The design of an office is usually a good indicator of how a company likes to operate. Many traditional corporate offices resemble the waiting area of a dental practice—clean, traditional and often due a revamp.
Despite its business in manufacturing vehicles, Geely subsidiary Lynk & Co is adamant that it is not like the other automakers, and instead operates as a start-up. From a Nintendo 64 in the foyer, the gentle beat of ambient house music and an e-scooter in the corridor, to the ‘mustard room’—a meeting area decked out almost entirely in yellow velour—it certainly feels that way.
Lynk & Co launched in 2016 and sits between Volvo Cars and performance electric brand Polestar. The start-up leverages existing Volvo Cars platforms and technology, namely the XC40 compact SUV, but styles and develops “all visible elements” in-house. It currently manufactures and sells exclusively in China, but sees itself as a global brand, with near-term plans to launch in Europe and ambitions to tap the US market. It has also made a splash of the fact that rather than selling cars, it sells a subscription à la Netflix or Amazon Prime.
Early conflict
If Lynk & Co’s business model did not grab the industry’s attention, the name certainly did. When pronounced in English, ‘Lynk &’ is a homophone of ‘Lincoln’, Ford’s luxury subsidiary. Initially threatened with a lawsuit over trademark infringement, Lynk & Co argued it was an unintentional coincidence.
As a company that wanted to completely differentiate itself from the traditional brands, why would we want to copy a name? We are pretty cheeky, but not that cheeky
Things soon cooled down between the Chinese-Swedish manufacturer and the Detroit automaker, but suspicions remained that this was just another provocative start-up trying to create a stir.
“The situation escalated, which surprised us, but it never became a real problem,” Alain Visser, Chief Executive of Lynk & Co, told M:bility from the company’s Gothenburg headquarters. “As a company that wanted to stir up the car industry and completely differentiate itself from the traditional brands, why would we want to copy a name? We are pretty cheeky, but not that cheeky.”
In fact, the name derived from a casual conversation between executives in a taxi. It had to suit a global market, they agreed, and signal that this was something other than a car brand. Drawing inspiration from fashion labels such as Pull & Bear and Abercrombie & Fitch, they eventually settled on an internal product code—Lynk. The brand was formalised within just three days.
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Visser is a long-standing automotive executive with 17 years at Ford, nine years with General Motors and four years with Volvo Cars under his belt. The Belgian has been with Lynk & Co since the brand’s inception, but his experience with the traditional automakers may not have a direct carry over to his current position.
The car as a product may have evolved significantly following the introduction of new safety, convenience and entertainment features, but the business of running a car company has seen little change. “Over the last 15 years I have been shocked by how this industry keeps saying it is so revolutionary,” he remarked. “I think it isn’t. The industry today is about designing and engineering cars, making them in big factories and shipping them to dealers who sell and repair them. That’s how it started 120 years ago, and that is and how it still is today.”
By his reckoning, this could be the downfall of the incumbent manufacturers: the need to own a car is fading, and that has significant ramifications for the traditional business model. He acknowledged a line from Bill Ford’s 2011 Ted Talk—“what happens if we only sell more cars and trucks”—as a case in point. “The customer of today has nothing to do with the customer of ten years ago—let alone 100 years ago,” he continued. “If the car industry isn’t careful, there is a risk that automakers will become a supplier to the service industry. If that happens, the business model of the automakers will be broken, because the service provider will just look to buy the cheapest cars.”
Rather than selling cars, it sells a subscription à la Netflix or Amazon Prime
Rather than relying solely on vehicles sold, Lynk & Co will gauge success on the number of subscribers and the level of vehicle utilisation. Privately owned vehicles sit unused for more than 90% of the time, and by offering what it calls a ‘car subscription service’, Lynk & Co aims to shake up the concept of owning a vehicle. By signing up, users pay a fixed amount each month—like a traditional lease—but with a minimum one-month contract. That money pays for access to the car as usual, but with a twist: the car can be rented out to other Lynk & Co members.
The original ‘owner’ of the vehicle charges a set rate, and helps to offset the monthly subscription fee. In theory, Lynk & Co subscribers could even rent out their car to the point where they make a profit. It is why the company sees the likes of Turo and Uber as competitors, rather than other car brands. The monthly subscription cost is largely in-line with what would be expected of a premium SUV lease, but it comes with perks such as discounts for ‘lifestyle’ activities like festivals, gyms, cinemas and restaurants. Importantly, it differs from other subscription programmes run by automakers that charge a significantly higher monthly fee—sometimes as much as US$1,500—for access to a range of premium vehicles.
The business of sharing
Lynk & Co aims to tap into the ‘millennial mind-set’, which has seen a growing faction of consumers subscribing to services as opposed to owning products outright. Consider the rise of Amazon Prime, Apple Music and even Nike’s shoe subscription service, Adventure Club, as evidence.
“Customers today have a different view on ownership; it’s not a coincidence that suddenly people share bikes and even their houses. Sharing cars will grow as well,” said Visser. “We look at millennials as the benchmark, but there are people 70 years of age with the same mind-set. Admittedly, many people still want to buy cars, but I think there are more than enough customers out there who want something different, and that’s what we want to offer.”
Over the last 15 years I have been shocked by how this industry keeps saying it is so revolutionary… I think it isn’t
Judging by current activities, it will not be easy to crack the car-sharing market, even with a model that allows users to make money off a vehicle they do not own. Indeed, the mobility sector as a whole has already proven challenging for seemingly well-positioned players; Ford’s Chariot service crumbled earlier this year, GM’s Maven is scaling back and the BMW-Daimler partnership indicates the clout required to build a successful mobility business.
With vehicle manufacturing typically low-margin and highly capital intensive, how can Lynk & Co ensure it thrives? “It’s a tough space… Our data shows that the profitability of the sharing business today is horrible,” said Visser. “But our business is made by the subscription, not by the sharing aspect. I would almost say our model is much closer to Netflix and Spotify. It’s about the number of members, and how much each car is used.” If Lynk & Co cars are idle for say 40% of the time, he suggested, returning a profit could be tricky.
In 2018, the brand’s first full year on the market, sales totalled 120,414 units. “Over the last 30 years, my number one key performance indicator (KPI) has always been volume—how many cars do we sell,” Visser continued. “While we will, of course, measure volume, it is not going to be the driver of success.”
Down with the dealership
Returning a profit will be helped by the fact that Lynk & Co will sell directly to consumers. Visser estimated that the dealership distribution model accounts for 25% of an automaker’s revenue. Instead, Lynk & Co sets up retail outlets in high footfall locations, often neighbouring with cafes, restaurants, bars and cinemas. Retail experts estimate that large shopping centres can attract around 50 million visitors each year. Various automakers including Hyundai, Opel, Infiniti and Mitsubishi have trialled the approach alongside conventional dealerships.
Customers today have a different view on ownership; it’s not a coincidence that suddenly people share bikes and even their houses. Sharing cars will grow as well
“The only reason our offering is affordable is because our distribution model is so extremely lean,” explained Visser. “It means that we can offer a very good, well-equipped car at a price that others cannot. That’s what allows us to offer premium mobility in an affordable way—it’s the only way to do it.”
Another reason is the fact that Lynk & Co vehicles will only come in a handful of build combinations, slashing complexity and making life far easier on the factory floor. “The manufacturing guys love it,” noted Visser. Lynk & Co’s research shows that some mainstream models on sale today have around five billion different build combinations—taking into account everything from the powertrain and exterior paint to all the other optional extras. “We’re probably going to have just six combinations in Europe,” he advised.
‘Damn good’ cars
Lynk & Co may see itself as a mobility start-up, but with Geely as a parent company and Volvo Cars as a minority stakeholder, it is an automaker at heart. To put bums on seats, its cars must also be compelling products. Today, it sells the 01, a compact SUV, the 02 crossover and the 03, a compact performance sedan.
The automaker has the benefit of leveraging existing platforms from Volvo Cars, but also its own skilled test drivers—“they’re maniacs on the track”—to ensure that driving dynamics are up there with the competition. A modified version of the four-door front-wheel drive 03 sedan recently set two lap records on the Nürburgring racetrack.
Our data shows that the profitability of the sharing business today is horrible… But our business is made by the subscription, not by the sharing aspect
But while the car itself must be desirable, Visser recognises that the element of performance is becoming less important, and particularly for mobility subscribers. “We in the industry sometimes escape from what is customer-relevant,” he explained. “No customer ever drives a car under track circumstances, so my belief is that our cars just need to be damn good, with no compromises on quality, safety or equipment. Connectivity and the human-machine interface (HMI) are also key differentiators, and vital ingredients that ‘new consumers’ want in a car.”
CASE
Connected, automated, shared and electric (CASE) has become a cornerstone to the automotive industry’s ambitions for next-generation mobility. It is a collection of buzzwords that are gradually becoming the new normal, and vehicle manufacturers are adjusting their operations to ensure that each element is catered to.
At a very basic level, Volvo Cars ticks the box for ‘automation’, Polestar ‘electrification’ and Lynk & Co ‘connected and shared’. With its trendy Gothenburg start-up preparing for a global rollout, Geely now appears to have all bases covered. China will remain the primary manufacturing hub for now, but the hunt for a European location continues. Volvo Cars’ existing facility in Belgium was down to begin manufacturing Lynk & Co vehicles by the end of 2019, but that plan was put on hold back in November 2018.
Ghent is still an option, advised Visser, and the delay was a result of soaring demand for the Volvo XC40. “Sales are going so well that the volume Volvo could have offered us in Ghent was not enough. We said that Volvo should enjoy the success of the XC40 and we will just import from China,” he explained. “The intention is that in the medium term we will have manufacturing capabilities in Europe, and once we launch in the US, we will have also have manufacturing capabilities in the US.”
This article appeared in the Q4 2019 issue of M:bility | Magazine. Follow this link to download the full issue.