Reports over the weekend that the German automaker Volkswagen was getting ready to write off its entire $300 million-plus investment in Gett has taken the Israeli ride-hailing service by surprise.
The German weekly Der Spiegel reported on Friday that VW would write off the investment after concluding that Gett’s app had failed to gain ground on bigger rivals Uber and Lyft of the United States and China’s Didi Chuxing
Spiegel cited sources saying Volkswagen had already written down the value of its Gett holding to just 16 million euros ($18.3 million). Volkswagen declined to comment.
If true, the news would mark a big comedown for Gett and make it harder for the company to raise capital in the future.
But sources close to Gett told TheMarker that VW’s decision didn’t seem to make sense, noting that as recently as June the German company had participated in an $80 million fundraising round.
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In addition, the sources said, the company has switched focus from growth to profitability and expects to show revenues for 2018 of $1 billion. Gett aims to be profitable after discounting for research and development expenses in 2019, and be fully profitable the following year.
Still, the news illustrates how far the two companies’ high hopes have receded since VW put $300 million into Gett in 2016. More than a financial investment, it was an investment by VW in the future of transportation. The Germans hoped that Gett’s technology would give it a foothold into the emerging field of shared riding and enable it to compete with the seemingly unstoppable rise of Uber in Europe.
“Within the framework of our future Strategy 2025, the partnership with Gett marks the first milestone for the Volkswagen Group on the road to providing integrated mobility solutions that spotlight our customers and their mobility needs,” Matthias Müller, a VW official said at the time.
But VW gradually realized the Gett wouldn’t be the answer to its challenges. A year ago its MOIA unit launched an all-electric ride-sharing car and two months ago announced a partnership with Intel, its Israeli unit Mobileye and Israel’s Champion Motors to start a commercial self-driving, ride-hailing service in Israel in 2019.
As far as anyone knows, Gett is not participating in either of these new ventures.
Meanwhile, Gett itself has failed to match the growth of the biggest ride-hailing services. Although Gett dominates the Israeli taxi-hailing market, with 8,500 drivers, in bigger markets like New York it’s a small player.
The market share for its Juno unit, which Gett acquired for $200 million in 2017, is just 2%, according to data from consumer research firm Second Measure.
It’s hard to imagine that Israeli startup stands much of a chance against global giants like Uber and Lyft, not to mention China’s Didi Chuxing, India’s Ola or even Singapore’s Grab. Gett and Uber were both founded within a year of each other in 2009-10, but Uber is readying to conduct an initial public offering at a $120 billion valuation.
Gett, meanwhile, has seen its much smaller valuation decline. When it last raised money in June, Gett was valued at $1.4 billion, it made no secret that the valuation was down from its previous fundraising.
Tiran Rothman, head of the Israel office for the market research firm First & Sullivan, said not too much should be read into the reports of VW’s decision.
“Concerning Gett, the write-down is an accounting issue based on the decline in its intangible assets. From a financial perspective it’s about a specific decline that could be reversed,” he said. “It’s a sign that the momentum in the shared-rising segment slowed in 2018.”