Volkswagen Wants To Pilot A New Business Model In Rwanda Combining Production, Ride Sharing

Volkswagen Wants To Pilot A New Business Model In Rwanda Combining Production, Ride Sharing

German automaker Volkswagen is expanding in Africa, hoping to open an auto assembly plant in Rwanda and also pilot ride-hailing and car sharing services in the capital, Kigali.

Europe’s largest automaker, VW is counting on new revenue sources such as pay-per-use transportation to increase business in countries with poor transport infrastructure — especially countries where Uber does not yet have a presence, Free Observer reported.

VW this month announced that it has resumed auto assembly in Kenya after four decades. Uber, the No. 1 ride-hailing service in the world, does business in many African cities including in Kenya. However, Uber is starting to see competition in Kenya from local providers.

VW’s move into “app-based integrated mobility” in Rwanda is significant for two reasons, according to Just Auto. It’s happening in a city in Africa and it’s a new business model for future urban mobility:

With the integrated mobility concept, Volkswagen intends to provide a new impetus for the development of individual mobility. Rwanda does not have an established vehicle industry.

VW isn’t just competing with Uber. Other ride-hailing services are also looking for new markets  in Africa such as Didi Chuxing of China and Ola, which is backed by Softbank of Japan.

Emerging markets with poor transportation links have become a battleground for establishing new mobility services, Eyewitness News reported. Rwanda is a good market for VW because there is little competition there.

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VW expanded into ride-hailing in May, when it invested $300 million in Uber rival Gett, a New York startup that mostly does business in Europe. Gett operates in about 60 cities, and VW plans to use the investment to spearhead its own move into ride-sharing, on-demand transportation and autonomous cars, Telecrunch reported in May.

VW is developing electric vehicles and new services as it tries to put its diesel emissions scandal behind it, Eyewitness News reported.

The scandal erupted in September 2015, when the U.S. Environmental Protection Agency said VW intentionally cheated on programming for diesel engine emissions during lab testing. The programming caused vehicles to appear to meet U.S. anti-pollution standards during regulatory testing, but emit up to 40 times more pollutants in real-world driving. About 11 million cars worldwide were affected.

Volkswagen said it planned to spend US$18.32 billion to rectify the issue.

“Volkswagen wants to strengthen its presence in emerging markets. That is why Africa ranks high on our agenda,” said Volkswagen brand chief Herbert Diess.

The German auto company said it may use electric versions of the VW Golf in the Rwandan mobility services business.

The goal is for VW to complete its market research in Rwanda by May, said Thomas Schäfer, CEO of Volkswagen South Africa, at a Kigali press conference. An assembly plant could be set up in Kigali by the end of 2017 that produces at least 5,000 vehicles a year, New Times reported.

Volkswagen South Africa is leading the initiative in Rwanda together with Volkswagen’s Kenyan partner, DT Dobie.

Africa is the final frontier for the global automotive industry with enormous growth potential, according to Deloitte. Vehicle sales are expected to grow by 40 percent within the next five years on the continent, according to VW.

Vehicle ownership is relatively low in Africa with 44 vehicles per 1,000 inhabitants compared to a global average of 180 vehicles per 1,000 inhabitants.  Africans overwhelmingly buy used vehicles over new ones.

“What we have in Africa is a lot of need for mobility but in certain regions maybe not the affordability to go in a full ownership of a vehicle,” said Thomas Schaefer, CEO of Volkswagen Group South Africa, Punch reported.

The company came up with a pilot project that will involve a company owning vehicles and allowing customers to pick them up in one point and drop them off in another — like similar systems in Berlin, London and Paris.

“We will make passenger vehicles not only available for the market to buy but also for the shared service that now is increasingly becoming the trend in many cities of the world,” said Francis Gatare, CEO of the Rwanda Development Board.

Tech-savvy Rwanda is well-suited to be a pioneer of new mobility solutions, Schaefer said.