Uber has a new strategy in China: If you can’t beat them, join them.
Uber is planning to merge its China operations with those of rival Didi Chuxing, a landmark deal that would end the ride-hailing company’s quest to dominate one of the world’s largest markets.
“Uber and Didi Chuxing are investing billions of dollars in China, and both companies have yet to turn a profit there,” Uber CEO Travis Kalanick wrote in a draft blog post obtained by CNNMoney. “Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term.”
Uber will receive a 20% stake in Didi, according to news reports that put the value of the combined company at $35 billion. Didi will also make an additional $1 billion investment into Uber.
Representatives for Didi and Uber did not comment for this story.
Uber launched in China in 2013, and its operations have since expanded to roughly 60 cities. The market was a top priority for Kalanick, who made frequent visits to China and poured billions of dollars into the country.
But China was a tough market for Uber to crack — especially in the face of stiff opposition from Didi. In February, Kalanick said that Uber was losing $1 billion a year in China.
Both companies burned through investment funds by subsidizing drivers and prices in an effort to capture more of the market. But new regulations announced last week essentially banned the use of subsidies, adding new pressure to the business model.
Didi Chuxing is itself the product of a merger between two homegrown ride-hailing companies: Didi Dache and Kuaidi Dache, which joined forces in 2015 in a move to counter Uber.
The combined firm, which has been renamed Didi Chuxing, raised $7 billion in its most recent fundraising round, including $1 billion from Apple. It also has the backing of Chinese tech giants like Alibaba and Tencent.
This is the latest in a string of moves by foreign companies to separate their China business units. Yum! Brands, which operates popular fast food chains KFC and Pizza Hut, plans to spin off its China unit as a separate, publicly traded company later this year.
McDonald’s is also reportedly looking to sell its Chinese operations.