The Other Electric Vehicle Revolution: Myths and Realities in the E-Scooter Business
Almost two years ago, Bird launched the first e-scooter service in Santa Monica, California, and Craft Ventures led the company’s Series A shortly thereafter. Even back then, with just a few dozen e-scooters on the street, we could feel the buzz and see e-scooters going viral in the real world. Two years later, micro-mobility has become a global phenomenon, with cities changing their laws and infrastructure to accommodate this new mode of transportation. While it’s been gratifying to see change happening so fast, there are many misconceptions about the scooter business. Hopefully this post can help clear up some of the myths.
Myth #1: “Scooters are a fad.”
Last winter, we started to hear this a lot — that e-scooters were a fad, growth had stalled, it was “over”, etc. In reality, winter was a downtick caused by predictable seasonality. Growth returned in the spring, and the growth rate now is just as strong as it was last summer, with one key difference: that rate is compounding off of a much larger base. Clearly we are nowhere near the top, as sales continue a steep vertical climb. You can see that in this chart from Second Measure. This is based on U.S. credit card data and doesn’t even include growth from international markets, which are exploding.
Myth #2: “It’s a small market.”
In conjunction with the argument that growth had stalled, we heard that e-scooters would be a small, niche market. But with growth still going strong, the reality is that we haven’t yet seen a limit to how big this market can get. What we do know is that half of all trips in cities are short-range and eligible to switch, that scooters are frequently the fastest and most convenient option for getting around congested cities, that consumer adoption is global (e.g. see Germany this week), and that this new mode is highly complementary to other trends such as public transportation and reduced car ownership. As cities create protected lanes and parking, the behavior will only become more mainstream. In a detailed report from March this year, Barclays estimates that micro-mobility will be an $800 billion revenue market by the mid-2020s. In short, the market is massive.
Myth #3: “Scooters only last a few months.”
This was only true of the first generation of electric scooters. These products were intended for the retail market and not designed for rugged commercial use. They broke easily, fared poorly in inclement weather, had small batteries, lacked anti-theft technology, and critically had no supply chain for parts — so even a small problem could be irreparable. But these scooters had one key advantage: they were available. As a result, they could be rapidly deployed to prove product-market fit and build a footprint. Since then, Bird has vertically integrated, designing and manufacturing its own scooters. This allows it to rapidly iterate on feedback from its local service centers, incorporate new regulatory requirements, and test new anti-theft technologies. These new commercial-grade scooters (Bird Zero and Bird One) last 13 months, and that lifetime is only increasing with each successive iteration of the technology.
Myth #4: “The unit economics don’t work.”
As with vehicle lifetime, this was very much a moment-in-time assessment that didn’t take into account the ability of the best operators to improve their economics over time. Over the past 6 months, Bird has made tremendous progress on unit economics and is now contribution-positive on commercial-grade scooters (which are over 75% of its fleet and growing fast). In other words, Bird makes money on every Bird Zero and Bird One ride. That calculation includes charging, repair, all other local operations, and the cost of the vehicle (depreciation). Notably, each successive generation of hardware drives further improvement in unit economics, so this is the beginning, not the end, of the positive gross margin story. Remarkably, Bird already has better unit economics than Uber and Lyft (mainly because it doesn’t have to compensate the driver — in a sense, the vehicles are already self-driving).
Myth #5: “There are too many players.”
It’s true that there are too many scooter companies. But the number of players belies the reality that two players own the vast majority of the market share — and the market is already consolidating. Bird recently acquired Scoot, gaining access to the San Francisco market. Critically, the same regulators who had shut Bird out a year ago approved the change of control, setting a valuable precedent for other markets. In Paris, 6 out of 12 players recently shut down operations. Just as small operators tire of losing money, cities are tiring of working with unlimited operators and are choosing a few experienced operators through RFPs. The market will continue to consolidate as the regulatory environment cures, M&A continues, and copycats fall by the wayside.
Myth #6: “There are no barriers.”
It’s true that if you want to connect a scooter to a mobile app, operate in a few cities, and lose a lot of money, there are few barriers to doing that. But if you want to run a vertically-integrated, globally-scaled micro-mobility platform that has positive unit economics, as Bird is doing, that’s incredibly hard. It’s no coincidence that the two biggest operators produce their own vehicles while everyone else struggles with weak off-the-shelf models (for example, the supposedly commercial-grade Ninebot Max still has exposed wires, easily snipped by vandals). The need for a vertical strategy favors the largest global operators who are able to drive economies of scale. Market leaders also differentiate on rider experience, supply chain, service centers, charging infrastructure, utilization modeling, and overall operational excellence. The barriers to scale are huge.
Myth #7: “It’s a race to zero.”
The example of the bike-sharing market in China is often cited to support the view that the e-scooter market will be a “race to zero.” But the China pattern has not recurred in e-scooters. Quite the contrary, all of the major operators have raised prices in the last several months (with no noticeable impact on growth). There appears to be no appetite for a price war among the major players. VCs have fatigued of funding growth strategies that come at the cost of negative unit economics, and the public companies in the space, Uber and Lyft, are under intense pressure to improve margins.
There’s also a realization that the subsidy wars did not work in ride sharing, so they are unlikely to work in scooter sharing, where switching requires not just opening a different app but walking blocks to find a different scooter. The fact that e-scooters also require charging infrastructure raises the bar operationally compared to bike-sharing. Finally, the China market may not be a relevant precedent because it went completely unregulated for so long; in the U.S. and Europe, the move to permits is ensuring that markets are not over-supplied.
Myth #8: “Regulators will kill it.”
In reality, it’s become clear that e-scooters are here to stay. Even many cities that had a knee-jerk reaction to their arrival and initially banned e-scooters have come back to embrace and accommodate them. Milwaukee is a case in point. One year ago, the city was embroiled in a lawsuit to keep Bird out. Now a new state law has explicitly allowed e-scooters, and Milwaukee has created a permit program for the three biggest operators (including Bird) to run a sharing program. A similar evolution happened in Miami and is now happening in Massachusetts. New York state just passed a law allowing e-scooters, paving the way for Manhattan to open up for business, which will likely be the single biggest e-scooter market in the world. With traffic south of 60th Street averaging just 7mph, a 15 mph bike/scooter lane will be the fastest way to get around the Big Apple.
From Santa Monica to Paris to Tel Aviv, cities increasingly see e-scooters as a critical part of urban mobility and are creating the infrastructure to support them — from expanded bike/scooter lanes to parking spaces. Two years ago, the city of Santa Monica was criminally prosecuting Bird’s founder for launching the service; now it is creating Bird parking and lanes. We see this pattern over and over again.
Scooter parking in Paris and Tel Aviv.
LA’s First Two-Way Bike/Scooter Lane
Micro-mobility is a huge market that’s growing fast. The market is consolidating down to a small number of winners driven by economies of scale and regulatory structure. Positive unit economics have been achieved, at least by Bird. Most importantly, micro-mobility is a fun solution to a huge problem — massive congestion in our cities. Incredibly, this market is barely two years old.
E-scooters have become the other electric vehicle revolution. But whereas Tesla is a high-end disruptor proving that the best car is an EV, e-scooters are a low-end disruptor providing the cheapest, most convenient option for short trips. It’s amazing to witness the birth of this major new category in transportation.
David Sacks is co-founder and General Partner at Craft Ventures. He is a board member at Bird.