Update 12.09.23:
Onto officially appointed receivers yesterday.
It’s been an interesting week for Onto, the electric car subscription company. Major backer Legal & General has reportedly issued a statement saying they will not commit more funding to the project. This could leave Onto in a tricky financial position in the near future. According to Car Dealer mag and Sky News, Onto has extensive debt, although that in itself isn’t unusual for any fast growing company.
L&G have supported the Onto journey to be fair. Back in July 2022 L&G led a $60m funding round that would allow Onto to expand into the German PAYG EV market. Potentially lucrative you might think, as many Germans are known for their green way of living. But there is a problem with the Onto business model, which can be found at the end of the L&G press release from last year;
“Onto’s monthly subscription service includes 750 miles per month, insurance, servicing and maintenance, and free public charging at more than 12,500 points via its UK network of charging partners – Shell Recharge, BP Pulse, InstaVolt and Tesla Supercharger.”
Yep, you read that correctly, free public charging. How is that sustainable?
In a year or so the cost of charging anything has risen steeply, as Ukraine was blamed for the near doubling of wholesale energy contracts. That price pain has eased slightly, but green activists themselves are still shouting for less carbon, more “green” transport, housing and reduced consumer product consumption. Some politicians think EVs should pay a “tyre tax” as the weight means specks of toxic carbon compounds are ground into the crumbling road network. All that means green taxation on vehicles, travel (ULEZ) and charging is lilely to remain high, or increase.
CAN A CAR-AS-A-SERVICE MODEL TURN A PROFIT?
In Feb 2023 Onto secured a £100m line of credit to continue its forward momentum, which is on top of the 2022 $60m investment. Back in 2021, Techcrunch reported that the funding raised at that point was $245 million. These are serious amounts of money to put into a company which may – or may not – have significant fixed assets. It’s likely that the cars rented out monthly are owned by a finance company, or the manufacturer.
That isn’t a problem in itself. Uber doesn’t own any cars, Amazon probably doesn’t own all the land its warehouses are built on. In the end, if you make enough revenue everyone gets paid.
But IE wonders if the only companies who can bear the risk of monthly hire of vehicles are manufacturers themselves. Once you allow people to cancel their car on a monthly basis, or worse still swap it for something else a couple of times a year, you create a kind of disposable product mindset. Drivers see the vehicle as being a hire car they can get rid of once they are bored and every insurer knows that hire cars often don’t get treated very well.
Fact is, EVs need care just like an ICE car. Just a bit different care that’s all. The battery pack gets hammered if the charging isn’t carried out correctly. An array of sensors need monitoring by the driver, although some data can be collected by manufacturers or hire companies. Minor tyre or bodywork faults might not be reported. There are also huge transport costs in picking up and delivering cars that weigh up to three tons inside London or other cities; it take lots of time, plus specialist vehicles and trained staff.
The IE lessons on investment are simple; is there strong demand from early adopters spending huge sums monthly? How much do the product distribution and servicing costs add up to monthly? Finally, what is the default ratio per 100 customers? This is pretty much standard with an insurance policy book and whether it’s L&G, Aviva, AXA, Munich Re, LV or any other insurer looking to diversify into car hire, this is the first comparison you need to do after the opening quarter of business.
Chasing money costs money. Not only did you lose the profit from that deal, but you spent the profits from two more deals chasing it down. Fact.
It will be interesting to see if Onto can weather this storm and if L&G decide to walk away from vehicles and concentrate on social housing investment instead.
Be the first to comment