Are electric scooters the next big opportunity for investors?
Upcoming decisions in London, Paris and New York will shape their future
Detractors argue that they are unsafe and that they clutter up city streets. Their champions say that they are the ultimate last mile transportation system. Either way, it appears that shareable electric scooters are not going to be disappearing from city streets any time soon. What started as a fad on the US west coast has now spread across the globe with almost all of the world's largest cities running schemes that have been embraced by commuters and tourists alike.
So given their growing ubiquity, are scooter-sharing companies a good investment? The future certainly looks promising. Electric scooters have become a highly lucrative industry. In 2019, buoyed by concerns about the environment and consumer desire to curtail their carbon footprint, the global electric scooters market size was estimated at $18.6bn
Yet from an investor’s perspective the electric scooter market is a complex one. It is largely dominated by start-ups, some of which are heavily venture-backed, who seemingly haven't quite perfected their business models. The scooter-hire industry is also in a state of flux as cities across the globe experiment and iterate to find the best way to incorporate scooters into their transportation system.
By the end of 2020 investors should have a clearer picture of how scooters will roll out, in Europe at least, as all eyes will be watching what happens in two of its biggest conurbations, London and Paris.
Paris has largely been a huge success story for electric-scooter companies. US company Lime launched in Paris during June 2018 and within months its app had become the top-ranked travel application on Apple's App Store in France. Lime might have led the way but a host of other companies were soon offering their systems across the continent. Lime’s key US rival Bird followed soon after and cemented its position recently by acquiring German start-up Circ. It faces a host of smaller, local competitors including Swedish start-up Voi, German company Tier (which leads the European market in terms of rides), Wind from Spain and smaller Dutch outfit Dott.
Pretty much every major city in Europe now has its own scooter-sharing scheme and most are proving very popular. Germany legalised scooter-sharing schemes in June 2019 and is now its biggest market. In particular, Berlin is awash with scooters from a wide variety of companies. From 2017 to 2018 the amount of shared e-scooters in Europe increased by nearly 200 per cent, and the European demand for scooter-sharing systems is expected to grow 26.2 per cent annually through to 2025. The key issue though for city planners is how to regulate the industry, and this is where different cities have taken very different approaches.
The problems with adding electric shared scooters to a city’s authorities are fairly obvious. First, they tend to be left in random places making cities look unkempt while at the same time creating problems for visually impaired and differently abled citizens. The issue is often compounded by the fact that multiple companies are offering scooters in cities, leading to a glut of the vehicles.
Secondly, there are still ongoing arguments about where scooters should be used. Are they for roads or for use on pavements? In most cities advocates of the former appear to be winning, but mixing nimble (they can achieve speeds of up to 20 miles per hour) vehicles with buses, lorries and other road users had inevitably brought injuries and fatalities (more than 30 in the US in 2018). Critics have pointed out that as most users don't wear helmets there has been a significant increase in head injuries.
Organisations such as UK pro-cycling charity Sustrans point out that scooters tend to work best when sharing cycle lanes. However, not every city has a fully developed cycling infrastructure and, as discussions on Reddit and cycling boards illuminate, there is some reticence on behalf of committed urban cyclists to share their lanes with motorised vehicles that can typically ride 5MPH faster than the average speed of a push bike.
Thirdly, with numerous cycle share schemes across the globe, security hasn't always been foolproof and scooters have been hacked, stolen and dumped. This is all bad news for city authorities and even worse for their operators.
New York or Paris?
So how do authorities regulate their use to make them safe and appealing? The jury is out in New York where the state senate passed a bill making them legal everywhere apart from Manhattan in June 2019. Then in December New York city governor Andrew Cuomo vetoed the bill, citing the lack of a mandatory helmet requirement, although critics suspect that fears of congestion on the city's crowded streets was the main reason for the ban.
Paris is taking an arguably more measured approach. Mayor Anne Hidalgo announced a tender process which is due to end in March. The city will choose a trio of operators with companies assessed on safety, operations and environmental responsibility factors. The big US companies have submitted bids alongside several EU start-ups. Many of the companies have been working closely with the cities in particular sharing data about usage which in theory is invaluable to city planners.
The process mirrors similar tenders in other European cities such as Marseille, which chose to limit the number of both operators and scooters. This contrasts with European cities such as Berlin, Copenhagen and Madrid which have so far relied on the market to resolve the number of operators.
There are signs that this approach might be working, too. For in January 2020 Lime pulled out of several cities, mainly in the US, though one in Europe, Linz in Austria. Other operators, including Lyft and Uber who both have fleets of scooters in the US, have also started to rationalise their growth plans.
Paris isn't the only city whose strategy might offer a path as to how scooters are integrated into European cities in the longer term. London has a key role to play too. Scooters are banned from public byways in the UK, though this hasn't actually stopped individuals from buying and using them. The one place where the curious can try out the scooters is in Olympic Park in Stratford, East London, where, as the land is privately owned, Bird is able to operate a small fleet.
Questions for the UK...
The mood music coming from the UK is also changing. Not long ago The Times reported that legislation was on the cards following a consultation process. It could be that London is waiting to see what happens in Paris and will introduce legislation to introduce scooters later in the year. Or it may be that legislation gets stuck in the post-election/post-Brexit logjam.
The decisions in London and Paris will inevitably shape whether the market is dominated by local European start-ups or by big US companies. The irony is that once the regulation is sorted the big players might move in. Ford acquired US scooter start-up Spin and is currently hiring across the continent. Both Uber and Google have invested in Lime. All kinds of deals are currently being done, including partnerships with public transport companies (SNCF in France has a deal with Voi) and even car hire companies.
So should you invest in scooter hire companies? Well most are venture backed and privately owned, so out of bounds for investors for the time being. But within a year that situation could change dramatically. If the regulation addresses some of the concerns that authorities have about scooter-hire companies, they will be worth keeping a close eye on. The kicker could be that valuations could be very high early on putting a lot of pressure on companies to reward early investors with decent returns. Both VCs and investors missed out on companies such as Uber and Lyft. It is not a mistake that they will want to repeat with scooter companies. Unlike scooters, whose batteries typically conk out after 15 miles, this one will run and run.