We live in an age of innovation; there are millions of new start ups every year, many of them based on technology that didn’t exist forty years ago. The internet is changing how our world works, from communication to transportation. Micromobility, which refers to all kinds of light vehicles, is part of that latter transformation. Electric scooter renting has exploded across the globe, with multiple companies competing in almost every major city.
The way it works is deceptively simple; after registering on a company’s app you are given a map with the locations of nearby scooters. Upon selecting one, you can choose to rent or reserve it, paying based on how long you ride it for. On finishing your ride, you lock the scooter through the app and leave it for the next person. The scooters are alarmed and tracked, making them difficult to steal or move without renting. Some companies choose to pay people to be chargers or mechanics, who help keep the scooters in good condition and store them overnight. As easy as that is on the side of the consumer, it hides the dark “secret” of e-scooter renting; the model is not yet profitable.
While that seems to fly in the face of how a conventional business should function, e-scooter companies are content to temporarily operate at a loss, competing for market share. This is not an unusual practice. Twitter bled money for many years, turning a profit for the first time in 2018, five years after going public. The key strength of companies like twitter or facebook, or many other tech industries is the “network effect,” where additional usage increases the value for all users. The Electric Scooter model does not currently have a direct network effect; there is no inherent benefit to extra riders. There is an indirect network effect, since the more riders a specific company has, the more scooters it can have on the street at once. However, for the consumer, the same effect can be achieved by having multiple apps on their phone and simply checking each to see which company has a scooter nearest to them. A scooter company will only benefit from the indirect network once they have a significant market share. So the question becomes one of looking ahead; will electric scooter sharing become profitable? It's difficult to tell. The e-scooter model is currently facing two points of uncertainty; regulation and unit economics.
Electric scooters appeared almost overnight in some cities, and many people didn’t know what to make of them. There hadn’t been a coordinated effort to place them in the ecosystem of the city. Did they belong on the streets with motorcycles and vespas? Or were they more suited to bike lanes? Was it legal to ride without a driver’s license? The ride renting model brought new problems as well, like the issues of where scooters can be left and stored. Some cities have rushed rules and unsustainable fines, but there are many ongoing debates on what the long term rules will be. Until there is a stable set of regulations and rules for each city, scooter ride sharing will have an uncertain future.
The second main hurdle to electric scooter sustainability, and, in fact, profitability, is where things get interesting. Currently, most electric scooter companies buy their scooters from a third party, spending over $600 per scooter. To break even on that cost, at current pricing, each scooter needs to be ridden about five times a day for about five months. The problem? Most scooters don’t last even a month. While the scooters are built well, they’re often subjected to harsh conditions, like rain, rough roads, and intentional destruction. There’s even an instagram account dedicated to destroying scooters. Fortunately, things are not as dire as they seem. Production costs are going down, with some estimates putting the cost of an individual scooter at less than $400, even with modifications to increase longevity. The potential in the industry has spurred research into e-scooter tech, resulting in advancements like self-driving scooters, completely waterproof scooters, and even communication between scooters. Some companies, like Levy Electric, are working on organizing their fleets in a more optimized way, having several locations across cities where scooters are returned and maintained every night. The scooter ride share market relies on affordability and convenience, and can’t raise prices or restrict rides to the extent that either one of those suffers.
It would be nice to be able to say with certainty that scooter ride sharing is here to stay. Unfortunately, there are no market prophets, despite what every tech journalist would have you believe. Every electric scooter company is in fierce competition to be one of the survivors, and anti-scooter groups are doing their best to make sure that there ARE no survivors. The market is unstable, and reliant on venture capital to stay afloat, and eventually that may disappear. However, things do look bright. Cities are starting to embrace scooter sharing, popularity continues to increase, and manufacturing costs are going down. At the risk of being overconfident, we think electric scooters are here to stay.
