Volkswagen tries ride-hailing to expand in Africa’s markets

Global automakers are seeking to crack highly competitive African markets. Volkswagen (VW) is gambling on ride-hailing to break through the African roadblocks. The company is testing new ride-hailing business in Rwanda and it hopes to expand in Africa starting with Ghana and Ethiopia. Loss-making Uber and Bolt already entrenched in the major markets.

Rwanda’s President Paul Kagame and Volkswagen’s South Africa chief Thomas Schaefer unveiled the plaque of Volkswagen’s new factory in Kigali, Rwanda, on Thursday.

When Thomas Schaefer set out to conquer the continent, he quickly realised he needed more than a flashy new product. He needed a new business model for Volkswagen.

Study after study showed the same thing: there was no demand for new cars. Low purchasing power and a lack of financing put them out of the reach of most Africans, while competition from used imports gave buyers a cheaper alternative.

So Schaefer is placing a $50 million bet on a new business built around ride-hailing and car-sharing. And VW is using Rwanda - a small central African nation with a growing reputation for innovation - as its laboratory. “It was almost an industrial experiment,” Schaefer told Reuters.

The German carmaker’s project was launched with some fanfare last December in the capital Kigali but since then scant information has been disclosed about how it has progressed.

VW told Reuters the app for its “Move” ride-service now had over 23,000 registered users in Kigali. However only around 2,200 of those are active users - a fairly modest uptake so far in the city of 850,000 people.

In July, the ride-hailing service averaged 384 rides per day, a figure VW said it wanted to double.

It may be a longshot but, if successful, the Rwandan gamble could help plot a future course for Volkswagen, and others, in Africa’s challenging auto sector by securing a foothold in the region’s rapidly growing ride-hailing space.

Industry experts are divided on the merits of the plan, with some questioning whether VW can compete with the likes of Uber and Bolt in Africa or, in light of those companies’ losses, if it should even try.

While VW sees Kigali is an ideal test ground, offering a data sample that’s statistically significant at a reasonable cost, critics say the city - where Uber and Bolt are absent - is not an accurate gauge of conditions in bigger markets.

Schaefer cautioned that the experiment was still in its early stages, adding he’d like to give the business model a two-year test run before assessing it.

“Luckily our headquarters leaves us alone. They just say, do what you need to do.”

And though it hasn’t yet set a timeframe, Volkswagen told Reuters it was already looking to Ghana in West Africa and Ethiopia, a rapidly reforming market of some 100 million people, as initial targets for an expansion of its mobility business.

Global automakers like VW, Nissan, Toyota, Honda and Peugeot, are waking up to the potential in Africa, where incomes and consumer aspirations are rising.

But the region accounted for less than 1% of global new passenger car sales last year, making it hard to justify investing in local manufacturing and assembly.

VW’s ride-hailing cars are assembled in Kigali at a new $20 million plant that also produces vehicles for the relatively few customers able to afford a brand new Polo, Passat or Teramont.

Employers can also access VWs to transport their workers, and VW plans to launch car-sharing, where customers can drive themselves and are charged for the time they’ve used a vehicle.

All those vehicles are owned by VW, which after a year or two of service will sell them onto the second-hand market at a price more accessible to average Rwandans. VW is also opening certified service centres.

VW hopes combining all these businesses - new car sales, ride-hailing, car-sharing, used car sales, parts and service - can make the company’s investment in Rwanda worthwhile.

“If we were to focus only on selling new cars, in a few years we can close business,” said Michaella Rugwizangoga, CEO of Volkswagen Mobility Solutions. “We had to think bigger.”

Schaefer believes VW will eventually need around 800 cars on the road in the city for ride-hailing and sharing. The company will begin introducing its E-Golf electric vehicle into the mobility fleet next year.

Joseline Iradukunda quit her old job as a secretary in a law firm to go to work behind the wheel of a new Polo for VW’s app-driven ride-hailing service. The 25-year-old now spends her days plying the hilly, winding streets of Kigali.

Reuters