Bottom line: Meituan's move into shared car services is likely to reignite a price war with incumbent Didi, and could be aimed at generating excitement ahead of a mega-IPO later this year. 

Just days after reports emerged that car-sharing giant Didi Chuxing would pedal into the shared bike market, new reports are saying that group buying giant Meituan-Dianping is driving into Didi's own shared car services space. These two stories underscore a theme that comes up time and again in the China tech world, whereby cash-rich companies often pile into hot and trendy sectors where they have little or no experience.

In this case the Meituan move has interesting implications because it could restart a fierce price war that was finally resolved last year when Didi merged with Uber China to take on its current form. Didi has pretty much owned the market since then, though it still faces some competition at various local levels. Now all that could change with the entry of Meituan, which should be flush with cash to launch yet a new round of price wars.

According to the latest reports, Meituan is planning to launch its car services on January 12, or three days from this writing. There's not much more detail, except to say that 200,000 people have reportedly registered for the new service, which was the threshold that Meituan was setting before an official launch. (Chinese article) The only other detail is that the service will initially launch in Beijing.

The reports add that Meituan is offering vouchers for people who sign up, which hints at the kinds of price wars that are likely to come. Market watchers will recall that a bloody round of price wars erupted a couple of years ago, which ultimately forced the bullish Uber to call it quits and merge with rival Didi to form the current Didi Chuxing. Before that, both companies had been losing huge sums of money by offering highly subsidized services to build up their user base.

Well-Funded

Meituan is also quite well funded, having just raised a tidy $4 billion in its latest fund-raising last October. Its core group buying and restaurant ratings business are believed to be breaking even or even earning some small profits, so it probably didn't need that new funding for those. Instead, at least some of that new money probably went into another price war Meituan was fighting in the take-out dining space. That separate war saw the field of players reduced from 3 to 2 last summer, when Baidu (Nasdaq: BIDU) sold its service to Ele.me, leaving that merged company to compete with Meituan. (previous post)

I expect that Meituan is still subsidizing its takeout dining service, though perhaps not as heavily as before the Baidu-Ele.me merger. Perhaps that's what's emboldening it now to take on Didi, whose own business many believe has taken a bit of a nosedive since its own landmark merger with Uber China. That's because Didi canceled many of its subsidies after the merger, leading many consumers to stop using the service. Additionally, many big cities have rolled out strict regulations that have hurt Didi's ability to hire new drivers.

Didi's one consolation as its business stalled was that it had an effective monopoly. But now that looks set to change, since Meituan is almost certain to move aggressively to provide a strong rival national product. Thus we can probably expect to see some more sparks in this sector as we drive into 2018.

One interesting sideline to all this is that Meituan has reportedly been eyeing an IPO in New York that could finally come to market this year. The company is quite old as Internet firms go, and its older investors are probably hankering to cash out some of their investment. What's more, it's a clear leader in the restaurant ratings and group buying spaces. In that context, some might interpret this move into shared car services as an attempt to create more excitement in the lead-up to an offering, though it will also eat into the company's bottom line.