Is the electric scooter apocalypse finally upon us?


Covid lockdowns haven’t short-circuited the e-scooter boom. But the end of the era of free money is sure to winnow the field. As investors move away from unprofitable business models, scooter-sharing companies are shedding jobs, slowing expansion and exiting underperforming markets.

As industry players warned of a ‘dislocation’, Bird Global Inc. – its shares down 97% from their peak – replaced its chief executive and chief financial officer in September and warned on Monday on its ability to remain a going concern and a need to restate its financial accounts for the past two and a half years due to misrecorded revenues. The chances of other scooter companies going public soon, as some had predicted, seem slim.

But this industry should not be expected to die out, as critics might wish. Incumbents have leverage to improve their profitability, and some still have large cash reserves: San Francisco-based Lime raised more than $500 million last November. Robust equipment and more restrictive municipal permits can help create a more sustainable and fiscally responsible industry.

US and European cities have been covered in scooters over the past few years, paid for via multi-billion dollar venture capital and SPAC, as well as asset-backed financing from Apollo Global Management Inc. and Goldman Sachs Group Inc.

Millennials and Gen Z have embraced these fun contraptions, which came in handy during public transport strikes in Paris and London last week. Yet crowded sidewalks and accident-prone cyclists have often bothered pedestrians, and there has even been talk of banning them in Paris. (When I recently visited the French capital, its compulsory parking spaces for scooters felt like a big improvement over the semi-lawless approach of my hometown of Berlin).

Demand has rebounded this year with the revival of tourism and the irregular return of workers to offices, but scooters remain a discretionary mode of transport and therefore potentially vulnerable in the event of a recession. They tend to replace walking or public transport, not the car.(1)

Even with fairly high prices of around $6 for a 20 minute ride, most scooter companies are still not profitable. Intense competition (there are at least five operators in Berlin) and brand indifference (consumers choose the nearest scooter) can lead to scooters being unoccupied most of the time. Industry attempts to improve customer retention through promotions, subscriptions and loyalty programs have yet to bear fruit.

Bird scooters are used less than twice a day on average. Last month, the Miami-based company announced it was exiting Germany, Sweden and Norway and ending operations in several dozen smaller US and European cities. “We do not believe that selling $2 for $1 is a viable business strategy and do not plan to stay in markets where it is a requirement,” Bird’s new CEO Shane Torchiana explained this week.

Modern scooters are far more durable than the cheap kit companies that rolled out five years ago when the industry took off. A promised lifespan of up to five years for a scooter is not only welcome from a sustainability standpoint; it reduces depreciation costs and encourages longer trips, which should improve profitability.

According to the supplier, the latest scooters come with software that automatically detects speed restrictions or the absence of parking zones, and recognizes if the user is intoxicated, rides poorly in tandem or is not wearing a helmet. But the development of these safety devices and compliance with a wide variety of municipal regulations inflate operating costs. So it helps to be tall.

“We’re definitely at a crossroads and the industry is going to be very different over the next six months. Scale matters in this industry,” David Spielfogel, director of policy at Lime, told me. companies will struggle.” Lime hit profitability on an adjusted earnings before interest, tax, depreciation and amortization basis in the third quarter – typically the busiest time for scooter companies in the Northern Hemisphere as the weather is better Cutting costs also helped Bird achieve Adjusted EBITDA profitability last quarter, but its unrestricted cash balance of $39 million is insufficient to fund the business for another 12 months.

The consolidation process is already underway with German operator Tier Mobility acquiring Spin from Ford Motor Co. in March to expand in North America, after absorbing Wind Mobility’s Italian subsidiary in December.

Although capital providers such as Softbank Group Corp, Fidelity Investments, Sequoia Capital and Uber Technologies Inc. overvalue some of these companies, it should be possible for some micro-mobility companies to make money.

Even when used only three times a day, a scooter can generate about $2,750 in gross profit per year according to my calculation on the back of the envelope (2), quickly paying off the purchase price by about $1,000.

Reducing equipment recharging, maintenance and repositioning costs is an essential lever for increasing margins. Several of the big players now use interchangeable batteries, which is more efficient because bulky scooters don’t need to be returned to a depot. Bird’s approach is different. In 2020, it moved to a so-called “fleet manager” model, where each contractor takes charge of around 100 scooters in exchange for a share of the revenue generated. Fleet managers have an incentive to ensure the scooters are highly productive, while the business has lower maintenance and storage costs during the slower winter months.

Although Bird’s website says US fleet managers can earn up to $1,500 a week, they have to handle logistics and repairs themselves.

European operators have generally snubbed the American outsourcing model: Tier, Stockholm-based Voi and Amsterdam-based Dott have pledged in 2020 to use only employees. Although this may result in higher variable costs, operators have more control over quality. Keeping staff on the payroll no doubt also helps with the city’s charming licensing authorities and ESG-conscious investors.

While you might expect these companies to oppose any operating restrictions, most would prefer cities limit the number of scooter operator licenses to avoid overcrowding and a race to the bottom.

Although it hurts this fan of competitive markets to say so, in this case, a scooter oligopoly might be better than a margin-choking, margin-sapping sidewalk.

More from Bloomberg Opinion:

• ‘I was wrong’ wasn’t the excuse we needed from Big Tech: Parmy Olson

• Can e-bikes save the Covid bike boom? : Chris Bryant

• Our climate future can be decided in deadlock: David Fickling

(1) Sometimes it’s not one or the other: people take public transport and then a scooter for the last mile.

(2) I assumed a gross margin of 50% (before depreciation) and $5 in revenue per trip.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times.

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