SHANGHAI, June 24 (Reuters) – China’s two largest ride-hailing firms, Didi and Meituan, have agreed to end a costly price war that has hit their earnings and are discussing joining forces to better compete with emerging smaller rivals backed by automakers, three people with knowledge of the matter said.
The truce between Didi Chuxing Technology Co Ltd (DIDI.N) and Meituan (3690.HK) comes after months of heavy discounting and subsidies that have eroded profit margins, the people said, declining to be identified as the information was confidential.
Didi and Meituan declined to comment.
The agreement between the two ride-hailing giants could accelerate industry consolidation and pave the way for a potential merger in the future, the people said.
Beijing has been encouraging consolidation in various industries to create national champions that can better compete globally. In the ride-hailing sector, the government has been concerned about the financial health of Didi and Meituan.
Didi, which counts SoftBank Group Corp (9984.T) and Tencent Holdings Ltd (0700.HK) among its backers, reported a net loss of 30.8 billion yuan ($4.7 billion) in the first quarter, more than double the loss a year earlier.
Meituan, which also operates a food delivery business, reported a 10.9 billion yuan loss in the same period, its first quarterly loss since going public in 2018.
The price war between Didi and Meituan intensified in recent months as smaller rivals, backed by automakers such as Geely Automobile Holdings Ltd (0175.HK) and SAIC Motor Corp Ltd (600104.SS), gained market share.
These new entrants have been offering deep discounts and subsidies, which Didi and Meituan have been forced to match to retain customers.
The truce between Didi and Meituan could give them some breathing room to improve their profitability.
The two companies are also discussing a potential merger, the people said, although no concrete plans have been made and the deal could still fall apart.
A merger between Didi and Meituan would create a dominant player in China’s ride-hailing market, with a combined market share of over 90%.
Such a deal would likely face regulatory scrutiny, however, as antitrust concerns have been growing in China.
In 2021, regulators fined Alibaba Group Holding Ltd (BABA.N) a record $2.75 billion for abusing its dominant market position.
($1 = 6.5526 Chinese yuan renminbi).
