Autonomous vehicles, electric vehicles, pay-per-use – a major transformation is underway in the mobility sector. And as Citi’s Manash Dasgupta points out, this has significant implications for the way in which OEMs manage everything from sustainability goals to changing customer preferences and inventory financing.
From electrification to autonomous vehicles and new ownership models, a significant transformation is currently reshaping the mobility industry. With new types of vehicles becoming more prevalent, and cars becoming ‘software on wheels’, there is a shift in the way consumers interact with the vehicle – and this is opening opportunities for cross-selling and commerce with passengers.
For original equipment manufacturers (OEMs), these developments come with new challenges when it comes to consumer payments, forecasting cash and financing inventory. At the same time, companies are having to navigate ongoing supply chain disruptions, including geopolitical disruptions and chip shortages. So how are corporate treasury teams in this sector adapting to the new landscape – and how can banks support them through this transformation?
“One of the biggest things I’m starting to see is that the ownership model is changing,” says Manash Dasgupta, Solution Sales Head, Industrials at Citi®, Treasury and Trade Solutions. Until now, he explains, consumers have wanted to purchase vehicles, either by paying money up-front or by obtaining the necessary financing. But increasingly, the younger generation of consumers is looking for flexibility through subscriptions and pay-per-use models that enable them to access vehicles when they need to, without owning them. The introduction of autonomous vehicles, likewise, lends itself to the greater adoption of subscription models – meaning that rising consumption levels may not necessarily translate into higher levels of vehicle ownership.
With different ownership models comes the need for different processes, particularly where financing and collection models are concerned. “With pay-per-use, the car company – or whoever is closest to the consumer – has to figure out how to collect the money,” says Dasgupta. “With traditional models, the OEM or the finance company would collect every month. But with a pay-per-use model, they need to figure out how to collect money more frequently and offer multiple means of collection to customers, which impacts cash flow projections.”
Likewise, Dasgupta says the growing adoption of electric vehicles (EVs) will have a significant impact on the entire ecosystem. “Some EV companies want to provide charge points around the country – but others are proposing a model whereby you pick up a fresh battery every time you need to charge,” he says. “There are also companies that are now reselling electricity.” He adds that in contrast to the traditional method of filling up a vehicle with gasoline, EVs will increasingly vary in terms of their capacity to charge up at different speeds, voltage levels and price points.
The rise of EVs will also help to propagate different business models. Dasgupta notes that internal combustion engines are a lot more complicated than battery connected vehicles, and consequently require more sophisticated mechanics – “so the technology that’s required to service cars is also changing with electric vehicles.”
With new entrants in this industry turning their attention to EVs, companies are increasingly understanding the competitive importance of customer centricity – whether that means digitally engaging customers or creating a more fluid after-sale experience. “Consumer proximity is a big trend that OEMs must address, because they’re not used to it. With the dealership models, transactions just happen once a month,” says Dasgupta. “With greater proximity to consumers, they’re suddenly getting paid once a week. There are refunds and cancellations; there’s customer service – OEMs will have to start dealing with all this, because the consumer will come directly to them.”
A further change is the potential for the vehicle itself to become a point of sale. Historically, once a vehicle is sold, any subsequent revenue streams are predictable, such as servicing and financing arrangements. “But once you start bundling services, there’s no limit – you can bundle a coffee a day for the driver; you can bundle insurance; you can bundle road taxes,” says Dasgupta. “And why stop there? You can also make the vehicle your point of sale, enabling the driver to place orders from ecommerce websites.”
This approach may be particularly valuable in countries where lengthy commutes are commonplace. “If you’re not busy driving the car, you can sit in the back and buy services from the tablet in the car – if you’re going to the airport, you could order food so that it’s ready when you arrive,” Dasgupta predicts. As such, the rise of mobility-as-a-service will see different companies developing different ways to monetise services through cross-selling and through services that can be bundled into weekly, monthly and annual subscriptions.
On another note, while innovation has a major role to play in transforming the sector, OEMs have also had to address significant disruption during the last few years – from factory shutdowns in the early stages of the pandemic to the more recent geopolitical uncertainty and chip shortages.
“The output, production and supply of vehicles is so dependent on the supply chain that we all need to consider whether the supply chain is adequately funded, and whether it is resilient enough to withstand geopolitical disruption,” says Dasgupta. Estimating demand is also likely to become more difficult with the rise of subscription models and autonomous vehicles, making it harder to predict inventory needs and manage the supply chain.
For the CFO and the treasury team, it is important to understand the impact of these changes. Treasurers will not only need to think about different payment methods, and understand which methods are more prevalent in different countries, but also consider the associated reconciliation capabilities. In addition, they will need to review their cash forecasting processes.
“In the past it was very simple: treasurers only had to forecast monthly payments, a significant part of which would be financed,” Dasgupta says. “The CFO would have to forecast floor financing requirements and the financing of those vehicles based on sales trends – and that data has existed for decades.”
Today, in contrast, treasurers will need to base their forecasts on day-to-day consumer trends. “The flow of money and information is going to drive forecasting process, so treasurers have to think through a completely new process for forecasting cash inflows and outflows,” he says.
Another significant change relates to inventory, which is currently financed by the OEM or supplier until the consumer purchases a vehicle. “In future, if the consumer doesn’t own the vehicle, who will finance the inventory?” says Dasgupta. “Is it the banking system that will provide temporary financing, or will fintechs help the OEMs find financing alternatives? Ultimately the capacity to finance must align with projected inventory from short-term consumer demand forecasts.”
During this profound transformation, treasury organisations are demanding greater flexibility from their banks. “We’ve had all these OEMs go to the capital markets and raise money for new ventures – that’s traditional banking,” says Dasgupta. “But we are also trying to learn from OEMs about what else we should aim to do.” For example, he says, collecting directly from consumers means having the right collections channels in place, from credit cards to digital wallets. “So, we’re putting a lot of investment in Spring by Citi®, which aims to create a consumer collection channel that includes all those channels.”
Another challenge is that when OEMs start bundling services, consumers will not want to make payments to multiple companies such as electricity companies, coffee chains or insurance firms. “Today, companies may need to get a payment intermediary licence in order to resell someone else’s product,” says Dasgupta. “That’s something that still needs to be solved.” As such, Citi has invested in a resource pool to develop banking-as-a-service that OEMs can then provide to their sub-merchants. Meanwhile, a dedicated global mobility team is focusing specifically on developing the bank’s business in the mobility space, from running client workshops to providing dedicated people who understand the needs of OEM clients.
On the supplier financing side, Dasgupta says Citi has previously offered supplier financing solutions based on OEMs’ credit lines – “but that’s not sustainable, because OEMs need the credit line for themselves.” As such, the bank has now created receivables financing structures which can be used to finance tier-one suppliers. “There are a lot of investors in the market who are willing to invest in suppliers so that the supply chain can get financed,” he observes.
“So right across the spectrum – whether it’s collections, financing the supply chain or providing access to the capital market – we’ve got banking services that can support mobility.”
Looking forward, Dasgupta notes that the trends currently transforming the mobility sector will slowly move across all forms of transportation – “It’s not just about consumers going from point A to point B,” he concludes. “I feel that business models will start to change not only with cars and motorbikes, but maybe also for trains and planes. There’s a lot of change and evolution coming across this space.”