The disruption in car ownership and why we invested in Kovi

August 18, 2021

“Possession is not as important as it once was. Accessing is more important than ever” The Inevitable, Kevin Kelly

Since the launch of the Ford Model T in 1927, our society has become overly dependent on cars for day-to-day activities. We built our social and economic fabric around the possibility of moving around faster and more efficiently given the availability of vehicles. No one denies the importance of cars to our everyday lives. 

However, historically the access to cars has not been widely distributed across nations. Multiple reasons explain this disparity, and wealth level is one of the main variables: the first wave of car access came through ownership, highlighting a strong correlation between GDP per capita and car penetration:  wealthier nations have a substantially higher number of cars per person. 

Take the United States as an example: with a GDP per capita of ~ $60k, the country has a ratio of almost 8 cars per every 10 people. On the other hand, with a GDP of ~$13k (PPP), Brazil has only ~2 cars per every 10 people. Owning a car is costly and burdensome and has been a privilege of a few in most parts of the world. 

Digging deeper into this disparity in Latin America, some key numbers and factors catch our attention: 

  • Having a car is expensive and financing it is prohibitive: the retail price of an average new car in the United States is ~12x the monthly minimum wage, vs. ~50-60x in Brazil. On top of high relative prices, the financing piece adds to the problem. Less than 30% of Brazilian drivers are approved for car financing, and of those who are, the average annual interest rate is around 20%. Buying one car means paying for 2 in a matter of a few years.
  • Maintaining a car is costly, painful, and inefficient: owning a car also comes with not only many other cost items such as multiple fees, tickets, government taxes (IPVA, DPVAT, etc.) and regular maintenance, but also with the headaches of taking the car to repair shops, keeping all the paperwork up to date, etc.
  • Uninsured driving is commonplace: due to the lack of proper risk models, current high prices, and very complex (and in most cases, bundled) policies, the penetration of car insurance in Brazil is unbelievably low at ~30%. As a result, most of the drivers in Brazil are in the streets without a single insurance policy to protect them from the unexpected.
  • Selling a car is an asymmetric and challenging journey: if buying and maintaining a vehicle is not a painful-enough process, then welcome to the selling piece, in which buyers and sellers navigate through a very fragmented and low-tech market, with high transaction costs, deep price asymmetry and several payment risks. Particularly here we’ve seen some intense activity in the past few years, but given the massive market size and high transaction costs, existing marketplaces are still only scratching the surface while generating large amounts of value. For example, Carvana in the United States is already a ~$60B company but touches less than ~1% of all the USA car fleet.

With this macro-environment in front of us, it has become clear that a massive disruption in car ownership is on the way in Latin America. Be it in new and creative ways for car financing, innovative and unbundled ways to deliver insurance, or in the form of subscription methods. For the latter, take Europe as an example, in which, according to a study conducted by McKinsey & Company, subscription-based offerings will represent almost 20% of the total automotive market by 2025. For reference, in Brazil much less than 1% of the 45 million vehicles in Brazil are transacted under subscription offerings. If Brazil reaches the European levels, we will see approximately 10 million cars moving towards subscription-based solutions in the next few years, representing a ~ $25B revenue opportunity. 

The opportunity is here. The timing is now. By tackling upfront all these issues mentioned above, companies will be able to provide greater access to affordable options of mobility to millions of families in the region, and a process of massive value creation will ensue. 

Why Kovi

Amid this backdrop, we found Kovi: an incredible startup led by visionary and operational Founders and a unique team focused on revolutionizing car access in Latin America. The Company, founded 3 years ago, started renting cars to the drivers of the gig economy in Brazil, but has quickly moved into becoming a broad platform for car access in Latin America, with an already solid and growing presence in Brazil and exponential growth in Mexico, and plans to be in multiple other countries of the region very soon. 

We knew Adhemar, the company’s Co-Founder and CEO, for a while, and after hearing the pitch and diving very deep into the business model and current and future market dynamics, we saw several reasons why we should partner with Kovi and help millions of Latin American families to access cars in an efficient, fair and cost-effective way: 

  • Major tailwinds benefiting the company:

Kovi is well positioned to capture three major global waves:

— Ridesharing: only in Latin America there are approximately 1.5-2.0 million on-demand drivers, and this number is expected to grow between 2x and 3x in the next decade. As a reference, São Paulo, Rio de Janeiro and Mexico City are already among Uber’s largest markets;

— Car subscription: as already pointed out, subscription methods promise to transform the auto-finance industry globally, and more flexible solutions (i.e.: pay per mile, weekly rentals, etc.) will grow disproportionately.

— Auto insurance: through technology and innovative and unbundled methods, car insurance will move away from the traditional and less customer-centric brokerage model to a more fair, efficient, and consumer-driven ecosystem. More flexible and tailor-made insurance options are a major global trend;

  • Impressive traction and resilience:

— Kovi is a young company but which already employs almost 700 people in Brazil and Mexico, has an impressive network of drivers, a large and growing fleet, and very robust revenue numbers. 

— Also, Kovi had already proven to be a very resilient organization, which survived the worst times of the COVID-19 pandemic, when it lost 80% of its total sales, reinvented itself, and has already rebounded: revenues are ~2x pre-COVID levels. 

  • Business and operational models represent strong moats:

— Over the last three years, Kovi has built a disruptive business model that provides significant value for the multiple stakeholders in the automotive chain: first, it provides more options of accessibility to users/drivers; second, Kovi delivers more profitability for partners in the supply chain (i.e.: OEMs, Global Leasing Companies, etc.), and lastly, the company ensures an expanded driver supply for ridesharing platforms. 

— In addition to all the benefits to the value chain, Kovi has also built many barriers of entry that make its model very hard to replicate. For example:

-> An in-app wallet that allows for seamless payment and gives drivers more control over their finances. 

-> In-car technology that, among other things, analyzes driver’s driving behavior through proprietary technology, intending to have safer roads and better estimate risks. 

-> In-house maintenance operations that significantly reduce idle time (at the end of the day, it’s also a game of utilization rates) and lower costs. 

-> Debt-structure: Kovi has just launched the first car-subscription FIDC of Brazil, which will provide the company much more flexibility in the car supply side, as well as potentially better economics. 

-> International expansion: Kovi is building a truly global DNA, with cross-learnings from each geography it operates that will help the Company learn and adapt faster to trends, risks, and opportunities. 

  • Amazing team and unique culture: 

— In our long experience doing Venture Capital in Latin America, we know when we find a AAA Founder and a best-in-class team with the vision and the execution skills to deliver on it. We were impressed by all interactions with the Kovi team, which combines solid skills in growth, startups, technology, car supply, insurance, car financing, and all major areas the company needs to succeed on a large scale. 

— Kovi also has an operation and customer-centric culture, proven by, for example, high levels of NPS of their driver experience center, which is in the same building as their main LatAm office in São Paulo. 

  • Big, bold, and global vision:

— The team has a big, bold, 30-year global vision: launching Mexico in under 4 months was just the first step towards being a massively valuable global company. The playbook is clear. And it works. 

— The subscription model, rent-to-own offerings, car insurance policies, transition to electric vehicles, and many other solutions, are some of the crucial pieces of Kovi’s integrated strategy of truly disrupting car ownership in Latin America. 

We are incredibly humbled and honored to lead Kovi’s Series B and be part of the exciting journey ahead alongside other great friends and investors. Adhemar, João, and Kovi team: let’s build together the next wave of car disruption in Latin America.