When Volkswagen’s Africa boss Thomas Schaefer set out to conquer the continent, he quickly realized he needed more than a flashy new product. He needed a new business model.
Study after study showed the same thing: there was no demand for new cars. Low purchasing power and a lack of financing put them out of the reach of most Africans, while competition from used imports gave buyers a cheaper alternative.
So Schaefer is placing a $50 million bet on a new business built around ride-hailing and car-sharing. And VW is using Rwanda as its laboratory.
“It was almost an industrial experiment,” Schaefer told Reuters.
The German carmaker’s project was launched with some fanfare last December in the capital Kigali but since then scant information has been disclosed about how it has progressed.
VW told Reuters the app for its “Move” ride-service now had over 23,000 registered users in Kigali. However only around 2,200 of those are active users – a fairly modest uptake so far in the city of 850,000 people.
In July, the ride-hailing service averaged 384 rides per day, a figure VW said it wanted to double.
Competition
It may be a longshot but, if successful, the Rwandan gamble could help plot a future course for Volkswagen, and others, in Africa’s challenging auto sector by securing a foothold in the region’s rapidly growing ride-hailing space.
Industry experts are divided on the merits of the plan, with some questioning whether VW can compete with the likes of Uber and Bolt in Africa or, in light of those companies’ losses, if it should even try.
While VW sees Kigali is an ideal test ground, offering a data sample that’s statistically significant at a reasonable cost, critics say the city – where Uber and Bolt are absent – is not an accurate gauge of conditions in bigger markets.
Schaefer cautioned that the experiment was still in its early stages, adding he’d like to give the business model a two-year test run before assessing it.
“Luckily our headquarters leaves us alone. They just say, do what you need to do.”
And though it hasn’t yet set a timeframe, Volkswagen told Reuters it was already looking to Ghana in West Africa and Ethiopia, a rapidly reforming market of some 100 million people, as initial targets for an expansion of its mobility business.
Adapt to survive
Global automakers like VW, Nissan, Toyota, Honda and Peugeot, are waking up to the potential in Africa, where incomes and consumer aspirations are rising.
But the region accounted for less than 1 per cent of global new passenger car sales last year, making it hard to justify investing in local manufacturing and assembly.
VW’s ride-hailing cars are assembled in Kigali at a new $20 million plant that also produces vehicles for the relatively few customers able to afford a brand new Polo, Passat or Teramont.
Employers can also access VWs to transport their workers, and VW plans to launch car-sharing, where customers can drive themselves and are charged for the time they’ve used a vehicle.
All those vehicles are owned by VW, which after a year or two of service will sell them onto the second-hand market at a price more accessible to average Rwandans. VW is also opening certified service centers.
VW hopes combining all these businesses – new car sales, ride-hailing, car-sharing, used car sales, parts and service – can make the company’s investment in Rwanda worthwhile.
“If we were to focus only on selling new cars, in a few years we can close business,” said Michaella Rugwizangoga, CEO of Volkswagen Mobility Solutions. “We had to think bigger.”
Schaefer believes VW will eventually need around 800 cars on the road in the city for ride-hailing and sharing. The company will begin introducing its E-Golf electric vehicle into the mobility fleet next year.
Future or failure?
Joseline Iradukunda quit her old job as a secretary in a law firm to go to work behind the wheel of a new Polo for VW’s app-driven ride-hailing service. The 25-year-old now spends her days plying the hilly, winding streets of Kigali.
“This car works 24/7,” she said proudly, parking near the city’s beehive-shaped convention centre to pick up a client, one of roughly a dozen she will transport during her shift.
Jean-Jacques Koffi, a Kigali-based entrepreneur from Ivory Coast, is a regular Move customer.
“During the week, I use it twice a day,” he said as Iradukunda drove him to his office. “You know it’s a brand-new car. It’s comfortable.”
Rwanda has already earned a reputation for innovation – from a cashless public transport system to medical drones. The city’s budding IT sector allowed VW to develop its app locally.
VW’s project is hailed by some as ahead of its time.
“This truly is a fantastic case study for future mobility in progressive frontier economies,” said Martyn Davies, managing director for emerging markets at Deloitte.
But others, like Justin Coetzee – a transport engineer and founder of GoMetro, a mapping platform that allows cities to optimize transport investments – don’t see a market for what VW is offering.
Most Kigali residents, he said, use existing, cheaper public transport like motor taxis and buses. Others drive themselves.
And while VW faces no direct competition in Kigali, that won’t be the case in many other markets, with Uber and Bolt established in major African cities, a fact that hasn’t yet translated into profits.
“No ride-sharing service is making money, even with scale. No model creates positive cash return,” Coetzee said.
The Express News
