eHi eyes a portfolio of comprehensive mobility solutions
eHi is currently evaluating its P2P car rental platform, as it becomes clear that car rentals in China aren't fitting into the traditional defintion of the industry.
Chinatravelnews, Ritesh Gupta - Key players in the car rental and car service industry in China are taking vital decisions as part of their revenue generation strategy at this juncture. The category is expanding, and companies are going beyond short-term or long-term car rentals.
As highlighted in our recent report, CAR isn’t averse to taking a plunge into categories such as used car sales, financing services, auto parts and vehicle maintenance.
Another player, eHi Car Services, which garnered all of its revenues from its car rentals and car services till the end of last year, started testing its new business initiative - an online platform for peer-to-peer (P2P) car rental – earlier this year.
The company, which lifted its Q1 net revenue to US$47.7 million, up by 61% y-o-y, believes this move is an apt addition to its business mix.
This initiative is expected to strengthen eHi’s mobility solutions and prove to be a substitute to car ownership by optimizing existing resources and sharing economy to create optimal value. Under this model, vehicles are provided by private vehicle owners to individual customers via a third-party online platform. eHi Car Sharing is carrying out tests, and the plan is to apply for the ICP license. As for the regulations applicable to this business, there are no national or local laws for such businesses at this juncture in China.
Overall, the market has several regional players, too, including Yongda, Qiangsheng and Shouqi. eHi isn’t ruling out potential clash with business-to-consumer car services providers such as Didi-Kuaidi, Yidao and Uber China.
As for tie-ups to drive business, eHi signed a global affiliation agreement with Enterprise China three years ago. The two companies agreed on directing rental referrals to each other in different markets.
As for its association with Ctrip.com, a major attraction for eHi is tapping into the huge volume of traffic of managed by Ctrip. The lure is to capitalize on rental referrals and monetize for the benefit of both the brands. The past year has seen important integrations. For instance, few months ago, eHi initiated the process of extending its chauffeured car services to B2C model through Ctrip’s website, mobile apps and offline channels.
Network and technology
eHi’s business growth strategy is being propelled by its car rental division at this juncture.
eHi amassed over 70% of its net revenues from car rentals business last year. Also, it should be noted that a major chunk of short-term car rental service features revenue generation from the basic car rental service package, the charges for which include an hourly or daily rental fee, a transaction-based handling fee and a basic insurance charge.
Car rentals are offered in 99 cities, 140 train stations and 63 airports across China through service network of 1,180 directly operated service locations. Total fleet size was 19,746 vehicles till last year.
It is mandatory for the first-time users of eHi’s car rental services to enrol as members before finalizing a booking. There were 670,000 registered members till the end of 2014.
Over 66% of short-term car rental transactions last year were from users that availed eHi’s services more than once during the same period.
The company counts on technology as its core strength. Commenting on the company’s Q1 results, Ray Zhang, eHi’s chairman and CEO, the company is boosting its fleet and at the same sustaining apt utilization rates. The fleet utilization rate of rental fleet tends to hover around 71-72% in eHi’s case. The pillars of this performance are eHi’s integrated technology platform and wide geographic scale.
According to eHi’s operational experience, the peak time of its car rentals tends to over the weekend and public holidays, whereas the same for its car services tends to falls on weekdays.
At the end of last year, around 46% and 34% of car rentals were from bookings made via website and mobile app, respectively. The rest were handled by call center, third-party distributors or walk-in customers.
Also, the company is contemplating ways to pave way for car rental reservation though social networking platforms such as Tencent WeChat.
Another highlight of the company’s operations is its dynamic pricing approach to come up with rental rates.
This approach evaluates a particular vehicle model’s rental rate, depending upon on its purchase price as well as other factors such as pickup/ drop-off time and location, the availability of vehicles during such period at the location, prevailing prices, demand for such vehicle model and the tenure of rental period.
eHi’s expenses are expectedly increasing on many counts, but there are also signs of its brand now starting to pay off.
For instance, even as vehicle operating expenses increased by RMB192.3 million, or 36.5%, last year, sales and marketing expenditure came down.
The figure went down from RMB40.4 million in 2013 to RMB35.3 million last year. This was mainly driven by a RMB8.7 million decrease in advertising and promotion expense. The team mentioned that word-of-mouth referrals are now driving the brand. But overall this expenditure was partially offset by a RMB3.3 million hike in payroll-related expenses owing to expansion.
The company, which has shared that inflation in China has not materially impacted the results of operations in recent years, estimates that its total period-end fleet size at the end of year would be 37,000 to 40,000 vehicles. This figure is a major part of its growth story as the expanded fleet size offers economies of scale. This essentially means that the company can strive for favorable prices and discounts from key players in the vehicle supply ecosystem. And gradually it also hopes to benefit from in-house vehicle repair and maintenance centers in cities in such cities for more cost-effective operations.