India: Deliveries reshaping the ride-hailing business

Unsurprisingly, it hasn’t been a great year for the ride-hailing business in India. Both Uber and Softbank-backed OLA have been reporting significant losses and have, combined, laid off over 2000 people.

Forecast

For both ride-hailing providers, 2020 results are estimated to be below 30% of budget whilst the 2021 outlook is, at best, predicted to reach 80% of pre-covid levels. Indian Government has mandated several safety measures, such as physical separations between driver and passengers, as well as mandatory hand sanitizers.

In the meanwhile, the credit rating of both companies has been significantly downgraded, which will in its turn have an impact on future investments and product development. In the meanwhile, both Uber and Ola have cancelled their carpooling services (UberPool & Ola Share) as these cannot be delivered within the confinements of the governmental regulations.

Positive effect on OEM performance

As a result of this trend, and Indian people’s hesitation to use public transport, the 2/3 wheeler business is booming and so are the sales of affordable vehicles. The popular Hero MotoCorp had, by mid-year 2020 already delivered half a million units – a result that will allow the company to expand and develop more models catered to the local and international markets.

Leasing finally kicking off?

Although operational leasing has been available in India for over a decade and the 3 major European lease vendors are offering their services, the product has not been particularly popular. The perception of leasing was that of a “luxury product”, more suitable for wealthy international companies.

Here as well, Covid has accelerated the uptake and popularity of subscription models and private leasing. Indian start-ups, such as Bangalore-based startup OTO, are booking record results. Question remains if the traditional lease vendors will benefit as well from the crisis: they focus on the corporate client only and this client is not working from the office, nor visiting clients. Potentially, the uptake of leasing will be beneficial for the acceptance of the service as an alternative to cash allowance.

Creativity and positive thinking

As always, Indian businesses don’t give up easily and demonstrate resilience and creativity to reinvent themselves. The ride-hailers have teamed up with online retailers, such as Bigbasket and Flipkart and started to do deliveries. Ola is already active in the food delivery through its subsidiary Foodpanda, although most of the market is split between Zomato and Swiggy.

This expansion of activities has been accelerated by the pandemic, and will probably reinforce the ride-hailer’s results moving forward.