• Roland Berger study: Some 600,000 cars are expected to be operated under a car sharing model in China by 2025
• Air pollution, lack of public transport options, a growing desire for mobility, and the popularity of the sharing economy are driving the market
• Currently, local providers control 90 percent of the market – good opportunities for international companies
• Meticulous planning is essential to overcome specific market barriers and establish a profitable business

Munich, April 6, 2017

Car sharing as a phenomenon has exploded in China in the last couple of years. Whereas just 14,000 car sharing vehicles were on the roads in 2015, by the following year the fleet had already almost doubled to 26,000 cars. And the numbers are rising: by 2025 there are expected to be some 600,000 vehicles operating under a car sharing model, which equates to an average annual growth rate of 45 percent.

This rapidly growing market is currently 90 percent in the hands of local companies but it does offer major opportunities for international car sharing providers. This is the conclusion reached by the new Roland Berger study, Car sharing in China – How to operate a successful business. In their report the experts analyze the market, describe the challenges facing the providers and explain how they can be overcome.

China: A young market with an excellent outlook

"The growth of China's car sharing market has only just begun," says Ron Zheng from Roland Berger China. "There are various aspects behind the market's growth: The fight against air pollution in Chinese metropolises and the strict license plate restrictions on private vehicles are big factors, as is the lack of public transport, which often cannot keep up with the rapidly expanding population."

Added to that we have the Chinese people expressing an increasing desire for mobility and the popularity of the sharing economy surging in China: A Roland Berger survey in 2015 already revealed that almost half of respondents were aware of car sharing and more than three quarters were interested in making use of it. Young people in particular, aged between 18 and 35 years, represent the main target group for car sharing.

The Roland Berger experts are consequently in no doubt that car sharing in China offers considerable potential – including for international providers: "Numerous companies have entered the Chinese car sharing market with a range of different ideas and business models over the past five years," explains Zheng. "Several international players, primarily OEMs, are among those to have realized that there is a very promising segment opening up here."

Bureaucratic hurdles and knowledge of customer needs: two key factors

However, the road to achieving a profitable car sharing business in China is anything but smooth. Providers have a number of important prerequisites to fulfill: they must, for example, apply for the necessary operating licenses and permits from government agencies and local authorities, obtain sufficient license plates for car sharing fleets, and clarify exactly where the vehicles can be parked in the city's busy streets. "Close and early contact with the local authorities is crucially important. Partnerships are also essential in order to be able to provide the necessary infrastructure like parking lot solutions and charging points for electric vehicles," says Zheng.

Providers may well find that their efforts to set up a successful car sharing business founder without a good understanding of local customer needs. Not knowing your customers puts you at risk of a very low fleet utilization rate. The Roland Berger experts found exactly this scenario in one Chinese megacity, where car sharing providers averaged utilization rates as low as 12 percent. Too low, as Ron Zheng explains: "According to our calculations, 20 percent utilization is the absolute minimum for breakeven."

What providers need to do is therefore run through various usage scenarios and optimize their offering accordingly. This may involve specifically placing vehicles in cities or districts where alternative mobility solutions or transport options are either not available or not sufficient to meet the population's needs. "Choosing the right location for the vehicles has an impact on the level of revenue achievable," says Zheng. "That is because the availability of alternative, cost-efficient mobility solutions affects Chinese customers' price sensitivity regarding car sharing trip rates."

In spite of these and other challenges, the study's authors believe that companies can be successful in the Chinese car sharing market. "The industry is still in a nascent stage," says Zheng. "New entrants therefore have the chance to give themselves a first-mover advantage and capture market share, just as companies did many years ago in the early days of the automotive industry in China. Meticulous planning will, however, be crucial."

• Photos Roland Berger; Diverstudio / iStockphoto