Saturday, August 28, 2010

Wall Street Journal
China Real Time Report

EHi Looks to Untangle Traffic Jams in China

Like many Chinese citizens, Ray Zhang is worried about his country’s parking issues, traffic snarls, pollution problems, and increasing demand on foreign oil imports.

Associated Press
A truck driver waits alongside the traffic jam in Beijing.
Zhang, who is the chief executive of Shanghai-based eHi Car Rental Co., thinksChina’s poor traffic situation can be ameliorated by promoting a car-sharing culture.
“China needs a car-sharing and resource-sharing option more than any other nation on earth, due to its population base, geographical size, and energy, environmental, and traffic concerns,” he said.
His company is poised to be at the forefront of this movement, raising a new $70 million investment led by Goldman Sachs Group. The company previously raised $95 million over three rounds of funding from venture capital firms CDH Ventures, Ignition Partners and Qiming Venture Partners, which all reinvested in the latest round.
Since its founding four years ago, eHi has grown into one of the largest domestic rental car companies in the country. It has 120 rental outlets in 34 cities and offers a chauffeur service in 70 cities, with a fleet of more than 4,000 cars.
Zhang said the new round would primarily be used to build out the company’s fleet of rental cars, which will include a few hybrid and plug-in hybrid vehicles for markets in China that can support them.
“China’s car rental industry is at its infancy,” said Zhang, and that the market for car rental companies was wide open.
As it is, this new funding for eHi is set against a backdrop of traffic problems. The capital of Beijing has added on average 1,900 cars per day to its roads in the first six months of the year, and the city already has some of the worst traffic in the world, according to a survey conducted by International Business Machines Corp.
Highlighting how bad the traffic situation in China’s cities has become, on Monday, state media reported in China reported on a 62-mile (100-kilometer) traffic jam on the Beijing-Tibet expressway.
As China’s consumers continue to buy cars in increasing numbers the problem is becoming more severe, according to Zhang. “China cannot go on a U.S. auto consumption model,” he said. “And eHi’s mission is to help China avoid taking such a disastrous route…we promote this lifestyle and hope to raise the consciousness of China’s consumers.”
In late December, eHi launched a car-sharing service in Beijing and Shanghai. It’s similar to the Cambridge, Mass.-based Zipcar Inc., which is now preparing for an initial public offering in the U.S. that’s being underwritten, in part, by Goldman Sachs.
The investment by Goldman Sachs also sets up eHi as a viable challenger to China’s other domestic car rental giant, China Auto Rental Ltd.
That Beijing-based company recently raised a significant round from Legend Capital, a subsidiary of the Legend Group, which also owns the computer manufacturer Lenovo. One of China’s most famous local investment firms, Legend reportedly invested approximately 1 billion yuan ($147 million) into China Auto Rental. Other investors in the company include the China fund of U.S. venture capital firm Kleiner Perkins Caufield & Byers.
Zhang said that China Auto Rental isn’t so much a competitor as a colleague in a market that’s far too vast for any one company to dominate.
“It is our judgment that the largest car rental industry will be in China and therefore the largest car rental company will be in China in the future,” Zhang said. “We think there will be a lot of new demands from consumers and corporations alike for our service [and] therefore we don’t view that the China Auto and Legend deal is a threat to our growth and competition, rather we view it as a healthy oligopoly in the market.”
– Jonathan Shieber

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