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3 Insightful Quotes from Apple (AAPL) CEO Tim Cook on Didi and China

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On Thursday, May 12, Apple Inc. (AAPL - Free Report) announced that it had invested $1 billion in Didi Chuxing, China’s largest ride-sharing service. Like Uber in the United States, it provides both private vehicles and taxis for hire. However, it operates in over 400 cities in China compared to Uber’s 45 in the region.

There is a lot of speculation as to the rationale behind the investment. Let’s take a look at what Apple CEO Tim Cook has said on the deal and China in general, to see what we can glean from his statements.

1. “We are making the investment for a number of strategic reasons, including a chance to learn about certain segments of the China market. Of course, we believe it will deliver a strong return for our invested capital over time as well.”

Our team has written about rumors surrounding Apple’s venture into the automotive industry for quite some time now. Research on Apple’s R&D costs show that from 2013 to 2015, Apple spent more money on cars than the top 14 automakers combined.

It’s possible that Apple wants to make use of Didi’s software to design an autonomous taxi service. Another theory is that the deal is meant to curry favor with the government in Beijing. In April, China shut down Apple’s iMovie and iBooks services as part of tighter regulations, a decision that the company would surely like to see reversed.

Either way, the move allows Apple to get another lens through which to learn about the Chinese consumer, a perspective that could prove invaluable in future ventures.

2. “(The deal) reflects our excitement about their growing business… and also our continued confidence in the long term in China’s economy.”

Didi certainly is a growing business. The four-year old company currently completes over 11 million rides a day and has more than 300 million users. The company also claims to hold 87% of the private car market and 99% of the taxi-hailing sector. Although Didi does not share financials, it claims to be closer to profitability than ever before, a testament to their continued progress.

Didi Chuxing is the byproduct of a 2015 merger between two Chinese companies, Didi Dache and Kuaidi Dache. The two companies were backed by Tencent Holdings (TCEHY - Free Report) and Alibaba (BABA - Free Report) , which themselves are two of the biggest tech names in China. Didi also has investments in U.S.-based Lyft as well as India’s Ola service, fellow Uber competitors.

Based on its most recent fundraising run, Didi has a current valuation of 28 billion, a value still smaller than Uber’s supposed valuation of $68 billion. Bloomberg reports that Didi wants to invest money into artificial intelligence (AI) in order to improve their system and better match drivers to customers. As we covered in our piece on the uncharted world of AI, the technology has a very bright future and potentially infinite applications.

3. “That country (China) has enormous opportunity. There are such an amazing number of people that are moving into the middle class. It’s something like I’ve never seen in my lifetime before.”

Mr. Cook is right. China’s unprecedented economic growth has led to a surging middle class. In our article on the subject, we highlighted how the now 225 million strong demographic is spending more than ever, and how that consumerism will help guide China’s growth moving forward.

In Apple’s Q2 earnings report on Tuesday, they noted that 63% of their $42.4 billion in Q2 came from outside of the United States. This time around, the Greater China region made up $12.49 billion of that total. Domestic companies like Xiaomi and Huawei are biting off an increasingly large chunk of that cash, however expanding into other industries within China should serve to benefit Apple moving forward.

Bottom Line

Globalization has certainly made the world smaller, and in the process made us aware of what goes on across the pond. Apple and other major companies are doing all they can to expand their global outreach, and a 1.4 billion strong China represents a treasure trove of opportunity.

The gold-hungry westward travelling U.S. settlers of the 19th century were nicknamed “forty-niners.” Although for them opportunity was in the West, it seems the 21st century trend revolves around moving East.  

Apple’s investment in Didi is the latest of what will likely remain a very active involvement in the so-called “Middle Kingdom.” As for if and how it pays off, only time will tell.

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