Venture capital

Japanese investors back Southeast Asia's second-hand car market

The trade war with the US has put Japanese investors off China. Southeast Asia remains top of their list in the hunt for better returns.

Carsome, a second-hand car trading platform, said that it had completed its Series C fundraising on Thursday, adding to the exposure of Japanese conglomerates in Southeast Asia's internet economy.

The fundraising round totalled around $50 million. Japan’s MUFG Innovation Partners and Daiwa PI Partners participated in the investment. Endeavor Catalyst, Ondine Capital and existing investors Gobi Partners, Convergence Ventures joined the round as well.

The interest of Japanese investors has shifted from China to Southeast Asia. In 2017 and 2018, Thailand and Indonesia saw a significant increase in Japanese investments in the automotive sector. They are also the largest investors in infrastructure in Southeast Asia, according to a survey from Fitch Solutions

Compared to Softbank’s weighty investments, the funding from MUFG and Daiwa Securities is not that eyecatching. But Japanese investors have chosen the right time to enter the Southeast Asian market as the second-hand car market is about to grow quickly. It seems natural for investors to enter at an early stage when the price is still low.

The volume of second-hand car transactions in Southeast Asia is expected to increase rapidly over the next five years, according to Chen Renchuan, vice president of China TH Capital. It could grow to as much as 10 million cars in 2025, up from 6 million in 2020.

In terms of countries, Indonesia is likely to have the fastest growth in terms of second-hand car transactions across the region. It recorded a 10% year-on-year growth rate from 2017 to 2018, according to Eric Cheng, chief executive of Carsome. The volume of transactions in Thailand is slowly growing, while that in Malaysia may actually decline in 2020.

The second-hand car market in Southeast Asia is not especially well-developed due to scattered distribution channels and low information transparency, Cheng said. Carsome wants to provide a consolidated channel and a uniform pricing standard online.

Proceeds will be used to develop the market in Malaysia, Indonesia and Thailand. Carsome intends to expand into other new markets after it breaks even in these three countries, Cheng said. Its Malaysian arm is already profitable and Indonesia and Thailand should achieve profitability next year.

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