Analysis: Why Cazoo is pulling out of mainland Europe

Cazoo Mercdes Sprinter car transporter front quarter tracking

Cazoo will re-focus on its UK operations following mainland Europe exit

Cazoo has announced it will cease its business in mainland Europe amid a financial drought

Online used car retailer Cazoo flagged that it might need to pull back from its mainland European operations back in August, but it has still come as shock to hear the company announce it will exit markets that it had barely started trading in.

Cazoo’s decision to leave Germany, Spain, France and Italy (with the latter two still under consultation with employees) illustrates the scale of the collapse of the investment climate for pre-profit start-ups.

And just how fevered it was before that collapse. Cazoo listed in late 2020, when interest in stocks for disruptive businesses – particularly in the automotive sphere – was just peaking. In one crazy moment last February, it was worth $7 billion, based on the price of its shares.

Money was pouring in, and Cazoo spent big on the basis that size gives you a whole heap of advantages, from visibility to economies of scale. What the team, led by entrepreneur Alex Chesterman, now regrets is the move to replicate its UK business in mainland Europe by hoovering up similar start-ups, for example Italian online car retail Brumbrum for €80 million earlier this year.

In May, Cazoo launched in Spain and in June it followed in Italy, but by August it announced that it was reviewing its mainland Europe businesses and today it said that it was exiting them. There are supercars that can’t compete with 0-100-0 times like that.

The reason is cash conservation. That $7bn valuation is now just under $0.5bn, and if Cazoo wanted to raise any more money, it would have to lock in that valuation. This move would save £100m and allow it operate on the cash reserves it has, the company said in a statement. It follows the company’s decision in June to slash job numbers and exit its subscription business.

What this doesn’t give us much insight into is whether Cazoo’s delivery business model will be eventually successful. The company said it has sold more than 90,000 cars since its establishment in December 2019, and reviews from buyers are generally good. Critics, however, question whether it can ever achieve the gross profit-per-car target figure of £3000.

What this latest announcement does reveal instead is that it’s a terrible time to be a pre-profit start-up in need of investor cash. Unless it can ride out this financial drought, Cazoo will go the way of rival Carzam and other failed disruptors within the very traditional world of British used-car retailing.

Source: Autocar

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