LONDON, Oct 14 (Businesshala) – An era of breakneck growth for electric scooter firms is giving way to more selective expansion focused on profits as they face tougher regulations, more demanding customers and wary insurers.
Badly hurt by the global coronavirus lockdown last year, companies offering up-to-the-minute rentals of e-scooters say ridership among urban consumers eager to avoid public transport or taxis has increased pre-COVID. Growing up to 19 levels.
But that doesn’t mean the app-based industry is returning to the free-wheeling, pre-pandemic world, where “micromobility” firms were loosely regulated and money was taken from investors.
Scooter firms are now facing cities that are using licensing to limit the number of operators, consumers demanding better software and vehicles, and insurers facing security risks.
This is adding to the cost and will push the low-margin industry towards further strength. Some smaller providers have already been shut down, including Boston-based Zagster, bought by transportation technology company Superpedestrian in 2020, and San Francisco-based Scooter, taken over by Bird Rides in 2019.
“It really takes scale to make the economics work,” says Travis VanderZainden, CEO of Santa Monica-based Bird, which is due to go public through a merger with Special Purpose Acquisition Company (SPAC) Switchback II Corp. Looks like we’re going to see some younger players fall by the wayside.”
Bird is a global player that expects revenue to double in 2021 from pandemic-hit 2020, and then double again in 2022 to $400 million. It’s still small compared to a car-based ride hailing company like Uber (UBER.N). , which had a gross revenue of $4.1 billion in 2019.
Bird’s planned merger — which will go to the Switchback II shareholder vote on November 2 — values the company at $2.3 billion, which is about 20% less than its January 2020 price tag, according to startup data platform PitchBook. Lime, which is also a global player, saw its valuation drop by nearly 80% during its June 2020 funding round compared to a year earlier.
While the pandemic battered valuations at the top, a Businesshala analysis found it cut funding for many smaller e-scooter providers.
“There are a lot of companies that can’t invest in hardware, can’t invest in security features, and can’t invest in training,” says Lime CEO Wen Ting. Lime acquires Uber’s micromobility unit Jump.
The current environment is a far cry from 2017 when electric scooters accessed via smartphone apps first appeared in large numbers. The flood of new providers created “Wild West competitions” primarily in European cities hosting an unlimited number of vendors, said Candice Xie, CEO of Chicago-based Vo, which operates in more than 40 US cities.
“Many companies race to the bottom to get market share,” she said.
Vehicles were dumped on roads from Detroit to Paris, and the term “scooter blight” was born.
Fredrik Hjelm, CEO of Voi Scooters, said, “Early rental scooters were “consumer grade and not built for a high level of use.” Stockholm-based Voi operates about 100,000 scooters in Western Europe.
New Sheriff in Town
Now, cities and countries have tightened the rules, creating a tough bidding process for licenses aimed at limiting the number of scooter providers.
Earlier this year Copenhagen temporarily phased out all scooter providers while it rewrites its rules.
Some US cities, including Columbia, Missouri and Winston-Salem in North Carolina, have allowed e-scooter providers to return with more inspections after being expelled.
Large scooter providers say that licensing a few major players with track records guarantees better service and allows them to operate large fleets profitably.
“It’s become a game of slim margins and scalping,” Voi’s Hjelm said. “It’s far better to have fewer operators with more densities.”
The UK has launched test projects for e-scooter providers in some cities – but with speed restrictions, and users must have a driver’s license.
“We are determined to make sure that safety is at the core of our testing and that it works for everyone,” said Helen Sharp, head of transport for London-based e-scooter testing for three operators: Lime, Tier. and dot.
To meet London’s requirements, Berlin-based Tier has developed software to prevent its scooters from reaching certain busy roads.
“You might just be able to push it, but it won’t be easy,” said Tier’s head of UK and Ireland cities, Georgia Yexley.
But better scooters and software drive up the cost.
Fred Jones, Tier’s regional general manager for Northern Europe, said the company’s scooters can now last up to five years and have 83 replaceable components to extend their lifespan.
“Not only does the scooters cost a lot, but the parts and skilled labor to service them are enormous,” Jones said. “If you don’t fix it, the economics won’t work.”
Ensuring that they are financed is critical.
Silicon Valley venture capital firm Autotech Ventures avoided micromobility firms until this year, when it made purchases in Chicago’s VO and another unnamed firm.
“VO has taken a disciplined approach to growth, with impressive unit economics and much higher profitability than all of its peers,” said Dan Hofer, Managing Director of Autotech Ventures.
According to Pitchbook, venture capital deal activity in the micromobility sector fell to $1.4 billion in the first half of 2021 from $4.6 billion in the same period in 2020.
Another problem for e-scooter providers is that insurers consider e-scooters to be inherently more dangerous than bikes or cars.
“Riders are particularly vulnerable, more so than cyclists,” said Martin Smith, technical claims manager for Motor at Aviva (AV.L), a large UK insurer that does not cover e-scooters.
Regular motor insurers like AXA UK (AXAF.PA), Admiral (ADML.L) and Unipolsai (US.MI) also avoid e-scooter providers, leaving them to specialist players like Zego. Bird CEO VanderZainden said it uses data from 300 cities that operate globally to achieve lower insurance rates, highlighting the benefits of scale.
It has also added physical security features like double brakes and developed software to boot irresponsible riders from its service – all running on its own operating system.
“It’s one thing to have amazing vehicles,” VanderZanden said. “But you need data to show insurance companies to make this work.”