EV maker Xiaopeng pilots ride-hailing service in Guangzhou

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Chinese electric vehicle (EV) manufacturer Xiaopeng on Thursday launched a ride-hailing service in southern China, as automakers look to the industry and market leader Didi accrues losses from its operations.

Xiaopeng, also known as Xpeng, launched the trial service, dubbed Pengster, in Guangzhou, where the company is headquartered. The move comes after the EV maker was granted a ride-hailing license by city authorities earlier this week.

Unlike Didi, Xiaopeng will employ all of the “trained, verified and monitored professional drivers” on its platform, the company said in a statement. Xiaopeng is rolling out the service with an initial “several hundred” of its G3 SUVs, though it plans to increase its fleet size to 2,000 by the end of 2019.

The service is currently only available in Guangzhou but may expand gradually to other cities over time, a Xiaopeng spokeswoman told TechNode.

“The Pengster service will allow Xpeng Motors to gain important operational experience from a diversified range of driving scenarios, [and] deeper understanding of customer behavior and preference,” the company said.

Xiaopeng is counting on raising brand awareness by having more of its vehicles on the road, which will effectively function as on-the-road showrooms. Operating a ride-hailing fleet also gives the company access to additional training data that could be used to further develop its autonomous driving system. In April, Xiaopeng delivered 2,200 vehicles in China.

“We are an EV designer and manufacturer,” the spokeswoman said. “We are doing this from a different point of view.”

Tu Le, founder of consultancy Sino Auto Insights, told TechNode that Xiaopeng needs to sell four to five times the number of vehicles the company did in April in order to justify its valuation and build enough working capital to keep the business going.

“They’re perhaps not seeing the demand for their vehicles that they originally forecast,” Le said. “This is another way to get vehicles built, on the road, and in use.”

China’s ride-hailing market has seen upheaval over the past year, as the industry has sought solutions for safety concerns after two passengers were murdered by their drivers last year while using Didi’s carpooling service Hitch. Several city governments have since imposed rules on platforms, requiring that vehicles and drivers register in the city in which they operate.

Nonetheless, these rules haven’t stopped newer entrants, which include automakers, from setting up operations around the country, even as Didi reports it costs more to operate some trips than the company makes in commission revenue.

In December Mercedes Benz and Volkswagen partnered on a high-end ride-hailing service in Shanghai. Meanwhile, Tencent, Alibaba, and automakers including state-owned Changan set up a RMB 10 billion (around $1.5 billion) ride-hailing venture in Nanjing. Like Xiaopeng’s mobility platform, the company’s focus is on electric cars.

Most recently, automakers Daimler and Geely set up a joint venture in the eastern Chinese city of Hangzhou to provide ride-hailing and car rental services.

But market leader Didi continues to make losses. The company last year reportedly lost nearly RMB 11 billion, almost five times higher than losses in 2017. In April, Didi reported that operating costs accounted for around 21% of total fare revenue from ride hailing in the fourth quarter of 2018, two percentage points higher than its commission rate from fares. Didi also said the company spent one-third of its commission revenue on driver subsidies during the same period.