Deal focus: New angle on logistics flourishes in China

Julien Mialaret, Asia lead for Idinvest Partners, says he’s never seen a single sheet of paper at China’s DST Car Rental, and his description of the company’s Shenzhen headquarters evokes a vaguely James Bond-style control room. “There’s this massive wall with a visualization of what’s going on, all the vehicles and all the data on them.”

The point is, this is not your typical delivery logistics provider – and not just because the 40,000-strong fleet is made entirely of electric vehicles (EV). DST, also known as Dishangtie, has achieved the rare feat of combining multiple links in the EV logistics value chain into one offering.

Traditional intra-city delivery players looking to reduce their carbon footprint usually acquire the necessary vehicles and then learn the hard way that – due to a host of mostly battery-related reasons – EVs cannot be mass-managed like standard cars. The incumbents also tend to lack the data DNA of a modern start-up, which is essential to optimizing EV operations at scale.

At the same time, data-savvy start-ups cannot easily pursue a model that involves fleet ownership or work with manufacturers to create EVs with ideal specifications, as DST does. Such ambitions require significant upfront capital coupled with enough time and risk appetite to prove the model works. In the US or Europe, only an adventurous corporate could pull it off. In China, where some cities have begun requiring delivery vehicles to be electric during certain hours, this is start-up territory.

“When we were doing due diligence [for Indinvest’s initial investment in 2019], we showed the datasets of how DST operates and its usage metrics to one of our LPs, and they said, ‘That can’t be real data,” Mialaret says. “When I speak to US investors about this model, they’re shocked because it doesn’t occur to them that a single start-up could take the whole vertical market. Everything they’ve seen in the US – things that look like DST – are just pure data companies.”

DST raised a $100 million Series C round last week led by Ingka Holdings, an affiliate of Sweden’s Ikea. Runxin New Vision Fund Management, Bojiang Capital, Matrix Partners China and the VC unit of Singaporean transit operator SMRT also participated. Idinvest had introduced SMRT with a view to facilitating a Southeast Asia expansion and supported due diligence for both SMRT and Ikea.

This is likely to be one of the last private funding rounds before an IPO. Profitability will be a prerequisite for the plan, and DST is almost there. Last year, the company was profitable on an EBITDA basis for two quarters and expects to be profitable on a net basis for full-year 2021.

There is also the idea that, as a Chinese company, DST would benefit greatly from an international presence upon going public. China will continue to be the core focus given the room for growth in domestic EV delivery (92% of the market is still non-electric), but the optics of going overseas are considered invaluable.

It’s possible Ikea has European plans up its sleeve, but the furniture retailer is most likely simply reinforcing its China supply chain. DST handles about one-third of Ikea shipments in the country. These operations span Beijing, Guangzhou, Changsha, and Zhengzhou, as well as Shanghai, where Ikea has realized 100% EV distribution.

A Southeast Asia entry supported by SMRT appears to be the more bankable move, especially given Idinvest’s track record in this area. The investor has played similar gambits with autonomous driving company WeRide and micro-EV developer Immotor.

“We’re seeing this wave of TikToks that are building for global markets, but it’s not easy for Chinese companies to adapt to foreign needs,” Mialaret observes. “They struggle, but if they can get it right, it will be interesting. If we can help other regions in the world understand these companies and adopt them, then we feel that we’re doing our job right.”

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• Topics
• Greater China
• Expansion
• Cleantech
• China
• Matrix Partners
• automobiles
• Logistics