Business model
Gaussin’s business model centres around the design, manufacture, and sale of electric (manned and autonomous) vehicles for a variety of industries, including Logistics, Seaports, Airports, and People Mobility. The company has a proprietary modular design approach which allows for the efficient development and manufacture of a wide range of vehicles with a reduced number of variants. This approach also enables rapid training for licensing and localisation programmes, shorter learning curves for assembly processes, and faster integration of alternative suppliers or technologies. Gaussin’s engineering department designs several proprietary vehicle components and software, such as vehicle bodies, harnesses, and control systems. These components are either manufactured in-house or sourced from qualified best-in-class suppliers, ensuring high-quality and cost-effective production.
In addition to the sales of vehicles, Gaussin also generates recurring revenue through after-sale services, upselling of sold products, and licensing fees. The company has a robust licensing strategy that targets key geographic areas such as North America and the Middle East, with the aim of granting new Exclusive Master Licensees within 2023 to accelerate the distribution of its products.
Gaussin’s revenue stream comes from three main sources, sale of products, licensing, and services. In the products category, the company generates revenues from the sale of its innovative modular vehicles and underground works (Metalliance). The second category, i.e. licensing, is the most recently developed and has become a key pillar for the company’s growth over the last four years. This category capitalises on the strengths of the company and is a lucrative avenue for future growth (please see below for a detailed description). Finally, there is services whose scope covers the potential opportunities arising from aftersales across its deployed fleet. Currently small, this category holds potential for expansion.
Vehicles will dominate
Historically, revenues from Metalliance have, on average, made up more than half of Gaussin’s revenues with a lower contribution coming from vehicle sales. However, moving forward the company expects this trend to reverse. In fact, it will happen in 2023. Until now, Gaussin was primarily focused on R&D and testing of its vehicle portfolio but it is now ready to scale up. Including Amazon’s order of more than 300 vehicles in the US, the company is already guiding for delivery of more than 400 vehicles this year and expects to cross €100m in sales. In other words, more than 70% of 2023 total revenues will come from vehicle sales. Beyond 2023, the company believes its deliveries will surpass those of 2023 and sees vehicles sales contributing c. 90% to the total revenues on a regular basis.
Lucrative licensing model
Gaussin’s licensing strategy is currently in its initial phase and was originally driven by opportunities that arose at the time. For example, ST Engineering Singapore approached Gaussin to acquire its electric autonomous AGV Performance licence to participate in a large tender with PSA Singapore. Similarly, AMTC in Qatar and Nexport in Australia decided to choose Gaussin technology to complement their activities with zero-emission vehicles and address new markets. The company is now in the process of a stringent assessment of potential Exclusive Master Licensees for the MENA, US, and Asia markets to accelerate its global expansion. This is because these key areas have high potential and the success of the deployment in these territories will require a well-established and connected regional partner that shares the same vision and ambition to become a regional leader in the field. For this purpose, Gaussin is in discussion with sovereign entities, industrial partners, and investors in these geographies. At the same time, these partnerships will be carefully selected and vetted to ensure they align with Gaussin’s vision and goals and have the capability to become regional champions in the field of electric and autonomous vehicles.
Financially, this is the most valuable revenue stream for the company as the conversion of revenues into profits is substantial. Generally, the average licence duration is 20 years, and it involves an upfront payment (entry fee), royalties, and profit sharing (in the case of a joint venture with the licensee, in this case royalties are eliminated). The value of the licence depends on the products, territory, exclusivity, and duration of the contract. From 2023 onwards, Gaussin aims to generate at least €30m in licensing revenues per year. Eventually, as the company grants more licences, the revenue from direct sales by Gaussin within the territory will decrease. As this transpires, the company’s large production capacity in France will enable a smooth transition to a new model whereby Gaussin will receive substantial revenue from activities that do not require working capital financing (as it will be handled by the licensee). This future model will enable Gaussin to self-finance its continuous R&D and open a new cycle of licensing for future technologies.
Future growth from aftersales
Another aspect worth highlighting is the future potential of aftersales. Gaussin has access to extensive telemetry of each vehicle it sells. The company can monitor remotely the state of various parameters such as battery life, oil levels, component wear, etc. By leveraging this data, the company can offer its customers predictive maintenance and repair, thus, generating recurring revenues. In terms of numbers, this area can grow in line with vehicle sales as aftersales make up about 3% of a vehicle’s selling price each year.
Focused on improving profitability
Despite an increase in licensing revenues in the recent past and their strong drop-down to profitability, Gaussin has been unable to break-even consistently at the EBIT level. Moving forward, Gaussin is determined to change this by pulling various levers. First, as the end-markets become more conducive, Gaussin will be selling significantly more units per annum than it has done in the recent past. Very recently, the company indicated that, in 2023, it will sell over 400 units compared to only 30 units in 2022. This will improve the unit economics as the company will have more purchasing power due to increased scale. Secondly, being a first mover in its markets, the company can, and will, execute planned price increases to generate stronger revenue growth. Finally, it is dedicated to improving margins by reining in discretionary spend (some marketing expenses, prototyping expenses, etc.) by c. €3m per year. Going forward, provided proper execution, these levers will help Gaussin become a consistently profitable company.
Asset-light scaling
To avoid the need of excessive funding, Gaussin’s current distribution strategy is designed to minimise customer concentration risk by utilising its current and future licensee network for large-scale distribution opportunities arising from prospective customer orders. This approach allows the company to have a diverse customer base across different regions and territories without committing large pools of capital and other resources. For areas not covered by its licensees, the company can directly serve its customers through its supply base in France, thus, ensuring a strong presence in key markets while also managing its global customer base. Additionally, this approach allows it to provide high-quality products and services to a wide range of customers while being more adaptable to changing market conditions and customer needs, thereby, enabling it to continue growing and expanding its business over time.
Pricing power and switching costs
Due to their numerous advantages, Gaussin’s electric and hydrogen-powered vehicles offer their customers a lower lifetime cost of ownership along with significant cost savings in fuel and maintenance, making them a more attractive option for customers compared to diesel vehicles. As a result of this superior payback period, Gaussin has pricing power across its product portfolio. Moreover, the company’s pricing is also 15% less than its early-stage competitors, which currently offer limited features.
In terms of switching costs, the company’s solutions offer significant benefits of reduced downtime and increased productivity, making it difficult and costly for customers to switch to other options. Additionally, Gaussin’s end-to-end solutions with energy generation, storage, charging, and fleet management create a high level of integration and dependency for its customers, hence, further increasing the barriers to switching.
