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China's leading car-sharing firm faces cash crunch amid surging demand for deposit refund

Togo car Photo:

The deposit refund problem faced by several bike-sharing firms including Ofo is spilling over to car-sharing leader Togo, casting doubts over the prospects of China's sharing economy, which is seen as a new growth driver.

The Beijing-based car-sharing company is busy dealing with users' increasing demands for deposit refund, with many users complaining that they have to wait for as long as two months to get their deposits back, according to domestic media reports.

"I started applying for deposit refund in October. But I have not received the money yet even if the approval process (normally seven working days) has ended. So, that is why I am here at (the Togo) headquarters (in Beijing)," the National Business Daily quoted a user surnamed Zhang as saying.

In response to users' dissatisfaction, Togo recently released a notice on its official WeChat account, saying that users can apply for deposit refund either through its app or through registration at its office buildings. According to a term, a user can get deposit back within seven working days after a 20-day period, during which Togo will confirm whether the user has any traffic violation.

Togo also reportedly owes wages to operation and maintenance staff, which has outsourced the business of operation and maintenance to third-party companies. As early as August, Wang Lifeng, chief executive officer of Togo, asked for patience from employees in charge of operation and maintenance and partners, given the fact that his company was suffering from difficulties in raising funds.

Since its establishment in 2015, Togo has raised over $60 million in six funding rounds, with the latest one taking place in October. Currently, Togo is the biggest car-sharing platform in China.

Industry experts said that car-sharing companies are now facing difficulty in reducing operation costs. Togo, for example, allows users to park a car wherever they want to improve convenience, but it consequently increases the operating costs.

On the other hand, car-sharing companies normally misuse deposits for expansion purposes, which would lead to a massive cash flow gap when users ask for deposit refund en masse. This financial crisis would be exaggerated by an unclear profit model. In this respect, Ofo, one of the biggest bike-sharing companies, can be seen as an example. Recently, the bike-sharing firm went on the verge of bankruptcy due to capital chain rupture and users' sudden demands for deposit refund.

"Car-sharing is not a rigid demand in China, especially in big cities where public transportation systems are good and parking is not that easy. In smaller cities where issuance of car license plates is not limited, taxies and car rental are more suitable (than shared cars) in easing traffic tension," said an investor focusing on the automobile industry, according to Caixin.

Moreover, car-sharing companies are facing competition from traditional carmakers, some of which have marched into the ride-hailing market.

In November, leading Chinese car group SAIC Motor announced to launch its own ride-hailing service, just weeks after Daimler and its Chinese partner Geely set up a car-hailing joint venture in China. In the same month, BMW said that it had been approved by the Chinese regulator to operate taxi-hailing business, making it the first foreign automaker to do such business in the country, where it has acquired a majority stake in a joint venture.

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