Cars24 swerves to slow lane to ride out macro storm

The SoftBank and Alpha Wave Global–backed company is looking to reduce its burn rate by around 50% to extend its runway and readjust to a relatively slower rate of growth, starting with halting its aggressive overseas expansion plans in places like the UAE, Middle-East, Thailand, and Australia.

The Gurgaon-based company’s burn, or cash-spending rate, was around $20 million per month and it is now looking to bring it down to about $10 million, one of the people aware of the matter said.

It has shut most of its offline centres across the country except in the national capital region (NCR). While the decision to shut offline centres was taken last year, it has been executed throughout this year.

Cars24’s recent layoff exercise is said to have trimmed at least 700 jobs, people cited above said. This is higher than previously reported number of 600. It has also hit pause on replacing existing vacancies in the company, they added.

A spokesperson of Cars24 declined to comment.

Discover the stories of your interest

The firm’s tightening spends across functions is indicative of a broader stress in the used-car business in India as well as globally where US-based Caravana’s stock was recently down by around 90%.

“Yes, they (Cars24) are cutting costs to adjust to the new reality and have a longer runway,” a person aware of the company’s thinking said. “It still has over $500 million in its bank, but these measures are being taken keeping in mind if the ‘funding winter’ goes for longer than expected.”

Another person aware of recent goings-on said while the company is not looking to exit any of its overseas markets, it will hit pause on aggressive marketing and expansion plans. “Cars24 was looking at the overseas market in a big way, but that outlook has changed,” the person said. “Even in India, the company has cut marketing spends significantly and the change in its strategy has been communicated to the teams internally.”

Among other changes, the company is passing on payment gateway fees for large car purchases to consumers.

These measures at Cars24, which gained prominence as one of the leading startups over the last two years, underscore the current sense among startup founders and investors that the funding slowdown may get worse in the second half of the year before a recovery begins.

In May, ET had reported about
Meesho being one of the top-funded startups that’s looking to cut costs amid a ‘funding winter’.

ET reported on May 30 that top
venture capital (VC) funds are expected to go slow on large deals and have issued memos to portfolio firms on saving cash as a priority. According to data from Venture Intelligence, VC funding into Indian startups dropped 37% year on year in the second quarter of this year to $6.9 billion.

Cars24 had in December last year closed a
$400-million funding including debt, after which it was valued at $3.3 billion.

“One has to adjust to market reality. Compared to earlier aspirations of, say, doubling growth, now as they (Cars24) are looking to reduce burn, the expectation on growth is moderate,” said one of the people cited above.

Multiple industry sources said the growth is slowing down in used-car business across platforms but sources aware of Cars24’s thinking said it is still growing on a monthly basis. At the time of the funding announcement last year, Cars24 was selling around 20,000 cars per month, ET had reported.

Tiger Global-backed Spinny and CarDekho are among other big players in the space.

“As is evident, things will become tougher in the second half of the year before any chance of a recovery. While consumption across sectors is muted, used-car sales are slowing down for sure,” a person aware of the matter said.