In this episode, we recap the journey of Carro, the tech company behind Southeast Asia’s largest used car marketplace and end-to-end auto retail platform. Since the start of the podcast in 2020 we have covered their journey, and with eight years under their belt, we highlight sharings from Carro’s leaders over the past four years.
2020: Carro becoming a future-proof, profitable company through the pandemic
Aaron: Yeah, I mean specifically for cars I mean, honestly, what we see right now is a drop in demand right? Because a lot of people are not able to go out of their homes, kick the tires, and all those things. And to be honest, pure online buying, it’s still going to take some time before people start adoption because people want to get out to [buy].
Generally, I think the line of our own business that is purely to do with trading of cars has been hurt. And it’s not even because consumers are buying less used cars, but actually because of the fact that customers are buying less new cars. Because when people are buying less new cars, it results in less trade-ins. And as a wholesale marketplace, it becomes tougher for us to get trade-ins of cars.
That said, what we have seen is the increase in demand for our leasing or our subscription product, right, where we talk about six months subscription or one year subscription of vehicles and stuff like that. The demand for that particular product or what we call Carro Leap recently has gone through the roof. We don’t even have enough cars to fulfill the demand that we actually asked the other companies that were struggling to say, “Hey, you know, you want to do this your car on our on our platform instead, so that you know, we can work together with you to lease your cars out and you just subscribe to the platform,” so to speak.
What we have learned is that okay, while demand for trade has decreased, actually, the demand for subscription has risen a lot and that has more than enough effect to negate that drop in business for us.
So I think net for us, from an ecommerce order from a purely transactional marketplace standpoint we continue to see pressure but from the perspective of Singapore, but if you ask me in Malaysia in places like in Malaysia and Indonesia where they almost pseudo lockdown is terrible there when it comes to cars.
But I think generally it’s a matter of how we think about business models. How do we think about what the customers are fearful of is safety or this because they just want to get the car from the comfort of their home, etc, and move on to innovate on different business models that can survive through these tough times.
So we’re always constantly thinking about how we future proof the business. How do COVID-proof the business so to speak, so that at the end of the day, this particular situation that we are all in right now becomes more an opportunity, versus an issue or a trap for a company.
Then we get a perspective of that time from the then freshly minted CFO Ernest Chew.
Paulo: So speaking of new beginnings, let’s go back to your first day at Carro. Where was Carro at, in terms of its finances? When you came in as CFO vis-a-vis today, were you faced with any significant challenges to overcome or opportunities to unlock?
Ernest: Significant challenges. But really because almost immediately after I joined, there were Covid19 lockdowns across all our core countries. Of course, there were fleeting thoughts: “Had I joined a start-up at an awful time?”, “Could this lockdown last for a year or longer?” and more crucially “Will we run out of cash?”. So even during the global financial crisis almost a decade plus ago, economies don’t come to a grinding halt – so it was a rather unprecedented period.
I leaned back on what I’ve learned from the GFC, from businesses that failed because they ran out of cash and from the used car auction business which we advised our PE client to purchase in the midst of an economic crisis.
We looked at our toolkit. A few things that we did immediately: we went to conserve cash, slash all expenditures and cash up. We very meticulously went through expenses line by line. We cut down marketing immediately. We looked at payrolls. We monitored our cash position very closely. And we looked at monetising inventory as well. We went to banks to borrow even though we didn’t need to yet.
In terms of finances, we were okay. We were barely profitable, but we had to pull the handbrake and jam the brakes immediately, or risk even more potential losses. Now on hindsight, we were too conservative coming out of the lockdown. We lost a bit of momentum, but we were okay. More importantly, we were “not swimming naked” – we had okay fundamentals. Most importantly we had cash and we were not over-levered.
The bad times can bring out the best in people – we switched to “survival mode” in those crucial months. We have a great team who worked very collaboratively. Together, we looked at our opportunities, our processes, we looked at switching gears and repositioned coming out of this.
For example, we talked about opportunities. In periods of economic uncertainties, now you throw in the pandemic, how do we make used car purchases safer, faster and the natural economical choice? The other opportunity was our subscription business, which really appeals as there’s no long term commitment, no residual value risk but addresses a population segment who needs a car for basic needs and do not want to take public transportation given the pandemic.
Paulo: Yeah. I really think that all these initiatives that you’ve taken from, as you mentioned, slashing expenditures, cashing up and even rethinking how you look at the core business of Carro, which is really the used car purchases. I think all of these things that you’ve set in place along with the rest of Carro’s leadership has been paying off.
And the company has been EBITDA positive for the past eight to nine months, which is almost, since lockdown started in Asia, was this trajectory planned out? What were the factors that enabled Caro to sustain this balance sheet?
Ernest: To our CEO, co-founders and senior management’s credit, we had always planned our businesses to be profitable or have a path to becoming profitable. We used the lockdown to seriously look at our OPEX, our fats and ways to improve our efficiencies. We came out of the lockdown leaner and meaner. In fact, our cash position did not deplete during the lockdown and we were free cashflow positive.
Paulo: Right. I think it’s a really important point that you brought up about having that culture to really engage in these kinds of low-cost, small experimentation. So I really think, having that culture at Carro has really benefited how the company has grown over the years and it’s been mentioned that Carro’s projected to reach a billion dollar run rate by 2022. From the CFO perspective, where is Carro on that journey and what are the opportunities that you’re looking forward to taking to reach that goal perhaps even faster than expected?
Ernest: So the short answer is we are well on track for that growth. In September, we had a 500% year on year growth in terms of revenues. The momentum continues to be very strong. The October revenues are at record level, the gross profit level is at record levels and we expect to continue that trajectory. We believe as well when we deploy even more resource into countries like Indonesia and Thailand given the total addressable market, we believe that one billion is easily achievable, within the next two years, plus or so.
2021: Carro’s high growth built on AI and machine learning technology and pedigree
Yinglan: Aaron, thanks for coming on the show again. There have been very exciting developments on Carro’s front and I’m happy to give you a chance to update this. I’ve known Aaron for a long time. He’s been an entrepreneur since he was 18 years old, even younger, and now Carro is a very formidable marketplace, dominating the automobile space in Southeast Asia. There’s also a lot of development on the AI front.
So Aaron why don’t you give us an update on Carro. The last time we had someone from Carro on our show was back in early December with Ernest, your CFO. Why don’t you give us our listeners a quick recap about exciting things that Carro has been up to in the past quarter?
Aaron: Thanks for having me Yinglan. So we are Southeast Asia’s largest leading retail auto marketplace. And hopefully, as a group over the last year, the company has grown more than two times year-on-year pre-COVID to now. And in fact, this year we are forecasting to end the year at somewhere north of 200,000 units at least, by the end of this coming financial year. And a lot of the growth really has to do with the fact that we are focusing a lot more on B2C sales, basically selling [and] providing customers with the Amazon.com kind of experience for vehicles.
And a lot of what we do over the last year is really to double down, triple down into our spending in technology, especially in areas such as AI and machine learning. And more importantly, even within our own people, making sure that we brought on the right people into the team. Recently, we just brought on a nuclear scientist to really help lead and supercharge our efforts in data science, computer vision, magnetic resonance field.
And that nuclear scientist is none other than Bryan Tan, who became Carro’s Group Chief Scientist, as well as currently leading up the company’s Indonesia operations.
Paulo: What were you doing before Carro? And how did you find out about the company? Why did you decide to join Carro?
Bryan: Prior to joining Carro, I was a nuclear scientist. I worked with supercomputers to devise ways to encapsulate and contain radioactivity from spent nuclear fuel, which remained radioactive for thousands of years after it had been used. My research in Cambridge University spanned many collaborators in Europe and driving across the English Channel was a monthly endeavor. Luckily, I love driving and of course, cars.
Aaron, my buddy from the army days, founded Carro and we have always been chatting about cars, from pricing, and taxation to intercontinental exports.
Coincidentally, more than a year ago, Aaron asked whether I was interested in heading up a data science team to anchor the digitalisation of the car trade, a team that would be grounded in deep math, science and technology. It took me probably two whole seconds to say yes.
Aaron has been a great friend since my army days. He is smart and decisive and working with him is natural. We do not communicate much with words. A simple phrase or sentence conveys much between us. It is easy to make twenty friends, but hard to keep a friend for twenty years… So taking up his offer is a no-brainer.
Paulo: In your time here so far, what’s the biggest impact you’ve been able to make in your role?
Bryan: Pricing of cars. The spread between buy and sell price used to be huge with data opacity but now with Carro, we are able to give consumers the best price for their cars, be it purchase or sale transactions and we have experienced a rapidly growing customer base because of our excellent pricing and great service.
We are one of the fastest-growing companies in Singapore for the past two years running with a Compound annual growth rate at 422% in 2021.
2022: Disciplined growth is sustainable growth
Aaron: What we do is that we sell cars online. We are Southeast Asia’s number one auto retailer for cars online. If you ever need to buy a car or sell a car, in Indonesia, Thailand, Malaysia, Singapore, Japan, and now in Taiwan as well, we are able to help.
One thing I learned at least as a result of the pandemic is the importance really of building the company profitably [and] making sure that you grow responsibly. That has been the biggest takeaway that I had.
It’s not so easy, because if you think about life, what happens is that you have your competitors, you have other comparables running, sometimes, “ahead” so to speak, in the sense that you perceive them to be “ahead” because their revenues are [growing] faster…So one thing we learned at the end of the day, [put] really simplistically, is that don’t look at what is happening in front of you and then assume that those guys are doing well and as a result you follow.
I think at the end of the day common sense will prevail and we are a little bit more successful than the other comps primarily because of the rare fact that we stayed true to our game. We basically ensured that we were disciplined with our costs. We ensured that we were disciplined when we went out [to different markets].
And then when the pandemic hit, it actually didn’t really affect us that much to be very frank. In fact, sales went through the roof, we were the fastest growing company in APAC last year. The company has been growing about at least two to three times year on year in terms of topline [growth]. I think this year’s run rate revenue is already at about a billion plus. Our GPM has tripled. We are also going to be EBITDA positive this year. So this is what I learned — do not fall under the trap of seeing what’s ahead of you and just following that.
2023: Striking a balance between scale and profitability
Ernest: We reported record profits last quarter reported record EBITDA, which was 3x the entire full year last year. We are well on track to achieve more than 10x full year EBITDA compared to our entire last financial year. On top of that, we grew our gross profit margins; we pretty much doubled that to close to mid teens.
We achieved positive operating profits and even positive adjusted net profits. We were well ahead of in terms of meeting our profit targets. I dare say that we are one of very few high growth tech startups that is even profitable, and it’s across all metrics, EBITDA, operating profit, and adjusted net profits.
And reflecting back, it’s been a pretty incredible last 12 months since mid last year, where we shifted gears. We are amongst the first to pivot towards optimizing to achieve positive EBITDA and profitability, whilst maintaining strong, reasonable revenue growth.