Is the Electric Scooter Apocalypse Finally Upon Us?

Smaller companies may lose the battle to break even but fewer players would create a healthier industry

Covid lockdowns didn’t short-circuit the electric scooter boom. But the end of the free-money era is sure to winnow the field. With investors flinching from unprofitable business models, scooter-sharing firms are cutting jobs, slowing expansion and exiting underperforming markets.

With industry participants warning of a “shakeout,” Bird Global Inc. — its shares down 97% from their peak — replaced its chief executive and chief financial officer in September and on Monday warned on its ability to remain a going concern and of a need to restate its financial accounts for the past two and a half years due to improperly recognized revenue. The chances of other scooter companies going public soon, as some had planned, look slim.

But we shouldn’t expect this industry to disappear, as scooter-haters might wish. Incumbents have levers to improve profitability, and some still have sizable cash reserves: San Francisco-based Lime raised more than $500 million last November. Robust equipment and more restrictive city permitting can help create a more financially sustainable and responsible industry.

US and European cities have been blanketed with scooters in the past few years, paid for via several billion dollars of venture and SPAC capital, 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 cluttered sidewalks and accident-prone riders have frequently upset pedestrians and there’s even been talk of Paris banning them. (When I visited the French capital recently, its mandatory scooter parking bays felt like a big improvement on my hometown Berlin’s semi-anarchic approach).

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

Even with fairly steep prices of around $6 for a 20-minute ride, most scooter companies aren’t yet profitable. Intense competition (there are at least five operators in Berlin) and brand indifference (consumers pick whichever scooter is closest) can result in scooters being unoccupied a lot of the time. Industry attempts to improve customer retention via promotions, subscriptions and loyalty programs have yet to pay off.

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

Modern scooters are far more durable than the cheap kit companies deployed five years ago when the industry first took off. A promised scooter lifespan of up to five years isn’t just welcome from a sustainability perspective; it lowers depreciation costs and encourages longer rides, both of which should improve profitability. 

Depending on the provider, the latest scooters come with software that automatically detects speed restrictions or no parking areas, and recognizes if the user is inebriated, improperly riding in tandem, or not wearing a helmet. But developing these safety features and complying with highly varied municipal regulations inflates operating costs. So it helps to be big.

“We are definitely at a crossroads and the industry is going to look quite different in the next six months. Scale is important in this industry,” David Spielfogel, chief policy officer at Lime, told me. “Smaller companies will struggle.”  Lime achieved profitability on an adjusted earnings before interest, tax, depreciation and amortization basis in the third quarter — typically the busiest period for northern hemisphere scooter companies because the weather is better. Cost-cutting helped Bird also reach adjusted ebitda profitability in the latest quarter but its $39 million unrestricted cash balance 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 into North America, having absorbed Wind Mobility’s Italian subsidiary in December.

Though capital providers such as Softbank Group Corp, Fidelity Investments, Sequoia Capital and Uber Technologies Inc. valued some of these companies too highly, it ought to be possible for some micro-mobility companies to make money.

Even when used just three times a day a scooter can generate about $2750 of gross profit a year by my back of the envelope calculation(2), quickly amortizing the roughly $1,000 purchase price.

Reducing the cost of recharging, maintaining and repositioning equipment is a key lever to boosting margins. Several of the big players now use swappable batteries, which is more efficient as bulky scooters don’t need to be returned to a depot.  Bird’s approach is different. In 2020, it shifted to a so-called “fleet manager” model, whereby each contractor takes charge of around 100 scooters in return for a share of revenue generated.  Fleet managers are incentivized to ensure scooters are highly productive, while the company has lower maintenance and storage costs during the slower winter months.

Though Bird’s website says US fleet managers can earn up to $1500 a week, they must handle the logistics and repairs on their own.

European operators have generally snubbed the US outsourcing model: Tier, Stockholm-based Voi and Amsterdam-based Dott vowed in 2020 only to use salaried employees. Though this might result in higher variable costs, operators have more control over quality. Keeping staff on payroll doubtless helps too with charming city permit authorities and ESG-minded investors.

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

While it pains this fan of competitive markets to say it, in this instance a scooter oligopoly might be better than a sidewalk-clogging margin-sapping free-for-all.

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