A COVID slump slowed the roll of major automakers and dealers this past spring, with the pandemic causing a 30 percent drop in auto sales to date. That’s giving extra momentum to the car-leasing trend that’s been displacing ownership for years. And that, in turn, is being challenged by ideas like fractional ownership and, more recently, auto subscriptions.
Many people think 2020 is the wrong time to buy a car anyway. That group would certainly include Alex Marcinkowski, chief strategy officer at Canoo, the electric vehicle company that has made headlines with its recent $600 million fundraise. Canoo accomplished that by merging with a special purpose acquisition company (SPAC) called Hennessy Capital Acquisition Corp., bypassing much of the red tape and long waiting times involved in traditional initial public offerings (IPOs).
Canoo plans to use the fresh capital to perfect its “skateboard” chassis, a breakthrough in EV manufacturing that allows almost any “top hat” (passenger cabin) to sit atop it. The company is capitalizing on COVID-era societal shifts as it designs this new generation of sustainable cars.
“We saw two key trends that told us people want an offering like this today,” Marcinkowski recently told PYMNTS. “The first … was the rising popularity in lease models. The second [is] a bigger … fundamental cultural shift [toward] flexible, non-committal services.”
A quest for non-committal services is altering everything from real estate to tech to telecom, he said.
“You're seeing it everywhere,” Marcinkowski noted. “People are buying things outright less, especially fixed assets. We're moving around a lot more … compared to our parents, and this is leading to expense-heavy lifestyles. For [Canoo], it made sense to capture these ... macro tailwinds like the rising popularity of leasing” to create the company’s subscription model, he added.
Building A Better EV Experience
Seeking “margin levels and profitability levels that aren't really possible with traditional sales models,” Marcinkowski said that Canoo’s approach extracts more free cash flow per vehicle. “That's what subscriptions enable,” he added.
With its first vehicle expected in 2022, consumers are already joining a waiting list to subscribe to one of Canoo’s envisioned EV models — a sedan, an SUV or a purpose-built vehicle (PBV) — for mobile delivery and rideshare uses.
“It isn't quite Cars-as-a-Service. [It’s a] month-to-month flexible offering of one vehicle that sits in your driveway, so you use it like it's your own, but you get the flexibility of not having to be locked into a two- to three-year [lease] term,” Marcinkowski said. “And we are not requiring a hefty down payment. Barriers to entry are a lot lower with a model like ours.”
Canoo is also enhancing aspects of the customer experience by registering its cars in the company’s name, sparing customers the interminable wait at their local Department of Motor Vehicles. The company will also provide maintenance and repair, as another way of reducing electric vehicles’ high price tags.
“It's much easier for us to manage a very large part bin and to work directly with the large MRO shops" than it would be for consumers, Marcinkowski said. “That's what differentiates us from some of the other subscriptions. We [can] compete on price with a lease model … deliver optionality … ease of use [and a] digital-native experience. That's really our value proposition.”
That, plus the fact that traditional leases don’t include perks like taking care of routine maintenance and repair, registering the vehicles for drivers, and offering access to insurance and vehicle charging stations. Marcinkowski said such services simplify the consumer experience and provide “the flexibility that folks are saying [they] want. The automotive industry really hasn't caught onto that quite yet.”
Auto Subscriptions Go DTC
Canoo’s skateboard chassis is so innovative that Hyundai Motor Group has contracted with the firm to provide engineering expertise for its own forthcoming line of EVs. According to a statement, “as part of the collaboration, Canoo will provide engineering services to help develop a fully scalable, all-electric platform to meet Hyundai and Kia specifications. Hyundai Motor Group expects the platform to help facilitate its commitment to delivering cost-competitive electrified vehicles — ranging from small-sized EVs to purpose-built vehicles — that meet diverse customer needs.”
It’s another promising development for the nascent EV manufacturer. Just as captivating as its vehicle designs are the differentiators Canoo has built into its business model to stand apart from other players in the subscription vehicle sector.
“If you look at [auto] subscription services today, they ask consumers to pay a lot extra for … value drivers [that are included with Canoo], and that's really hindered adoption,” Marcinkowski noted. “The second thing that's really specific to us — and this is one that's really hard to replicate — is that we've built a [car] specifically for the subscription service.”
Perhaps most importantly, he pointed out that Canoo “is a direct-to-consumer (DTC) model. The OEMs [are still] stuck in the dealer network. It's why every OEM ad is just a video of a car driving. It's not a true brand. That's because the dealer owns that consumer relationship.”
But he addd that DTC “enables us to build a consumer brand where we can manage the relationship and craft a true Canoo experience.”