Chinatravelnews, Ritesh Gupta - At a time when interesting concepts are emerging in the car sharing category in China, car rental service company CAR Inc. has asserted that its first quarter results are validation of its business model.
The company mentioned that the latest quarterly results have been an extension of its solid 2014 performance, despite China’s decelerating growth rate. CAR’s gross profit went up by 97% year-over-year to RMB1,239 million last year. China posted GDP growth of around 7.5%, lower than 2013.
As for the market potential, CAR is clear that there are plenty of opportunities in China, with over 300 million vehicle drivers (according to China’s Ministry of Public Security).
External factors impacting mobility
Rather than just focusing on what CAR describes as a traditional car rental model, the entity says it intends to attain the position of a top-notch auto mobility specialist in China. Currently its principal activities are short-term rentals, long-term rentals and leasing. The company acknowledges that external factors are driving certain changes in the transportation industry, and that demands improvisation to target promising revenue streams.
For its part, CAR is open to embracing new options. For instance, CAR isn’t averse to taking a plunge into categories such as used car sales, financing services, auto parts and vehicle maintenance.
Also, it’s interesting how CAR is going to invent itself in a market that according to the company is witnessing vehicle purchasing restrictions and rising cost of car ownership.
In one of its recent report based on car owners from six Tier-1 and Tier-2 cities, Bain & Company did mention that select segments would assess “giving up their cars if conditions continue to decline”. They cited things such as waning driving conditions and tighter regulations as detracting from car ownership. They also referred to “improved public transportation, taxi availability, car rental accessibility and the emergence of new mobility solutions as contributing factors in their willingness to give up their cars”.
There is already competition emerging from start-ups, too. In March this year, Beijing Youyou Lianchuang Tech’s P2P car sharing platform UUzuche confirmed US$10m funding from BitAuto in its plus-A Series financing.
Building on solid foundation
Ás for now, Wilson Li, CFO of CAR shared that several key performance indicators exemplify the robust position that the company today finds itself in. Not only CAR is riding on the wave of profitability, but its sound financial status is bracing the company for future growth. According to the company, total cash rose from RMB2,475.5m at the end of 2014 to RMB4,206m by the end of first three months of this year. The company is evaluating plans to invest in UCAR in its next round of equity financing.
The company with its operating fleet size of 69,067 vehicles at the end of March this year is poised to grow further. A critical aspect of CAR’s operations is control over capital expenditure as well as operating expenses. This, according to the team, is driven by the fact that a major chunk of its locations are asset-light pick-up points.
CAR has around 723 directly operated service locations, which include 247 stores and 476 pick-up points, in 70 major cities in all provinces of China.
Acceptance
Other than operational efficiency, CAR, which was listed on the Hong Kong Stock Exchange in September last year, emphasises that its business mix is working out well. As for the Q1 results, CAR highlighted that the same were buoyed by its short-term rental business and the launch of the UCAR[charlie1] chauffeured car service
The Group’s short-term rental business continued to perform strongly in the first quarter of 2015. RevPAC increased to RMB175 in the first quarter of 2015, compared with RMB160 posted during the previous quarter.
CAR tied up with UCAR, an independent third-party car service provider, for a co-branding arrangement earlier this year. As per the deal, CAR is renting cars to UCAR under both long-term and short-term rental terms at the prevailing market rates, while UCAR will utilize the rental cars and the drivers it hired from labor companies to make chauffeured car services available to customers under the joint-brand.
A total of 9,031 rental vehicles were rented to UCAR under long-term rental terms till March this year.
Data and technology-oriented
CAR considers itself to be technology-driven. Its bookings via mobile app rose from 6% in Q1, 2013 to 46% for the October-December period last year. The percentage of reservations from mobile app was 51% in December, and by then there were more than 7,000,000 installations.
Overall, CAR had 2,327,000 individual customers and around 14,700 institutional customers at the end of 2014. The company also underlines that it analyzes loads of transactions and customer data to sustain operational efficiency and boost its customer experience focus.
Overall CAR’s performance is exceptional. As a recent report by seekingalpha.com puts it, Hertz’s fully diluted 19% stake in China Auto Rental “serves as a valuable hidden asset since it has thus far not been consolidated in the company's financial statements under accounting principles”.
Also, the buzz around this industry in China is unmistakable.
CAR says this is the market to watch out for, with intriguing technologies/ offerings - Internet of Cars and smart vehicles - round the corner. On the other side, it needs to be seen how China copes up with local infrastructure constraints like parking, and other hurdles such as traffic congestion and emissions. It would be interesting to see how CAR fits itself into the evolving auto ecosystem.
