What we have learned since announcement?
Price of Monthly Subscription INCLUDING charging, maintenance, registration!!
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Monthy Payments Canoo Revealed!
So I looked at FMCI’s chart on DA. Tattooed Chef was announced June 12th. The morning of, huge sell-off cause it wasn’t Impossible Burger. The final price at the end of the day was $13.20, lower than the previous day’s close of $13.50. Then over the course of the next few days, people did their DD, realized that Tattooed Chef was a good target regardless, and the price rose back up, hitting a high of $18.50 the day after the June 17th Benzinga article, much higher than the pre-DA high of $15.50
streamlining the insurance process by including the ability to either rollover your current liability within our app, or choose one of our preferred underwriters that Canoo has engaged, and then finally the ability to access the networks of the largest public charging providers, all within our Canoo app. The end result from these decisions is our subscription model, which in addition to being outright superior to a lease, it is the most efficient and the simplest way to have an electric vehicle for as long as you want.
We look to quantify that on the next page, Slide 54. Under a subscription model, Canoo generates consistent cash flows, 4x the margin as a direct sale, and compelling Return on Equity which actually increases over time. Further, Canoo is much less dependent on new vehicle sales creating a considerably more profitable and resilient business model. I believe this is most tangibly represented by Canoo’s subscription gross margin of approximately 40% which is right on top of Netflix with the direct sale Canoo business segments in line with Tesla’s at around 20%. As such, it is clear that subscription driven business models drive a premium valuation.
Moving down to EBITDA and EBIT in the first three years, you can see that we are incurring losses, and this is primarily due to two reasons. One, we’re launching two vehicle models during this time period, and also during this time period we’re scaling up our volume. We break even at the beginning of 2024, and I think it’s important for us to really focus on the EBIT margin figure here. Because depreciation is such a fundamental part of our business, think about it like a rental car business, for us to be able to achieve a 20% operating profit is far greater than what you see in the traditional automotive OEM business model where that margin is closer to 5% to 10%. So, it really does highlight the power of a subscription business model with this figure being a fully-burdened margin
On the next slide, at Slide 48, I’d like to talk a bit about our manufacturing relationship. Right from the start, we wanted to be asset light and we wanted to engage as early as possible with a strategic partner and a world-class manufacturer. Today, we are working closely with a leading contract manufacturer, and how such a process works, I’d like to show you on this slide. If you look at the lower part of that chart, Canoo, on the left side, as an OEM, we are designing and engineering, of course, the vehicle. We own the IP. We are paying our suppliers for all the toolings that are needed to have every component together to assemble a complete vehicle. We have the responsibility for the vehicle distribution, and of course we are going to support our contract manufacturer over the production time of our vehicle with necessary engineering changes.
So, in conclusion, I know, and I have to acknowledge, that subscription, it tends to be a fluffy word, but I would encourage people to take a long hard look at this model, and if you look at how we modeled this on a granular level, the macro tailwinds that support the demand side of this model, the future change to autonomous driving, and the true margin potential of subscription, we do think this warrants a strong look, but can also be one of the main drivers of equity value for Canoo in the future.
Moving on to Slide 43, I also want to discuss how we priced our model. We utilized four primary pricing methodologies, and the one highlighted here is a our lease comparator, which I’ll touch on in a second, but from a supply side, we ran a sensitized DCF analysis on a unit economics basis, targeting our desired free cash flow margin, essentially what level of profitability can we tolerate in a downside scenario and what can we achieve in a base case from our assumed pricing, and then from a demand side, or looking at how we compete in the market, we look at rideshare comps, i.e., if someone takes a Lyft or an Uber every day, combustion engine lease comps, like small luxury SUVs, and finally electric vehicle lease comps, which I will discuss here. … The important message here for consumers is that they have a lease or a subscription at the same price, but a subscription will win every single time for a consumer. Whether it’s flexibility, digital experience, no down payment, our offering is superior to a lease, and this is really our customer acquisition strategy, it is to compete on price, win on value and experience, it’s that simple.
Moving on to Slide 41, I want to quickly draw on that lease comparison again, because I think it frames our subscription model quite nicely. On the right-hand side of the slide, we’re going to see six key differences between us and a lease both from the OEM and the consumer perspective. Again, we didn’t try to boil the ocean with this model, we just try to convert the lease into something profoundly better. Again, I’d like to highlight the top three, as they are really the most important. The first is our elimination of the down payment or contractual breakage fees. This is an obvious consumer benefit. I don’t know anyone who likes forking over $3,000 involuntarily. What we saw, and this is reinforced by a lot of consumer research we did this year, is that there are huge number of folks in the United States interested in trying EVs for the first time. But they’re hesitant simply because a $3,000 upfront payment and the three-year commitment is a big barrier to entry. So, Canoo, by eliminating this, we effectively lower the barriers to entry for consumers and thereby increase our total addressable market, and we’re principally differentiated from our competition, and this is especially important when you consider our wait list and our target demographics consist of largely first-time EV customers.
We are also speaking with a number European OEMs, particularly as it relates to commercial vehicles. What we have identified is that many of these OEMs have products that are designed for long distance transportation, but they’re missing that last-mile delivery 100% electric solution. We have been in discussion with a number of players and have completed technical due diligence, and we’re excited to explore the opportunity to potentially sell our vehicles to these partners.
We’ve been targeting specifically technology companies, passenger OEMs, delivery OEMs, and then autonomous driving companies as potential partners. Currently in our pipeline, we have $120 million of projected revenue in 2021, which consists of a couple of projects that are in the advanced stages of negotiation. Overall, we have seven projects in our pipeline and they range from designing new top hats to doing engineering work on our existing skateboard platform, to potentially doing skateboard licensing in the future, which is a significant revenue upside opportunity for us, but also this could potentially reduce our overall costs through economies of scale. We also will be interested in selling commercial vehicles, which is our last-mile delivery vehicles, to potential partners.
Moving now to Slide 17, this is also something I would consider unique for a start-up. We have three phases of revenue streams. In the first phase, we call it Engineering Services. This is a phase that already exists today. So, we are working for companies and we are already making money with the first revenue stream. The second revenue stream is a B2C. This is a stream that we will have available when we launch our first vehicle, our lifestyle vehicle, by 2022. This is a consumer vehicle and it will be on subscription. The B2B service, that you see on the right side, is our third revenue stream. This will be a vehicle introduced in 2023, what we call a last-mile delivery vehicle, and this will be for sales. Three different revenue streams give us very good flexibility, and it makes also sure that we can really tap into different areas to be profitable.