Apr 20, 2020
We invested in Bipi last June. We’ve since watched the business blossom under Hans and Alejandro’s leadership as consumers across Spain have gravitated towards the flexibility and convenience of the car subscription that Bipi offers. Bipi has a range of unique approaches that position it to solve key challenges — and these advantages are only amplified in a post-COVID world.
But first let’s understand the current consumer experience that Bipi is disrupting.
The old way of getting a car
People hate dealerships. According to one survey, a quarter of younger consumers would prefer to get a root canal than deal with a dealer!
Why do consumers hate dealerships so fervently? Let us count some of the reasons:
- Buying a car is a slow, complex, paperwork-laden process, more akin to a mortgage than a regular consumer purchase
- Dealers regularly price discriminate between consumers and are incentivized to upsell customers across models and classes, and on a range of premium features and customizations most don’t need
- Customers must make long term commitments, whether buying or leasing, which often means 4–5 year contracts that cannot be terminated without paying severe cancellation fees.
After that dealership experience, car owners must then cover a range of additional fixed and variable costs: fuel, insurance, maintenance and repairs, registration fees, roadside assistance, parking, and tolls — this makes it difficult for consumers to actually know what the fully loaded cost of car ownership is.
Bipi and other car subscription offerings aim to upend this unfriendly model of accessing and keeping a car. By compressing nearly all of the cost components of car ownership into a single monthly credit card charge, Bipi offers its customers unprecedented levels of convenience, flexibility, bundled uniform pricing, transparency, and quality service.
But there is a hidden complexity that lies below the streamlined digital experience that allows consumers to access cars online bundled with insurance and repair that makes this offering uniquely attractive. The key — as with most things in mobility — lies with supply.
Bipi does not purchase vehicles directly. Instead, it has partnered with so-called leasing banks, companies that purchase hundreds of thousands of vehicles every year in order to lease them to enterprise customers. Bipi is effectively another such customer to these leasing banks, but it then offers vehicles directly to consumers through subscription. This model allows Bipi to remain asset light while leveraging the immense purchasing power of these organizations along with their substantial geographical reach, highly stable cash positions, and well-oiled machines for residual value management and fleet remarketing.
Other startups in the space rely on either the long tail of car dealerships to supply vehicles, or taking vehicle inventory onto their own balance sheets. The former results in higher prices for consumers (or lower margins for the startup) because of the limited purchasing power of dealerships, as well as complex operations around onboarding and managing large numbers of suppliers. The latter is subject to the same higher costs (unless the company is extremely well capitalized), and is rife with residual value risk — the smallest miscalculation in the depreciation curve can be devastating in a large fleet (especially under unstable market conditions).
An anti-fragile model
As the global economy descends into a recession of yet unknown severity, Bipi’s model positions it to not only survive but thrive:
- Fundamentally lower costs: Bipi subscriptions simplify the vehicle selection process, offering like-new vehicles with a limited selection of trim or leather color options within a given model. This means that when a subscription is cancelled, it is usually only a matter of days until that vehicle can be recycled into a new subscription. Vehicle supply is therefore cheaper for Bipi, and cheaper for its customers.
- Transparency and optionality: Consumers will seek to cut costs, increase optionality and have clearer visibility into their financial commitments — subscriptions will give them greater control over their finances by externalizing costs and allowing them to scale back if necessary, making the offering more appealing. Subscription models are ultimately a form of spreading the many costs of a car over longer periods of time.
- Supply flexibility: In recession, customers gravitate towards the used car market, and those that buy new prefer cheaper models such as Clios, Golfs, 500s and Tucsons. Bipi is well-positioned to adapt to market conditions, as it already targets the mass market segment and its partners will be looking to move the hundreds of thousand of used cars coming off of 4-year corporate leases. We expect used cars to become a key part of Bipi’s business in the coming quarters.
- Stability: Bipi’s partners — and the advantages that they bring — aren’t going anywhere, and Bipi can continue to avoid the immense capital exposure of keeping cars on its balance sheet while offering these partners the benefit of a growing pool of demand in poorer market conditions.
All of this allows Bipi to focus on what it does best — digital marketing, fleet management and operations, customer acquisition, and a delightful digital user experience. For many consumers, the future that lies ahead is going to be financially uncertain. We’re confident that Bipi will help them access vehicles through a model that fits both their current and future needs.