The $1 billion investment in Didi Chuxing, Uber‘s chief rival in China, could be Apple‘s attempt to reinvigorate sales in China as well as to set a course for the future of the company where Uber is one of its main competitors.
“We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market,” Apple CEO Tim Cook said. “Of course, we believe it will deliver a strong return for our invested capital over time as well.”
The sentiment for Apple on its home soil is plummeting as it stock recently took a 2.4% fall. The concerns about Apple’s future sales and profits are evident, and the lackluster performance in China is one of the perpetrators responsible for the company’s dim outlook.
Investing in China is a good move from Apple. Interestingly, Cook made clear of the prospects of collaboration between Apple and Didi Chuxing. He sees plenty of opportunities for working together with Didi Chuxing as his company hands it the single largest investment it has ever received.
Why Investing in Didi Chuxing?
Didi Chuxing currently holds 87% of the car-hailing market in China. And that’s important for Apple. There have been many speculations of Apple working on a car model of its own, the type of car that can rival the best from Tesla and other carmakers.
In December 2015, Apple bought a handful of car-related domain names such as apple.car, apple.cars and apple.auto. Even more convincing is the amount of money Apple spent in research and development. Four years ago, the company spent $3 billion on R&D, which was dwarfed by $10 billion from this year.
When asked about the Apple Car rumors, Cook did not outright deny them, but said: “We don’t have to spend large amounts to explore.”
Let’s say the Apple Car rumors are all true, that Apple is indeed working on a smart or driverless car of its own. When the company launches the car, which market will it focus on to make sure it’ll get the most returns on its investment?
Well, China is increasingly becoming one of the most important, and largest, markets for many carmakers in the world. Just ask the German carmakers whose earnings are dictated by the sales of their cars in China.
By partnering with the biggest ride-sharing company in China, Apple now has a means to introduce its car into China without a hitch. Apple can potentially make a deal with Didi Chuxing to have about 1,000 Apple Cars in its fleet. And all of the sudden, Chinese people see 1,000 Apple Cars roaming the busiest streets of Shanghai and Beijing.
That is a brilliant marketing strategy that sure will pique the public’s curiosity and propel the car to popularity.
Why the Car Industry? Why Uber?
Ford CEO Mark Fields once said that the future rivals of his company won’t be the likes of BMW and Audi. In other words, the competition won’t come from carmakers. It will instead come from tech giants like Google and Apple. One of the hottest pieces of technology at the moment is autonomous cars that won’t require any effort from the passengers to get from point A to point B.
And then there is Uber who is posing the biggest threat the car industry has ever seen. Uber is making people not want to buy cars. Uber is about convenience. In fact, many people think Uber is even more convenient than owning a car.
And by investing in the chief rival to Uber in the biggest car market in the world, Apple is already one step ahead of the car industry.
If you want to harness the wisdom and insights from the crowd to monitor your portfolio free of charge, please sign up for myMarkets.