How the future of mobility is steering automotive M&A strategies

With insights from Stuart Hands, Partner at Translink UK   

The car subscription model is a significant disruptor in a rapidly evolving automotive landscape. Born from consumers growing weary of traditional vehicle ownership, this model has produced considerable company valuations akin to early Mobility-as-a-Service breakthroughs like Uber and Bolt. This dynamic has made players in this sector attractive to investors and considerably influenced merger and acquisition (M&A) strategies.

Stuart Hands, Partner at Translink Corporate Finance UK and head of Translink’s Automotive Group, explores the factors driving car subscription providers’ valuations and how companies can capitalise on them to fuel their growth.

“The car subscription model is fast proving to be a real alternative to car ownership that continues to attract investors. However, this growing sector isn’t without its challenges. The ability to quickly adapt to changes is crucial for survival, and providers can potentially face fleet management-related issues.”

Shifting consumer demand from ownership to usage-based

Deloitte’s Future of Vehicle Subscriptions report reveals how more consumers see conventional car financing and leasing contracts as a burden rather than a benefit, predicting that, by 2025, more than €22bn of new annual auto financing will shift to the subscription segment.

Hands says there’s been a steady decline in the importance and appeal of vehicle ownership. The car subscription appeal is, therefore, simple. “There’s always a need for mobility, and subscription services fulfil this by providing flexible and potentially more affordable vehicle access, allowing more people to get from point A to point B. Even manufacturers have joined the bandwagon, offering subscription services for certain vehicle features.”

Data-driven insights are increasing company valuations

Investors have poured capital into businesses operating in the car subscription market, with deals like used car platform Cazoo’s £65m acquisition of subscription company Drover.

Hands says beyond the automotive sector, technology companies are also playing an increasingly pivotal role in shaping the car subscription model. These companies are pioneering innovations in sophisticated software, vehicle usage preferences, customer management platforms, and telematics.

Moreover, the data generated through these systems is becoming a goldmine for car subscription companies and automotive manufacturers. Big data and analytics, paired with artificial intelligence, are helping to predict customer behaviour and preferences, thereby enabling companies to provide a more personalised and effective service, whether through tailored subscription services or specific features within vehicles.

For example, realising an opportunity to add value to its UK-based vehicles, Ford UK recently rolled out its BlueCruise subscription, which offers hands-free driving in over 95% of the country’s motorways.

Hands says data acquisition and analytics also contribute to higher asset utilisation rates because it allows providers to analyse usage and know when a customer is likely to want to change or use mobility and provide the most appropriate vehicle at the most convenient time.

“Google and Amazon have shown how data-driven insights can boost customer engagement and loyalty and retain visitors; a concept often referred to as ‘stickiness’. In the automotive sector, these insights allow car subscription companies to understand customer behaviour and predict and cater to their needs with little effort and human intervention. This translates into annual recurring revenue, a highly valuable investor metric.”