The car as a service model in the Nordics - who is driving and at what costs.

31 January 2018 Insights
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The car as a service model has been around for a while in the Nordics, in a few sorts and shapes.

It is one vertical that shows potential of disruption as it is a different model applied to a high inventory of vehicles - even the sales in the Nordics seem to be good these days - and due to great public transport in the region combined to the fact that 23 out 24 hours cars are usually unused.

We have identified and crunched some of the models from the Nordics, active for a few years and which try to make it from a cool proposition to a solid business.

Owner of the fleet model

Those companies usually are operated by actors such as car manufacturers, importers and dealers. Volvo or BMW are active already here (shortly after writing the article, BMW closed its operations in Sweden), Møller Mobility Group (one of the largest car group from the Nordics) also in a pilot phase in Norway.

Volvo manages Sunfleet, which is dominating the Swedish market, having available about 1000 cars throughout the country. The model involves a monthly subscription that provides on demand access to different car models, all accessible on a pay-as-you-go model, given that you're a subscriber. Besides the membership, you only pay based on a composite model including the time and the number of kilometers. Fuel, road tolls, some basic insurance and even parking in some parts of the city, are all covered.

Volvo is also experimenting with an all inclusive subscription model, announced with the launch of the XC40 model at the end of 2017, which seems to be well received in Norway. The sub is a all-you-can-eat, 2 year binding and includes insurance, winter tyres and assistance. It is an intriguing model with still infant numbers we presume, at a middle market positioning (about 600 euro per month)

Then there is BMW with Car Drive, managing 6000 cars in the entire Europe, and active in Finland, Denmark and Sweden (300 cars) . The difference from Volvo is that BMW subscribers can have access to all the cars available in other countries, which may be attractive for people holidaying in EU.

Other actors - Audi had an unsuccessful trial with Audi Unite in Sweden for a few years and closed down at the beginning of 2017. In Finland, EkoRent and ALD Sharing also operate under the same model, but with small numbers we presume (EkoRent had a mere EUR 100k in revenue in 2016).

It is a business with a high barrier entry as you need to have a fleet under management, as well as the related services in order to operate a smooth operations. Most likely suitable for the big guys in the business.

Marketplace model

There are two sub models here - the driving (uber) version and the peer-to-peer (airbnb) one.

The Uber version involves a marketplace for drivers, a service competing directly with the taxi services. Those services are under intense legal scrutiny and regulated, Uber actually acts like a cheaper taxi company (which provide at par services) in Sweden and has been banned in Denmark and Norway. Other similar services trying to dip their toes in the market, but with little growth, and, to be frank, chances, are Heetch or My Taxi (owned by Mercedes). We doubt there is room for new entrants here.

The p2p version involves a marketplace for people making money by sharing their cars. There are a number of players in the region, notably in Norway and Denmark, such as Nabobil (in Norway - 6000 cars), SnappCar (SWE), Green Mobility (DK - 400 cars, owned by Sixt), LetsGo (DK - 200 cars). In Finland there are car sharing services like Shareit Blox Car, City Car Club and Go Now.

It is a trust business as it is any network economy based on a marketplace.

Where is the money

We made a back-on-the envelope calculations, by using public data and some general assumptions

- As an owner of a fleet - 1000 cars, leaving from Sunfleet's model

average number of bookings per car per week - 5
average money paid by booking - 50 euro
revenue from bookings: 1M euro/month

average subscribers per car - 20
average subscription fee - 40 euro
revenue from subscribers: 800k euro/month

total revenues per year - 21.6M euro per year

Fwiw, Sunfleet accounted SEK 130M in revenue in 2016 - that is about 17M euro.

That's a very rough estimation, all can be modeled in a spreadsheet, in an ideal model the sub revenue should cover the fixed costs (insurance, depreciation, maintenance) and the on-demand revenues against the variable costs such as fuel.

- as a marketplace operator, of a fleet of 6000 cars and 125k users (Nabobil's model)

average number of bookings per car per week - 1
average money paid by booking - 100 euro
revenue from bookings: 2.4M euro per year

Fwiw, Nabobil recorded about NOK 5M in 2016 - that is $670k.

Again, very rough calculations, in this case 1 booking per week in average is rather optimistic, I would guess that 80/20 works here, as 20% of the cars get booked around the average, whereas 80% are way below. Still, all data can be played with further but...

... but those calculations show the potential of growing and building a profitable business on a very new model. Put all this in context with the high inventory in the market, high cost of car ownership, good public transport options, general urban and demographic dynamics towards an sustainable life, and, maybe not as evident but important, the tech transformation from the car manufacturing (yup, self-driving).

The two models are going to collude at some point, even though apparently they are totally different (one's fleet management and the other is a network), as they provide a similar value proposition. Trust, availability and ultimately price will play a role in the large scale adoption. The models, as in any business, work well with high numbers and scope, and most likely a mature ecosystem will see a few established car fleet managers splitting the car as a sharing market.

Read also - Horse tech startups made in Sweden which investors and entrepreneurs should keep an eye on.

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