For as long as he can remember, Stefan Krause has loved automobiles. When he was a boy living in Colombia in the 1950s, his family imported Volkswagens to Central and South America. The first car he remembers his parents owning was a BMW, and his passion for that vehicle led him into BMW’s executive ranks as an adult, where he reinvented the Mini and Rolls-Royce brands. He has driven in two modern-day Mille Miglia events, modeled after the legendary Italian open-road motorsport endurance race. He owns several classic cars, including two convertibles.
But while Krause loves cars, he has come to loathe driving – especially in large cities like Los Angeles, where he now lives.
“The great freedom that owning a car once gave you is gone,” said the co-founder, chairman of the Advisory Board and former CEO of Canoo. “Having a car in the city has become a hassle. It’s a great motivator to sit in L.A. traffic and think about solutions. [Cars] should be about mobility, but most of the time we’re sitting still.”
While trapped in those endless, polluting Los Angeles traffic jams, Krause pondered how to make the world’s existing automotive infrastructure work more efficiently while giving drivers more value from their cars. In megacities, those automobiles sit parked or gridlocked 90% of the time. Worldwide, including smaller cities and rural areas, cars sit unused, on average, 75% of the time.
The answer that emerged from Krause’s musings on this lack of motion in modern mobility is Canoo, an electric car company with a major twist: When Canoo introduces its first models in 2021, prospects won’t be able to buy them. Instead, they’ll subscribe to use them, much as they subscribe to watch programs on Netflix or Hulu. Because they’re fully electric, Canoo’s vehicles won’t produce emissions. They also will be autonomous-ready to allow existing roads to carry more cars safely, helping to eliminate the gridlock and accidents caused by human error and unpredictability.
“Our main mission is we want to build electric vehicles for subscription,” Krause said. “When you think about this, a car purpose-built for subscription, it needs to be quite different than a car built to sell to you. And that's why we didn't find the right car. And the idea was let's build a car that enables this type of a business model.”
Canoo will own the cars and all of the logistics that go with them, such as insurance. One of its goals is to replace a car that may need a repair with one that’s working perfectly. If a subscriber’s needs or preferences change, they can even swap one model for a different one. Unlike car leases, which typically last two to three years, subscribers take a car for as long as they want and then cancel at any point.
In short, Krause believes, subscriptions are the automotive business model of the future.
“Today, people want to make a monthly payment and have all their transportation needs handled,” he said. “They don’t want to register a car, insure a car, take a car to the dealership for service, sell a car when they’re tired of it. So our model is about making people’s lives easier by becoming the subscription company for mobility.”
Canoo plans to offer four different models – lifestyle, commuter, ride-sharing and delivery – but all of the bodies will be mounted on a simple, one-size-fits-all skateboard design. The base houses the battery and electric drivetrain and provides room for storage. The design allows for more internal room than a traditional car, but in a smaller package than a conventional SUV.
“When we look at today’s electric cars, we mainly see vehicles that still look like combustion-engine cars, with all those disadvantages,” Krause said. “We have all of this technology that you have to package into the vehicle, so it has developed into a three-box design: the engine compartment, the passenger compartment and the luggage compartment. Now we can put everything into the floor of the car, yet today’s electric vehicles still have a combustion-engine form. They’re dinosaurs. We’re going to take advantage of all the space that electrification opens up and give it to our passengers to enjoy.”
Canoo develops its designs on a cloud-based product innovation platform that serves the company’s centers in Los Angeles, Silicon Valley and China, along with Canoo’s suppliers.
“When you create a startup, you don’t want to spend time buying computers and figuring out how they work,” Krause said. “This whole company is run on cloud-based systems. We don’t have a server room. We didn’t have to wait six months to get our computers up and running. As we’ve grown we’ve moved four times, and after every move it is so easy. You put your computer on your table, log into your cloud-based platform, and you’re immediately back to efficiency. As a result, we have designed a car with just 400 people and a low investment.”
For example, he said, development costs for Canoo were just 10% of what his former employer, BMW, typically spends to develop a new vehicle design.
Krause’s BMW experience was pivotal, however, in Canoo’s decision to outsource its manufacturing rather than build its own factories. Canoo buys the cars’ components entirely from third-party suppliers and outsources assembly to contract factories. It’s a proven model; BMW has used contract manufacturing on a number of its cars, including the midrange 5 series.
Testing is another area where Canoo has innovated to substantially cut costs. Traditionally, physical crash tests account for a substantial percentage of the upfront costs winning approval from regulatory authorities in the United States, Europe and Asia. But Canoo has validated its skateboard design virtually, using cloud-based simulation software that perfectly replicates the physics of front and rear crashes. As a result, a single set of physical tests can be used to validate the results predicted by the virtual simulations. In addition, side-impact tests will be conducted on each of the company’s four designs. The result: development costs that are only a quarter of those for a traditional vehicle, and conducted in much less time.
Krause looks forward to the days when all vehicles are all-electric and autonomous. Eliminating pollution is an obvious advantage. Reducing or eliminating accidents by eradicating human error is another motivator. Eliminating noise is a third advantage, and one that few automotive executives mention.
“In some of the Chinese cities – Shanghai, for example – that have gone over to electric scooters and buses, the noise level has completely changed, making it a much nicer place to live,” Krause said. “You almost feel in the countryside; you can hear the birds again.”
Until that day arrives in Los Angeles, Krause is enjoying the energy and engagement of working in a startup.
“When I started this, I knew that I didn’t want to work for yet another blue-chip company. I didn’t want to do any more quarterly reports or annual meetings. Established companies are a big ship. You have a lot of people. You have a corporate culture, processes and systems, financial metrics. Successful companies have discovered some magic formula that works for them, and the system protects the magic formula and milks it. At some point, however, the world changes and you have to change. But now you’ve built a massive set of behaviors and culture and rules that fight you when you try to challenge them.”
Startups, however, are an entirely different animal, Krause has discovered to his delight.
“We have a different culture because the people that work here don’t see themselves as employees. They’re not looking for certainty and they’re not looking for safety. They want to do something cool, but they’re also looking for an above-average financial return for doing it. So they push innovation. They scrutinize our strategy and our thoughts and our ideas much, much more than our investors sometimes. They’re investing their lives in this, so they ask really good and tough questions. Once you give them the right answers and they’re convinced that you’re going to succeed, they will go all the way with you. They know the odds will always be against a startup. But motivation is high. You meet super-interesting people. You work with super-interesting people. The path is hard, but there’s a lot of fun to it.”
Former Member of the Board of Management of BMW AG for Development and Purchasing Burkhard Göeschel is a former colleague of Krause at BMW. Based on his experience, Göeschel is confident in Krause’s ability to advise the experienced Canoo team.
“He is open-minded to new and strategic ideas, and it’s not dependent on the size of the company. At BMW, I had some very strong discussions with him on new projects and unconventional solutions. We had a good relationship to step into new areas that also might be risky, but I could rely on his advice to get a common solution.”
Canoo aims to offer its first subscriptions in 2021, beginning in cities on the US West Coast with populations of 10 million or more. The target audience is young professionals who would like to drive an electric car but are too early in their careers to afford price tags of US$50,000 or more. Canoo’s subscription prices have not yet been announced.
“I think if you want to change the world you have to think radically differently,” Krause said. “Electric cars won’t work with combustion-engine business models. Thanks to the availability of new design systems, we were able to price a financially viable vehicle without reducing the quality.”
For more information on Canoo's cloud-based product innovation platform, please visit https://go.3ds.com/EVW