailing ecosystems? Which one would you choose?

Question number 7 Can car2go move into a leadership position in the Chinese mobility market? What are the obstacles in this regard?

Question number 8 How do you think future megatrends in the mobility ecosystem will affect business models, such as Daimler’s car2go in China?

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