Source: Tage Kene-Okafor/ TechCrunch
Mecho Autotech, a startup offering automotive spare parts, vehicle repairs and maintenance services, has raised a $2.4 million pre-Series A round. The firm targets the Nigerian market, where 90% of the country’s more than 12 million registered cars (mainly used) require regular maintenance to avoid recurring breakdowns.
Its primary business connects vehicle owners (individuals and fleet owners) with workshops that handle vehicle repairs and maintenance. Retail consumers in Nigeria often have three alternatives for performing automobile repairs: utilize OEM mechanics, aftermarket mechanics, or roadside mechanics. Because automobile parts are made in-house, OEM technicians provide high-quality but pricey services. On the other hand, most car owners can afford the services of aftermarket and roadside technicians, which have less quality.
Since its inception in 2021, Mecho Autotech has seen more than 6,000 cars from B2B and B2C clients undergo repairs and maintenance from over 110 approved workshops (three of which it owns). In the process, the majority of the issues the firm has had in executing these repair and maintenance requests have come from acquiring quality replacement parts, according to CEO Olusegun Owoade in an interview.
Mecho Autotech said last January that a portion of its seed funding will be used to grow its after-sales spare parts value chain. Similarly, the business will double down on wholesale distribution of these parts with its current pre-Series A investment.
Expanding into wholesale spare parts distribution
Nigeria’s automotive aftermarket spare parts and maintenance business is estimated to be worth $8 billion. Spare parts account for 80% of the value, with Nigerian vehicle owners paying an average of $650 annually. With over 12 million registered vehicles, of which 90% are imported and pre-owned, the automotive after-sales industry in Nigeria is highly fragmented and informal. This results in a disjointed aftermarket spare parts supply chain.
“As you know, spare parts are imported into the country as we have zero local manufacturing. More than 95% of the businesses engaged in this spare part value chain are small and informal with technical know-how and distribution channels,” said Owoade.
“But because of their size, they band together to import parts to the country, but because of that, inventory is not robust and quality isn’t uniform. There was a need for us to get involved in that. And what also helped that decision. If you look at the breakdown of market share or market opportunity, it is typically 80%-20% between spare parts and service charge.”
Mecho Autotech secured a partner in Tokyo-based venture capital firm Global Brain Corporation to support its new path of managing the importation and distribution of aftersales spare parts. According to Owoade, Global Brain Corporation, one of the startup’s investors in this round, would connect Mecho Autotech to Asian aftermarket parts makers interested in supplying the African market.
“We see a significant opportunity in the growth of the automotive aftersales market in Nigeria,” Hiroto Sorita, the firm’s corporation director, said of the investment. “Global Brain will support Mecho on parts procurement from Asian suppliers and business development for the new services to penetrate this fragmented market.”
Ventures Platform and Uncovered Fund are the other investors involved in the round.
The two-year-old firm, which operates across Nigeria, will act as an importer, supplying spare parts inventory to over 150 parts vendors, whose distribution network will meet the demands of workshop owners and end customers. This will prevent stockpiling in-demand spare parts like tires, suspension parts, brakes and batteries.
As a result, Mecho Autotech’s foray into wholesale aftersales spare parts overcomes the inventory problem that parts dealers confront. Meanwhile, these vendors also struggle with inventory finance concerns arising from business clients who pay several days or weeks after a service is completed.
Consequently, Mecho Autotech will develop an app in Q4 2023 allowing vendors to receive inventory finance and manage their inventory sales; the same service will enable workshops to access working capital and acquire spare parts, Owoade said. Similarly, a separate app for corporate fleet owners will allow them to find approved workshops, receive maintenance finance and manage vehicle maintenance data.
“We’re still connecting individuals and fleets with vehicle repairs and maintenance workshops. Now that we’ve entered the spare parts value chain, we see an opportunity to connect it with the original business by generating demand for spare parts from parts vendors via the app,” remarked the CEO.
“We also see the app as a tool for workshops to purchase spare parts and directly access working capital financing. As the number of workshops on the network grows, we can upsell and push consumers’ need for car repairs to them. We also developed free software for fleet owners to manage end-to-end operations, including visibility, maintenance and fulfillment services.”
Mecho Autotech will collect data on spare parts demand from these individual applications suited to the various supply chain stakeholders to assess market supply. These supply chain stakeholders will access up to ₦10 million (~$10,380) in financing (inventory financing for vendors, working capital for workshop owners and vehicle maintenance and parts procurement for corporate fleet owners), according to the startup.
Owoade noted that the source of the financing is via bank partnerships; Mecho Autotech currently has access to a credit line of ₦650 million (~$675,270) from a single bank partnership. The firm, whose major revenue comes from commissions on vehicle repairs and ancillary revenues from maintenance subscriptions, is in talks with other banks to increase its line of credit, according to the CEO.
Source: Tage Kene-Okafor/ TechCrunch