THE PROMISE and PITFALLS of E-SCOOTER SHARING by Daniel Schellong, Philipp Sadek, Carsten Schaetzberger, and Tyler Barrack

THE PROMISE AND PITFALLS OF E-SCOOTER SHARING By Daniel Schellong, Philipp Sadek, Carsten Schaetzberger, and Tyler Barrack

f market growth were vehicle Why the E-Scooter? Iacceleration, the humble electric Still in their infancy, the biggest names in scooter—the latest answer to urban e-scooter sharing—Bird and Lime—have mobility—would be a Ferrari. Since their each amassed hundreds of millions of debut (by US-based Bird) in the fall of 2017, dollars in funding. Many more startups shared e-scooters are now in service in have raised more than $20 million each. hundreds of cities worldwide, and more (See Exhibit 1.) How to explain this launches are planned in the coming explosion and the forecasts of eye-popping months. A dozen e-scooter startups have growth worldwide? already attracted more than $1.5 billion in funding, and we estimate that the global The rapid rise of shared mobility—through market will reach about $40 billion to ride hailing, car sharing, and shared public $50 billion by 2025. bicycle systems—paved the way for e-scooters, responding to the public’s But several factors will put the brakes on appetite for cheap, convenient, and flexible e-scooter growth, if they haven’t already. ways to quickly get around increasingly Right now, the unit economics don’t add congested cities. But even beyond the up, and with so crowded a field, consol- practicality of e-scooters is the element of idation is inevitable. So is greater reg- fun that they offer: anyone—whether an ulation: as e-scooters proliferate, cities executive in a suit or a student in jeans— need to sort out traffic rules, public safety, can enjoy feeling like a little kid again. parking, permits, and liability issues. The big question—for service providers, in- Roughly 35% of all personal trips cover vestors, urban planners, and consumers distances of less than 2 kilometers (km), alike—is whether e-scooters can overcome and 75% of them amount to less than these hurdles and become a staple of 10 km. E-scooters are typically used for urban micromobility. trips from 0.5 km to 4 km, the equivalent of Exhibit 1 | A Dozen Contenders Are Fighting Over a $40 Billion to $50 Billion Market

Funding Estimated global market by 05 Company Founded ($millions) ($billions)

Lime2 San Francisco 0 765 Europe Bird Santa Monica 0 415 USA 3 Grow Mobility Mexico City 0 150 Flash Berlin 0 66 China Voi Technology Stockholm 0 47 Scoot Networks San Francisco 0 46 Rest of the world Tier Mobility Berlin 0 31 Skip San Francisco 0 31 Dott Amsterdam 0 23 How we calculated Target population of region Blue Duck San Antonio 0 23 the estimated market x number of trips by average user potential for each x average local price Wind Mobility Berlin 0 22 region Estimated market potential

Sources: Crunchbase; Pitchbook; TechCrunch; BCG analysis. Note: This list includes e-scooter-sharing startups with reported funding of more than $20 million, but it excludes corporate ventures (such as Lyft Scooters or Daimler’s Hive) and startups bought up by other firms (such as JUMP and Spin, acquired by Uber and Ford, respectively). 1As of April 1, 2019. 2Lime originated as a bike-sharing company. 3Grow Mobility was formed in 2019 through the merger of Mexico-based Grin (founded 2018) and Brazil-based Yellow (founded 2017). 4To estimate the number of trips (standalone and intermodal) by the average user, we accounted for such factors as trip purpose, e-scooter availability, weather, and general consumer preferences. Target population estimates factored in age, geography, and fitness level. The average local price represents the average use fee plus average minutes within the given region.

walking for 5 to 45 minutes. (See Exhibit 2.) The Scooter-Sharing Market Is In theory, therefore, e-scooters could be Big but Uncertain used for a large proportion of in-town Ride-hailing services have already demon- travel. E-scooters fit the bill for other strated how quickly shared-mobility modes reasons as well: they’re cheaper than can be adopted by the public. In 2015, for hailing a ride-share vehicle, you don’t have example, only 15% of US adults had ever to hunt for a parking space, and no used Uber or Lyft, but by 2018, that figure sweating is involved. They can also be had risen to 36% overall (45% for city paired with other mobility modes dwellers). (especially public transportation), thus making them a handy solution for traveling Our estimate of the global market for the first and last miles from home to shared e-scooter rides—potentially station. $40 billion to $50 billion by 2025, as Exhibit 1 shows—would be about 15% of the size E-scooters have their limitations, however. of the market for automotive-based on- They don’t perform well in hilly areas or demand mobility for that year, according to on brick-lined streets; they’re ill-suited for our calculations. Given that shared inclement weather; and riders have e-scooters are generally used more for nowhere to stow groceries or other private modes and for shorter trips, they belongings. E-scooter-sharing providers are will likely expand rather than erode the already in discussions with some existing market for on-demand mobility. manufacturers, including Xiaomi and Segway, about next-generation product Still, for all the advantages that e-scooter- changes that would address these needs. sharing offers, its mass adoption is hardly a Among the most important modifications certainty. For one thing, there may not be are stronger engines and more durable sufficient consumer demand, particularly construction. in cities with populations of less than

Boston Consulting Group | The Promise and Pitfalls of E-Scooter Sharing 2 Exhibit 2 | E-Scooters Are Best Suited for Shorter Distances

Trip distance (kilometers)

MODE 5

alking

Shared e-scooter

Shared bike

Ride hailing

Car sharing

Public transit

Source: BCG analysis.

100,000. Frequent users might find it more an e-scooter, it takes almost four months, economical to buy their own e-scooters, giv- not counting marketing and overhead ex- en the relatively modest starting retail cost penses, for a rental company to break even of around $400. In addition, e-scooters’ in- on its investment. (See Exhibit 3.) troduction—especially in cities where they seemed to appear overnight—has generat- The biggest costs today arise from opera- ed mixed reactions and a variety of prob- tions and charging. Every day, providers lems related to right-of-way rules, public typically collect the e-scooters; transport safety, parking, and liability. For these and them to a central facility for battery other reasons, many of the world’s largest charging, maintenance, and repairs; and cities have not yet welcomed e-scooters. then redistribute them for the next day. (For instance, as of this writing, scooters The additional costs incurred are substan- have not yet been sanctioned in Germany, tial. Some providers try to defray these ex- although legislation permitting their regu- penses by using a “crowd-charging” model, lated use is expected to pass shortly.) in which they pay the user (in cash or e-scooter minutes) to take the e-scooter home for charging and then return it the Solving the Current Profitability next day. Challenge While the market potential for e-scooters is Fortunately, improvements are already in promising, their unit economics, at least for the works. Longer-lasting or swappable bat- the first generation of vehicles, are teries will reduce the need for charging and challenging. Today’s e-scooters are not operations. At current price levels, e-scoot- profitable. ers will likely generate a profit if they can last around six months; several providers The average e-scooter currently has a life- are developing their own hardware to span of just three months. E-scooters were boost product durability to as much as ten originally designed for private use, not for months (and some have already rolled out rental, so the heavy usage, rough handling, a more rugged line of e-scooters). These and even vandalism that users inflict on measures, along with economies of scale in them have dramatically cut down on their production, will enhance e-scooters’ profit- durability. Yet despite the modest cost of ability considerably.

Boston Consulting Group | The Promise and Pitfalls of E-Scooter Sharing 3 Exhibit 3 | E-Scooters Are Not Yet Profitable

E-scooter unit economics in US market ($) Contribution margin per day 0.40 $0.65 per ride x 0.5 5 rides per day (average) 0.5 per 0.50 minute for 2.0 average of minutes Time to break even .0 115 days = 3.8 months Average vehicle price of $375 ÷ daily contribution margin of $3.25 ﬁxed fee 1.00 per ride Durability Price Payment Tax Maintenance Operations Contribution ~3 months per ride costs insurance repairs charging margin

Sources: Expert interviews; BCG analysis. Note: Our calculations represent the average unit economics before Bird’s recently announced price increases.

The Battle for Market Share tion costs. At the same time, oversupply In their bid for market share, e-scooter pro- might necessitate price cuts and trigger a viders and their investors are willing to sac- price war. (But note that one of the market rifice early profitability to establish a foot- leaders, Bird, announced per-minute fee in- hold while pursuing efforts to fortify creases in April of this year, presumably in product durability. The competition contin- an effort to improve e-scooters’ unit eco- ues to intensify: wide-scale rollout, which nomics. It’s hard to say at this point wheth- has already unfolded across the US, is just er one company’s increase will have a di- getting under way in Europe, and many rect effect on the market.) companies are launching their programs simultaneously in individual cities. Six What’s more, providers won’t be compet- e-scooter companies (Lime, Bird, Tier Mo- ing on price alone: they will be fighting bility, Wind Mobility, Flash, and Hive) cur- over turf and e-scooter availability. To win rently compete in Vienna alone, for exam- over a city, they will likely need to make ple, and two more (Voi Technology and more e-scooters available in a wider radius Arolla) are reportedly considering entry than their competitors. Doing so, however, there. But can eight e-scooter providers co- will undermine asset utilization. Poorer uti- exist profitably in one city? lization rates, along with greater marketing expenses, will translate into substantially Providers can’t overcome the fact that their higher costs. offerings are hard to differentiate. Consum- ers regard e-scooters as a commodity; Consolidation is inevitable. Investors could they’ll pick the closest available scooter. well grow anxious about continuing to Thus far, putting a high-quality, reliable bankroll startups as they burn through product on virtually every corner is appar- their cash. ently all the marketing that providers have needed. But over time, companies compet- The question is: will regional entities be ing with others in the same neighborhood able to achieve market dominance in indi- will have to establish brand loyalty. vidual cities or countries, or will global companies beat them on their territory? If To build critical mass in their customer the ride-hailing industry offers a clue, it’s base, providers will need to spend on mar- highly possible that some regional players keting and offer promotional discounts, will dominate, or at least compete head-to- which will drive up their customer acquisi- head with, the global companies.

Boston Consulting Group | The Promise and Pitfalls of E-Scooter Sharing 4 Critical Maneuvers for Providers realistic approaches to taxation that To secure market leadership, e-scooter don’t cripple industry growth. providers will have to take the following actions: •• Rider Liability. Clarifying the respec- tive liabilities of e-scooter riders and •• Optimize operations. To maintain, providers is becoming ever more crucial charge, and relocate several thousand (particularly in the US) as accidents e-scooters in every city of operation is a increase. major operational challenge. Reducing these costs to well below 50% of reve- nue will be essential for profitability. Opportunities for Mobility Service Providers and Platforms •• Bolster product durability. Substan- Digital mobility providers—ride-hailing, tially extending the average life of an car-sharing, and car-rental services—need e-scooter is critical, as is improving to act promptly to define their e-scooter battery life, making repair easy, and strategies. Established providers must finding better solutions to manage decide whether (and how) to integrate mechanical breakdown, vandalism, and existing e-scooter-sharing services or theft. whether to buy an existing provider. Partnerships―including those with public- •• Forge a strategy for rapid growth. transit agencies―will be key so that Scaling up quickly will help companies consumers can plan, book, and pay for amass a customer base and preempt intermodal trips. competitors. Beyond e-scooters, companies could broaden their offerings to Because e-scooter rides can complement include other mobility modes, such as other modes of transportation (especially shared bikes. More important, they will public transit), aggregating modes into a need to establish partnerships with single app would be more convenient and complementary mobility providers valuable for consumers. The user would (such as car-sharing and ride-hailing then have a single source to visit for getting services) to lock in users more effective- from point A to point B—a one-stop shop ly. Partnering with public-transit for planning, booking, and paying for their agencies at local and regional levels will trips. Uber is advancing fast in its bid to be- also help support growth. come just such a multimodal mobility provider: in 2018, it acquired JUMP, a dockless •• Beef up funding. Raising large war bike-sharing and e-scooter-sharing startup; chests will allow companies to finance launched a partnership with Getaround to sufficient production capacity, as well as integrate car rental into its app; and an- expansion into more cities, while nounced a pilot with the city of Denver to buying time to break even. offer tickets for public transit.

Yet these efforts alone won’t be enough. As A number of European cities are purveyors of transportation operating on developing their own on-demand mobility public streets, e-scooter companies will also offerings that integrate public need to address two major policy transportation with bike sharing, car challenges: sharing, and other mobility options. With their established customer bases, public- •• Regulation. Seeking favorable and transportation agencies are well positioned civic-minded regulation at the local, to act as a central or hub provider; many state, and federal levels means antici- already offer their own ticketing apps. But pating such concerns as reducing to what extent consumers will opt for a curbside clutter and congestion on local municipal offering over a potentially sidewalks and streets as well as in other more alluring regional or even global one public places. It also means encouraging is still unknown.

Boston Consulting Group | The Promise and Pitfalls of E-Scooter Sharing 5 How Cities Can Manage more, proactively, to foster the benefits and E-Scooters bypass the pitfalls. For instance, Portland, Not surprisingly, many cities are concerned Oregon, has adopted a sensible approach, about the unbridled growth of e-scooters, starting with a pilot program to test im- given the problems (such as obstructed pacts. (See the sidebar “Portland’s Proac- sidewalks and vandalism) unleashed by the tive Approach to E-Scooter Regulation.”) In rapid rise of free-floating bicycles. In 2018 the city’s initial study, 34% of local passen- for example, San Francisco and Indianapo- gers and 48% of visitors took an e-scooter lis backpedaled on e-scooters, putting re- instead of driving their cars or using Uber, strictions on their use; in New York and Lyft, or a taxi, proving that the potential for Chicago, e-scooters are currently banned. reducing car traffic is promising.

In the US, at least, e-scooters are unlikely to Elsewhere, cities are experimenting with transform the urban landscape overnight. other policies and practices, such as desig- But leaders should not let recent missteps nated parking zones and licensing by juris- color their views on e-scooters. When intro- diction. Lisbon, for example, has taken a duced properly, e-scooters can alleviate cue from pioneering US cities and estab- some of the seemingly intractable challeng- lished no-parking zones for e-scooters. In es that cities and their residents face— Madrid, providers must now obtain licenses namely congestion, pollution, and the diffi- to operate in their own designated areas of culty of bridging the first- and last-mile gaps. the city and are required to ensure that their e-scooters will be parked within their To start with, cities can penalize or impose prescribed area for a minimum amount of limitations on providers that do not abide time. They must also report usage data to by existing rules. But they can do much the city.

PORTLAND’S PROACTIVE APPROACH TO E-SCOOTER REGULATION

To avoid many of the problems that residents viewed e-scooters positively. other cities have experienced, Portland, Riders of the 2,043 e-scooters in the Oregon, was determined to develop program used them primarily as a sound regulations from the get-go. In means to get to a destination (as June 2018, the Portland Bureau of opposed to recreational excursions), thus Transportation (PBOT) began requiring demonstrating that at least one of the e-scooter providers to apply for permits; city’s goals—reducing vehicular traffic— one month later, it launched a pilot was a real possibility. City leaders also e-scooter program. learned that improvements were needed to reduce e-scooter-related injuries, The four-month pilot had four major illegal sidewalk riding, improper parking, objectives: to reduce traffic congestion, and damage to city park trails (an prevent serious injuries and fatalities, unwitting violation in most cases). expand access for Portlanders under- served by existing public transit, and A second pilot, begun in late April this decrease air pollution. PBOT also year, will focus on improving e-scooter required participating companies to accessibility, safety issues, and parking. provide data on starting points and PBOT also aims to gather more data, destinations, real-time availability, routes especially on e-scooter life-cycle costs taken, and accidents. and operations, so it can better assess whether e-scooters contribute directly to The city discovered that—after some a reduction in greenhouse gases. 700,369 trips and 801,887 miles—most

Boston Consulting Group | The Promise and Pitfalls of E-Scooter Sharing 6 To ensure that the use of e-scooters pro- be. To enable better future regulation, gresses in a way that supports mobility governments might make data-sharing goals, cities will need to think through sev- agreements a condition of their permit- eral important issues: ting process. Taxes can be both an important mechanism for controlling •• Rules of the Road. Governments will e-scooter use and a source of income. play a key role in setting and enforcing the rules of proper e-scooter use, such •• Liability. How should liability be as prohibiting riding on sidewalks or assigned? Governments should explore within pedestrian zones. Equally their own role as well as the roles of important is allocating road space. e-scooter manufacturers, mobility Some cities have already expanded providers, and individual riders. Mecha- their bicycle pathways and lanes; in nisms to ensure that liability claims for others, riders are often forced to share accidents are managed fairly and in a the streets with vehicles, which can timely manner should also be put in aggravate traffic flow and lead to place. accidents. Riders also need to be educated about the right-of-way rules By proactively developing policies for that apply to e-scooters, and cities need e-scooters, cities can ensure that the growth to clearly communicate those rules to of this promising transportation tool will riders and the general public. align with—and help advance—their broader transportation goals. •• Public Safety. E-scooter riders generally don’t wear helmets or other special protective clothing, which puts them at ill e-scooters gain traction—or a certain level of risk. In the absence of Wwill they crash and burn? Despite special riding zones, the safety of riders, their drawbacks, they have the potential to drivers, and pedestrians alike is poten- fill an important role in urban mobility at tially compromised. A number of a time when solutions to congestion and accidents and deaths have already been pollution are urgently needed. Consolida- reported; regulators that delay in tion will happen, culling many hopefuls establishing safety ordinances and from today’s crowded field. But providers public guidelines risk stoking opposi- that do it right—anticipating and mitigat- tion, which could lead to rules that are ing potential conflicts and seeking partner- more restrictive than necessary. ships with cities and other mobility platforms—could find themselves riding •• Parking and No-Scooter Zones. high. And cities that anticipate public con- Without any kind of municipal cerns and needs by testing, learning, and planning, e-scooters will end up regulating wisely stand to gain in many concentrated in major transit hubs, ways—not least by making city centers creating urban clutter. Regulators more fun. therefore need to allocate dedicated parking areas for e-scooters as well as establish no-scooter zones to ensure that transit-station exits and commuter pathways are kept clear. This is also important for ensuring unobstructed access for the disabled.

•• Permits and Data Requirements. State and local governments need to determine what requirements to set for e-scooter providers and how restrictive potential licensing mechanisms should

Boston Consulting Group | The Promise and Pitfalls of E-Scooter Sharing 7 About the Authors Daniel Schellong is a project leader in the Berlin office of Boston Consulting Group. He is a core member of the firm’s automotive and mobility sector, with a focus on digital business models and growth. You may contact him by email at [email protected].

Philipp Sadek is a consultant in the firm’s Vienna office and a core member of the automotive and mobility sector. You may contact him by email at [email protected].

Carsten Schaetzberger is a partner and managing director of BCG’s Stuttgart office, which he heads. He leads BCG’s Industrial Goods practice in Central Europe, Eastern Europe, and the Middle East. You may contact him by email at [email protected].

Tyler Barrack is a principal in the firm’s Chicago office. He advises clients in the automotive and mobility sector, focusing on sharing business models and the automotive retail sector in the US. You may contact him by email at [email protected].

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Boston Consulting Group | The Promise and Pitfalls of E-Scooter Sharing 8