In the first episode of Join the ride! the podcast, Casi CEO and co-founder, Hans Kristian Aas, outlines three different fleet financing models for OEMs looking to succeed with flexible fleet concepts. Before we start looking into to different models, let us summarize what OEMs ideally want:
Hans Kristian discusses three models: One for early piloting, one for larger fleets, and one for "infinite scale." Buckle up, and Join the ride!
For piloting - “The Inventory Financing Model”
Most automotive players have some sort of existing Inventory Financing. This is for wholesale, demo fleets etc. In model one, a fleet of vehicles can be financed as inventory and offered by the same legal company to subscription customers. The advantage is that the company and financing most likely already exists and it is easy to set up; Ideal for a pilot and fast go-to-market.
The downside is that most inventory financing facilities can not be scaled and are rigged for the traditional sales model. Vehicles offered on subscription will not leave the financing, and therefore, block capacity needed for new vehicles to be sold. Another downside is that the vehicle in this structure does not provide revenue recognition as sold since the financing is in your own company. This makes sense for pilots meant for learning, but does not scale to build a large business. I would say this works for 1-50 vehicles, but that depends on the player.
For scaling (up to a certain point) - “The FleetCo”
Model number two is a structure where a new company is established, the Fleet Company. Ideally, the company is not owned by the OEM or the bank to enable full revenue recognition. The OEM sells the vehicle to a bank that leases the vehicles to the fleet company. The vehicles can also be acquired directly from the Fleet Company. This is a more flexible setup, but requires more capital in the fleet company.
The Fleet Company is the provider of the subscription service to the end user and also operates the ecosystem around the vehicles. Advantages of this model is that it enables revenue recognition, either full recognition if the residual value is held by the bank or the fleet company, or partial recognition if the OEMs has a buy-back agreement. The latter might be preferred if the OEM wants to control the after-life of the vehicle.
A down-side of this model is that the financing relies on capitalization of the company or the OEM offering financial guarantees to the Fleet Company. If the fleet is leased, the Fleet Company loses flexibility if changes to the fleet need to be made. Typically, this is suitable for up to a certain level, say 50 to a couple of thousands vehicles.
For infinite scale - “The SPV” - Special Purpose Vehicle - an example without banks
The third model builds on the last, but there is an additional structure established to ensure internal capital to fund the fleet. The Fleet Company will, in this case, receive debt financing from the capital structure used to acquire the vehicles. The capital can be infused directly into the SPV by investors or set up in a fund / holding company. Typically, investors in a holding company would be pension funds or infrastructure funds. The fund is paid a fixed interest by the fleet company to cover capital costs and interest rates.
In this case, the whole structure is set up without banks. Care by Volvo in the UK is an example of this. The Fleet Company has the agreement with the end-user and the recurring revenues cover the running costs of the structure. When vehicles leave the structure, there can be arranged residual values with the OEMs dealership network or a third party player.
The advantages of this structure is that it can be scaled almost infinitely. If needed, different SPVs can be set up in vintages separating the risks between different years. It ensures revenue recognition, and set up correctly the OEM can still be the brand and “face” of the service to end-users. A key element of the structure is to divide the different risks to avoid the capital being too expensive. The secondhand life of the vehicles is also covered if the OEM can bring this into their dealership network.
The structure's downside is its complexity. It is suited for fleets of 10k+ vehicles and relies on that scale to have a low cost per vehicle. Ideally, the structure works across countries, which means that it must deal with local regulations as well.
These are three examples of structures supporting the growth journey from pilot to scale. There are a number of other models, often triggered by OEMs that have a slightly different asset strategy. Some OEMs have their own Financial Services, and that changes the structure. Other prefer to keep vehicles on their balance, especially new OEMs, to protect the first wave of used vehicles. The recommended approach is to map the most important elements of your asset strategy, assess different risk elements, and define a structure as close to a Silver bullet as you can.
From a Casi perspective, the way our technical platform is configured depends on the chosen strategy. We love having these conversations with our clients, of course, to share our insights and co-create new innovative structures to create scalable concepts!
Contact: contact@casi.auto
.png)
.png)
