December 19, 2018 / 6:20 PM / 6 months ago

Breakingviews - Scooters will soon find city-friendly sweet spot

NEW YORK (Reuters Breakingviews) - Purveyors of electric scooters to urbanites, Bird and Lime most prominent among them, are all the rage in Silicon Valley. The toy-like tech marvels sometimes clog up streets and sidewalks, falling foul of officials even in San Francisco. Yet they are also a bridge between cars or mass transit and walking – a low-cost, green, last-mile transport option. They may soon find a city-friendly sweet spot.

A man in a suit rides an electric BIRD rental scooter along a city street in San Diego, California, U.S. September 4, 2018.REUTERS/Mike Blake

Santa Monica is ground zero for the scooter wars, which kicked off in 2017. The Californian city is also in the vanguard of efforts to control their proliferation and devise rules for use and placement. After the vehicles appeared by the thousand, San Francisco banned them in May, allowing them back three months later under licenses that severely limit their number. Lime and others are now transporting Parisians, and New York City Council members in late November introduced bills to legalize electric scooters and bikes.

Meanwhile venture capitalists can’t get enough. Bird and Lime each raised more than $400 million earlier in 2018, according to news reports, with Bird aiming for a $2 billion valuation. Car-hailing giant Uber bought Jump, another e-scooter provider, and rival Lyft is in on the business too. Uber may even be interested in buying part or all of one of the leading scooter firms, according to news reports.

There’s overlap with shared human-powered and electric bikes. But scooter mania reflects their ability to substitute taxis or walking for short journeys – say from a subway to an office – as well as their compact size, relatively lower costs, and perhaps greater fun factor.

The modus scooterandi has followed Uber’s example: Show up aggressively in a market first, and deal with problems later. Blocked sidewalks, broken equipment, regulation, safety and other concerns have cropped up. There are signs that Bird, for one, is taking a more measured approach now. In New York, it’s organizing demonstrations of its e-scooters and working with legislators.

That approach makes sense, because although scooters, like bikes, are an appealing addition to urban transport, they can also quickly become a menace – and subject to knee-jerk bans by local authorities – if a city’s infrastructure can’t handle them.

New York, for instance, has over 1,000 miles of bike lanes and a Citi Bike share program, operated by Lyft-owned Motivate, that has been going for five years, but there’s still too much scope for scooters, bikes, and cars to mix in dangerous ways. And scooters, which don’t need docks, can be left anywhere (like across a sidewalk) if they aren’t corralled.

Travis VanderZanden, founder and chief executive of Bird, in March 2018 urged fellow scooter companies to avoid out-of-control deployment. As well as managing fleets of typically Chinese-made two-wheelers more thoughtfully, one of his ideas is to share $1 per scooter per day of revenue with cities to fund infrastructure.

Startups like the various fast-growing scooter outfits – also including Skip, Spin and Goat – aren’t known for making money. And their financial ability to contribute much to infrastructure is questionable based on a rough picture of their economics, using data reported by the Information and Michael Babich via Medium.

The average scooter is used for maybe six rides a day, bringing in perhaps $3.50 in revenue per ride, or about $21 a day. That may call for two daily battery charges, at a cost of say $5 each (Bird pays ordinary folks to pick up, charge and replace scooters). Maintenance costs another $3 a day. So far, so good.

A plausible target up-front price for a scooter is $400. The current models last two months with luck, so the up-front cost spread over time comes out a bit over $6.50 a day. Put even these fairly generous estimates together, and there’s less than $1.50 a day left to cover all other expenses – credit-card charges, corporate costs, insurance, and so on.

In some cities scooter providers already pay up-front or ongoing levies in return for licenses. But thin margins make VanderZanden’s revenue-sharing idea look a bit of a stretch.

Some costs may already be going down as scooter firms expand, like the up-front cost of a vehicle – though President Donald Trump’s import tariffs could push that up again – and charging, assuming battery improvements. And if demand is strong compared to the number cities license, that may enable scooter firms to push up prices. Even so, while there’s more hope than for ride-hailing outfits like Uber it’s not certain they will become long-term profitable.

If they can work it out, both sides have something to gain. Even a dollar a day could make a difference for host cities. Suppose New York had 12,000 scooters, the same as its Citi Bike fleet. The revenue share, based on the same ride assumptions, would top $4 million a year.

The average cost of creating a mile of bikeway with road improvements runs about $240,000, according to a five-year-old University of North Carolina Highway Safety Research Center study. At that price, the scooter operators’ contribution would build nearly 20 miles of bike path per year – a decent chunk of the 50 miles annually targeted by the New York City transport department. It could be one way forward, as long as the scooter business model can stand it.

- This is a Breakingviews prediction for 2019. To see more of our predictions, click


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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