Planet42 to buy cars and push emerging-market dominance with R1.8bn funding

Car subscription service Planet42 aims is hoping to double its fleet of vehicles in SA, using its recently raised R1.8bn war chest. The company also plans to expand to other emerging markets, where many consumers struggle to acquire vehicles through traditional finance, as in SA. 

“So far, we’ve put cars in the hands of 15,000 South Africans. With the funding that’s arrived, we want to double that to 20,000 to 30,000 South Africans by the end of the end of the year,” Grant Wing, SA MD and country manager of Planet42, told Business Day. 

On Wednesday, the start-up disclosed that it had raised a huge $100m (R1.825bn) in new funding through a mixture of equity and debt financing. 

Founded in 2017, Planet42 says it aims to address transport inequality by offering an inclusive car subscription service to customers who typically cannot access traditional bank credit. In emerging markets, including SA, vehicle finance — and therefore vehicle ownership — is out of reach for most low and middle-income earners.

Naspers’s SA-focused venture arm co-led a $15m (R273.8m) equity funding round for the startup with ARS Holdings. US based asset manager Rivonia Road Capital has provided a $75m credit facility, with private investors contributing a further $10m in debt financing.

In addition to buying more cars, the company is looking to offer its service in other countries, like Mexico, where it recently began operating.

Wing says their business model is best suited for emerging-market countries where difficulties exists in accessing traditional vehicle finance from financial institutions. 

“SA is just one market but there are many other markets that bear similarities to SA in terms of underbanked and well deserving customers. The ultimate goal is to raise enough capital to buy 1-million cars for underbanked people around the world. That’s going to take an enormous amount of capital, so most likely there will be more fundraising in the future to bolster our balance sheet.”

Wing sayd: “It’s definitely an emerging markets play for for two reasons.”

First, “in highly developed economies, the cost of transport and availability of transport is pretty much par for the course. If you go to London or the US, they've got quite a developed bus and train infrastructure that's safe and cost-effective to use.”

Second, “in developed economies they've got a very progressive credit scoring methodology. In SA, 89% of customers that are on our books would not have a car without us but had these customers been in developed markets they would have been taken on by traditional banks.”

He says emerging markets are still catching up to more developed ones. “It’s because of the underdeveloped scoring in emerging markets that has created this gap for Planet42.”

The company — which also counts Change Ventures and Startup Wise Guys as investors — is competing in a growing market that has seen the emergence of other local start-ups such as FlexClub, which itself has received much attention from investors. 

In essence, these companies use a subscription model to give people access to vehicles. This could be seen as a form of long-term rental as lease periods typically go beyond the short one-day or one-week periods rental companies Avis and Hertz specialise in. Amounts paid for such arrangements also tend to be cheaper than the cost of financing a vehicle. 

Planet42 has developed credit scoring algorithms, which it uses to bridge the lending gap, using a wider range of data sources than traditional credit scores to assess risk. These algorithms determine a “suitable budget” for each customer and, based on this, subscribers can choose any new or pre-owned car, the company says. 

Through a network of more than 1,000 local car dealerships, Planet42 buys the car and rents it out to the customer on a subscription basis, with customers being able to either buy or return the car at any time. Since its founding, the company has bought more than 15,000 vehicles using this model.

In 2021, Planet42 raised $30m, $6m in equity and $24m in debt financing. Since then, the company says it has nearly quadrupled its business.

gavazam@businesslive.co.za