Alibaba-Backed Kuaidi Challenges Uber in China With Luxury Cars

Jul 06, 2014 4:08 pm ET

July 7 (Bloomberg) -- Hangzhou Kuaidi Technology Co., a taxi-booking service backed by Alibaba Group Holding Ltd., is adding luxury cars in China to boost revenue as it steps up its challenge to Uber Technologies Inc.

Kuaidi is targeting wealthy travelers with a new smartphone application as it partners with chauffeur companies in Beijing, Shanghai, Guangzhou and Hangzhou, Chief Executive Officer Dexter Lu said in an interview. The new cars include the 5-Series from Bayerische Motoren Werke AG and Audi AG’s A6.

Uber and Kuaidi are competing with Didi Taxi, which is backed by Tencent Holdings Ltd., for a bigger slice of China’s 500 million users who access the Internet from their phones and are boosting use of location-based services. The new app, known as “Yi Hao Zhuan Che” in Chinese, is part of Lu’s push for a revenue model to sustain the business, which generated 50 million yuan ($8 million) of sales last month.

“We operate under a similar model as Uber does in China,” Lu said on July 4. “Our work load will be very heavy in the second half, but it’s also very exciting.”

Uber, which has valuation of $17 billion after a recent funding round, is expanding in China and hiring in 14 cities, according to a July 1 LinkedIn post. The San Francisco-based company has been targeting customers in China willing to pay a premium for the luxury of tracking the vehicle’s approach, not handling local cash and finding daily newspapers and a Wi-Fi access inside the car.

Potential IPO

Kuaidi’s taxi booking app has attracted 100 million users who place about 3 million daily orders and the Hangzhou-based company is working with more than 1 million drivers in nearly 300 cities, according to an e-mailed statement from the company.

The company will work mostly with chauffeur companies that offer services to five star hotels and will earn a commission of 20 percent to 25 percent of the cost per trip, said Lu. The company’s other car offers will include General Motors Co. Buick GL8s.

Lu declined to comment on how many cities the new app would expand to.

Alibaba, China’s biggest e-commerce operator, owns a stake in Kuaidi with both companies declining to elaborate on the size of the investment. The taxi-booking services would prefer to pursue an initial public offering rather than be fully acquired, Lu said without elaborating.

Alibaba itself may be headed to the biggest U.S. IPO after last month picking the New York Stock Exchange for its share sale. The company is looking to sell about a 12 percent stake, people familiar with the matter have said. That could have it raising as much as $20 billion based on analyst estimates.

Tencent, Asia’s biggest Internet company, announced its Didi investment in January after joining a $100 million fundraising effort.

Taxi-booking apps face regulatory uncertainty in China after the Ministry of Transport issued a draft to regulate services, the official Xinhua News Agency reported May 28.

Kuaidi has been in working with regulators, Lu said without disclosing further details.

Uber has faced legal challenges and protests from traditional taxi drivers in Europe who say they are bound by rules that don’t apply to the smartphone-based system.