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9 August 2019

BP chases Chinese eMobility with DiDi Chuxing – finally some sense

We have been critical of most things that BP has done in the name of renewable energy, like partnering Bunge last week Brazil, in biofuels, a move that will simply encourage Brazil to slash more forest. But this week it has partnered the controversial rising star that is DiDi Chuxing, the Chinese ride sharing network, to build Chinese EV charging stations.

This is where oil companies should take their exploration cash, and better spend it building out the infrastructure for the fuel of the future – electricity. BP has a head start in that where a petrol station is the right place for a charge station, it has that infrastructure in place already.

The new JV will develop EV charging hubs across the country and its first port of call is going to be the 600,000 EVs that DiDi says it is already is already using in China. The reason this is a smart deal is because DiDi is cash constrained, trying to go public in an IPO designed to raise $2 billion, to cover its continuing losses, as it continues to subsidize drivers to attract them to its platform.

DiDi has 550 million users, and ensuring drivers are never waiting for too long for a slot to re-charge is vital. Tens of millions of drivers who find flexible work and income opportunities on the DiDi platform provide 10 billion passenger trips a year.

BP can provide the financial muscle and use that to get advantageous terms that will give it a platform to build on around China. The State Grid Corporation of China has enough on its hands right now, getting a transmission network that is fit for purpose and keeping up the with regional demands for more electricity. BP will not find it ready to compete at the car charging level, and happy to have help.

China has 1.3 million new EVs a year, and capacity is being ramped to 3.9 million a year in the very near future, so technical lessons learned in China will put BP ahead of the curve in terms of deploying in other markets.

DiDi managed to acquire Uber in China, at a value of $35 billion, all paid in shares, and it is now valued at around $56 billion. But as we noted it has little cash and is burning money right now. Its IPO initially hoped for an $80 billion valuation. Other investors in DiDi Chuxing include Softbank, Apple, Alibaba and Tencent.

BP already has a global fuel retailing and convenience business operating in 16 countries worldwide with over 18,700 retail sites, and that includes a rapidly-growing presence in China. The joint venture will develop standalone, reliable and high-quality charging hubs to provide EV charging services to DiDi’s drivers and the public. But if DiDi Chuxing’s software automatically guides its drivers to a BP facility, it is going to automatically find itself in top spot for chargers. DiDi is already converting to electric vehicles and has a very large user base, so BP expects to drive high utilization of charging assets from day one.

The two companies also intend to expand the venture into loyalty and convenience offerings and other fleet services. Tufan Erginbilgic, BP’s Downstream chief executive said, “As the world’s largest EV market, China offers extraordinary opportunities to develop innovative new businesses at scale and we see this as the perfect partnership for such a fast-evolving environment. The lessons we learn here will help us further expand BP’s advanced mobility business worldwide, helping drive the energy transition and develop solutions for a low carbon world.”

He was bound to get that “low carbon” mantra in there somewhere, but in this instance, it really is a natural extension to the company’s businesses.

BP and DiDi have already opened a pilot in Guangzhou, the capital of Guangdong province, with ten fast-charging units, ranging from 60-120kW. This site will migrate into the joint venture once live. The venture aims to expand rapidly, with an ambition to quickly become the leading EV charging provider in China.

China has 50% of the world’s battery electric vehicles today and by 2030, around 80% of EV charging in China is expected to be done at destination, forecourt and fleet hub charge points. BP says it is committed to being a leading fuel provider for both conventional and electric vehicles worldwide, but to us being in the business of the future, EVs, is more important than its existing business, which will shortly peak – especially in China.

In 2018 BP acquired Chargemaster in the UK and is now rolling out fast chargers in the UK. It has also invested in fast-charging battery technology firm StoreDot. In China, this work already includes an investment in NIO Capital’s investment fund, focused on China’s new energy vehicle ecosystem, and an equity investment in PowerShare, which offers an online platform connecting EV drivers to charge point operators and power suppliers.

BP is one of the leading foreign investors in the Chinese oil and gas sector. BP’s business activities in China include petrochemicals manufacturing and marketing, aviation fuel supply, retail operations, lubricants blending and marketing, oil and gas supply and trading, LNG terminal and trunk line operation, chemicals technology licensing, and advanced mobility.

If BP can make this deal work in China, then as DiDi matures in markets like the US, Brazil, Mexico, Colombia, Chile and Australia, it can cut similar deals there – although it might prefer to work with Uber in some of those markets, but then again so may many other businesses.