The CEO of startup Canoo explains why its bread-shaped electric cars with Netflix-style subscriptions can win where giants like Mercedes-Benz and Cadillac have failed

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Canoo 23 The Canoo is scheduled to arrive in 2022.

  • The electric-vehicle startup Canoo’s business model represents a major shift away from the auto industry’s styling tendencies and retail strategy.
  • The company says its debut vehicle will be shorter than a Tesla Model 3 but have more room for passengers than a Honda Odyssey.
  • Canoo won’t sell or lease the vehicle (which shares the company’s name). It will only be available through a subscription.
  • Visit Business Insider’s homepage for more stories.

Even as they seek to eliminate the internal-combustion engine, many electric-vehicle startups have tethered some part of their business to the auto industry’s traditions.

Though Tesla’s vehicles run on electrons, their body styles resemble those of gas-powered competitors (with the exception of the upcoming Cybertruck pickup truck). The same can be said of newer companies like Rivian and Lucid Motors.

Canoo, on the other hand, is making an almost clean break from how car companies operate today. Its debut vehicle has a nearly symmetrical shape that resembles a loaf of bread more than anything you’ll find in a dealership. And the only way you’ll be able to drive a Canoo (the vehicle shares a name with the company) after its 2022 release is through a subscription that can be canceled at any point after the first month.

Canoo has positioned its namesake EV as the next step in a lineage that includes the station wagon, minivan, and SUV — vehicles defined by their ability to hold more passengers and cargo than sedans. Its centerpiece is a flat, compact platform that houses all of the components needed to power the vehicle beneath the floor pan.

Such a design is often called a “skateboard” in the EV industry, and it creates so much extra cabin space that Canoo says its vehicle will be shorter than a Tesla Model 3 sedan but have more room for passengers than a Honda Odyssey minivan.

“Our design is, in a way, pointing toward the post-SUV era,” Canoo CEO Ulrich Kranz said in an interview with Business Insider. “With an electric powertrain, we could really open up more interior space.”

The skateboard platform allowed the startup to rethink the conventional vehicle-interior layout. The Canoo’s back seats are arranged in a semicircle, creating storage space in the seating area to complement the rear and front trunks (the area that would hold a gas-powered car’s engine is a storage compartment in many EVs). Canoo’s work caught the attention of Hyundai, which enlisted the startup to help build its own EV platform, and three other companies Kranz declined to name because Canoo is still negotiating with them. 

Canoo believes it’s solved the car industry’s subscription problem

canoo 8 The Canoo’s rear seats will be arranged in a semicircle.

Canoo will not be the first automaker to offer an alternative to buying or leasing a car. Established players like General Motors, Mercedes-Benz, Ford, and Audi have tested subscription services in some markets, with mixed results: Book by Cadillac was put on hold in late 2018, Ford-owned Canvas was sold to Fair last year, and Mercedes-Benz Collection was shut down this summer.

Canoo predicts that its subscription model will thrive where others have failed, producing four times more profit per vehicle than a typical automaker earns.

Kranz said the company’s advantage lies in durability — he said due to its design and materials, each Canoo will last longer than the average gas-powered car — and the fact that it doesn’t have a dealership-focused retail infrastructure built around sales and leasing. Both will allow Canoo to offer more attractive pricing.

Traditional automakers, Kranz said, have to charge high monthly rates for their subscription services because their vehicles quickly lose value (an average of 28% after one year and 37% after three years, according to August sales data collected by Edmunds).

Say Audi places a new, $54,950 Q7 sedan in its Audi Select subscription service for three years before selling it on the used market for $34,619, a 37% drop in value. Audi will have to earn the $20,331 difference between the two prices from subscribers over those three years. The same logic applies to leases.

“This is why they have pretty high leasing rates, because they have to think about the drop in residual value after three years,” Kranz said of traditional automakers. “If they could extend that to seven, eight, nine, 10, 12 years, that would result in a lower monthly fee.”

Canoo doesn’t plan to sell its debut model new or used, which means the value of each vehicle will decline evenly over the 10-12 years the company expects it to be in service, Kranz said, not in a rapid plunge based on the dynamics of the used-car market. If Canoo only has to claw back 25% of each vehicle’s value in its first three years, instead of 37%, that will translate into a lower monthly price for subscribers.

Canoo’s vision to reinvent the auto industry for the modern era attracted the special-purpose acquisition company (SPAC) Hennessy Capital Acquisition Corp. IV, which struck a deal with Canoo to take the startup public through a reverse merger later this year. SPACs have become popular among EV startups, and the appeal for Canoo was obvious: Hennessy will eliminate the burden of seeking multiple rounds of private investment before the Canoo hits the market in 2022.

Now, the company can narrow its focus to launching that vehicle while working on its follow-up, a delivery van.

“Having a partner like Hennessy providing all the financial resources in one step makes it, for us, much easier and much faster to get our cars on the road,” Kranz said.

A Global Asset Management Seoul Korea Magazine

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