How used cars are the next e-commerce battleground

So far this year, new companies focused on selling used cars online have reached deals and raised nearly US$6 billion, as investors bet on the last major category of consumer spending to avoid e-commerce disruption and eventually go digital.

Start-ups and decades-old auto trading groups that barely existed before the pandemic are racing to establish online markets, consumer brands, and expensive logistics infrastructure to enter the valuable global used car market Nearly USD 1 trillion One year.

“Compared to almost all other retail sectors, online transformation in the automotive sector lags behind online transformation, but it is now catching up,” said Alex Chesterman, founder and CEO of Cazoo, based in the United Kingdom. ) Said that the company expects revenue to grow by 300 this year to nearly 1 billion U.S. dollars.

Chesterman’s digital car retailer will pass $8 billion deal This summer, it cooperated with an American special purpose acquisition company and generated nearly 1 billion U.S. dollars in revenue. Cazoo’s biggest British competitor, Cinch, raised 1 billion pounds (US$1.4 billion) in new capital in May.

Cinch and Cazoo are just two of the biggest examples of how much fuel has flooded into used car sites around the world from India to Mexico.

Tom Leathes, co-founder of Motorway, another British automotive start-up, said: “This feels like the last major obstacle to the transition to a digital economy.” It’s unfavorable.”

Companies in Europe, Latin America, and Asia all hope to replicate the success of Arizona-based pioneer Carvana, which was founded in 2012 and is now worth more than $50 billion.

After an annual revenue growth of 42% in 2020, Carvana’s stock price has more than doubled in the past 12 months. However, its share of the fragmented U.S. used car market is estimated to be less than 1%, and bulls believe that this shows huge growth potential.

For years, consumers have been researching their next car purchase online. But transactions are usually done offline, even through websites such as Auto Trader. The pandemic blockade has created fertile conditions for persuading more car buyers to check online for the first time and for dealers to shift their attention from the front yard to the Internet.

“The industry’s perception of online business has changed drastically,” Leathes said, after Motorway raised $68 million last month to establish its online market, where dealers bid for private cars. “In the past 12 months, all car dealers must become online car dealers.”

Alex Chesterman, founder and CEO of UK-based Cazoo

Alex Chesterman, the founder and CEO of UK-based Cazoo, said: “Compared with almost all other retail sectors, the online transformation of the automotive sector lags behind the network transformation, but now Catch up.” © Daniel Jones/FT

At the same time, the chip shortage caused by the Covid-19 manufacturing interruption has spread to the global automotive supply chain.New car production is restricted Push up prices Intensified competition in the used car market has become the main driving force of the used car market Rising inflation Spanning advanced economies.

According to the data cited by Cazoo in its investor presentation, the market size of used cars in the UK and Europe in 2019 has reached 480 billion pounds ($660 billion), which is much larger than e-commerce pillars such as clothing or consumer electronics.

But during the pandemic, less than 1% of used car sales were conducted online. In contrast, digital channels account for one-third of apparel sales and half of electronics retail.

“Three years ago, getting people to spend £20,000 on e-commerce was a major appeal,” said Will Turner, partner of technology investor Draper Esprit and Cazoo investor.

In order to allow car buyers to purchase online with more confidence, digital platforms such as Cazoo, Cinch and Autohero in Europe have introduced Amazon-like features, such as impeccable returns within 7 days and delivery within a few days.

Chesterman predicts that within five to seven years, as many as 30% of the used car market will move to the Internet. But to unlock this multi-billion-dollar opportunity requires huge investments in the acquisition of inventory, construction of refurbishment centers and delivery infrastructure, and marketing.

“Fundamentally speaking, the challenge has always been a onerous, complex, and expensive model,” said Rebecca Hunter, a partner at Octopus Ventures, an investor in Cazoo. “There is no way to get rid of this.”

For example, due to the size and price of the asset, the cost of storing and delivering inventory and processing returns is much higher than other types of online retail.

“Obviously, there is a lot of demand,” Hunter said, “but no one can deliver on a large scale.”

Carvana is a pioneer based in Arizona. It was founded in 2012 and is now worth more than $50 billion.

Carvana is a pioneer based in Arizona. It was founded in 2012 and is now worth more than $50 billion. ©Laura Buckman/Bloomberg

This situation is rapidly changing as investors promote accelerators through a series of private financings, initial public offerings and blank check company transactions.

German Auto1, which owns Autohero, raised US$1.2 billion in major capital through an initial public offering in February, with a valuation of approximately 8 billion euros.Another new listing last month saw Aramis -Operating used car markets in France, Spain, Belgium and the United Kingdom-Raised approximately US$300 million in new funds.

In private transactions, Mexico’s Kavak raised US$485 million in April at a valuation of US$4 billion, while SoftBank made a US$360 million investment in Singapore-based Carro in June. In India, Spinny has raised $165 million from investors including Tiger Global so far this year.

Private equity firm partner Thibaut Large (Thibaut Large) said: “The market opportunity here is so huge, you want to have the best capital participants.” Tiande Capital, Cinch’s major shareholder.

Although its British competitor Cazoo has only been established for three years, Cinch is part of the 75-year-old Constellation Automotive Group, which is also the parent company of and BCA, the largest auto auction business in the UK. TDR Privatize BCA In the middle of 2019.

Last week, TDR and some investors supporting Cinch also invested 400 million euros in CarNext, which operates on the European continent, to acquire Autohero.

“There is potential demand in any of these markets,” Large said. “Consumers are dissatisfied with all the traditional ways of buying used cars, so they seize the opportunity to buy used cars [online]. “

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