Mexican Unicorn Kavak to Invest $180M, Cuts Costs in LatAm

Latin America’s most valuable startup is planing to invest $120 million in Colombia, Chile and Peru and at least $60 million in Turkey

Kavak City in São Paulo.
By Michael O'Boyle and Felipe Marques
July 06, 2022 | 09:06 AM

Bloomberg — Mexican used car startup Kavak is branching out into three more Latin American countries and launching its first foothold outside the region in Turkey as it seeks to prove it can expand its “super app” online business model across emerging markets.

Currently Latin America’s most valuable startup, Kavak is planing to invest $120 million in Colombia, Chile and Peru and at least $60 million in Turkey after setting up initial operations late last year, said founder and Chief Executive Officer Carlos Garcia Ottati in an interview. However, Kavak is also cutting costs across Mexico, Brazil and Argentina as the economic environment worsens, he said.

Job Losses at Kavak Point to a Bumpy Road Ahead

“We’re confident the expansion is something the company needs to do, but we’re doing it conservatively,” Garcia Ottati said, speaking at the firm’s Mexico City headquarters. The company’s five years of experience and proven technology would allow it to become profitable more quickly in the new territories with smaller investments, he said. “We’re going to get to a bigger scale, faster.”

Kavak, which offers clients used cars through brick-and-mortar “hubs” and online, was valued at $8.7 billion in a private fund raising last September. But like other technology startups around the world, the company has found itself under increasing pressure to turn a profit as investors recoil from risky ventures. Phoenix-based online used car dealer Carvana Co. has tumbled more than 90% from its peak in August amid doubts that it can make its business model profitable.

Is Mexico’s Kavak Headed Down the Same Road as Carvana?

Garcia Ottati said Kavak was solving a different set of problems in emerging markets, where around 90% of deals take place between individuals, by providing a “super app” that aimed to build lifetime customers who look to Kavak for swapping cars, financing, insurance, warranties and even paying parking tickets.

“We’re solving fraud, we’re solving access to financing, and we’re using technology to grow this,” he said. Turkey had already shown promising growth that could end up justifying more investment, he said. “I think this is going to be probably one of our fastest growing profitable markets if we continue in the current direction,” he said.