Didi Chuxing's Latest Investment Is All About Two-Wheeled Transportation

By Markets Fool.com

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Just when you thought Didi Chuxing had already expanded into every major transportation segment in China, the company goes and makes a sizable investment into a bike-sharing start-up.

The company said earlier this week that it's funding the bike-sharing company Ofo with tens of millions of dollars (though it didn't specify exactly how much). The investment adds bicycles to the growing list of transportation services Didi has its hands in, including ride-hailing, rental cars, taxi services, bus transportation,chauffeurs, and new car test drives.

To be clear, Didi Chuxing didn't buy Ofo but is instead giving the company money and forging a new partnership. Ofo is currently in 20 Chinese cities and has 1.5 million users and nearly 70,000 bikes. But the former Peking University student project will likely be able to take its business to the next level with Didi's help, along with an additional $4 million in funding from other companies that came in earlier in September.

How the partnership might work

China has a massive bicycle market. The World Bank says that 37% of China's population uses bikes and that the country has about 400,000 bike-share bicycles -- more than all of the other countries in the world combined. Ofo is already using its bikes to deliver 500,000 rides every single day, but that could likely rise with the Didi partnership.

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Didi Chuxing currently has 300 million users requesting 11 million rides each day in 400 cities across China. If Didi were to integrate Ofo's bicycle-sharing services into its app, then it might be able to easily fill in some short-distance transportation gaps.

The World Bank wrote in a recent blog post, "The integrated bicycle-mass transport solution makes public transport much more attractive for users living within a radius of 5 kilometers from a mass transit station." The organization was referring specifically to Rio, but the benefits could be seen elsewhere, of course.

Combining Didi's customer base and infrastructure with Ofo's services could give Didi's riders a way to easily get to buses or taxis by using a bike, instead of having to walk.

Right now many of Ofo's customers are college students who use Tencent Holding's WeChat app to unlock a bike; the popular messaging app also serves as the payment processor. Tencent is one the biggest investors in Didi, which was once two competing companies owned by Tencent and Alibaba.

To be sure, it's still a bit unclear how Didi will benefit financially from the Ofo investment. The company said in a press release that the new relationship is "a multi-layered partnership"but didn't offer any money-making specifics. Didi has said, though, that the two companies will use the partnership to share data with each other, eventually helping Didi users find bikes and boosting Ofo's customer base to more than just students.

If Didi can turn some of Ofo's customers into its own customers, then that should clearly be a win for the company. But I think the partnership has more to do with Didi trying to grab ahold of any and all transportation systems in China and to set itself up as the go-to company for getting around the country.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.