For Electric Scooter Startups, It Has Not Been A Smooth Ride

Oh yeah, logistics...

It has long been a byword of business success that rapid growth is the hardest factor to manage. JL

Marc Vartabedian reports in the Wall Street Journal:

Fueled by $1.5 billion in venture capital, Bird Rides Inc. and Lime set up scooter fleets users can rent with an app. Lime and Bird’s expansions outpaced operations set up on the fly, according current and former employees. The companies have found it difficult to forecast demand, because of inventory systems offered limited visibility across regional warehouses. Spotty logistics have weighed on the companies’ efforts to become profitable and led to safety concerns that could endanger riders. "These challenges look like what an automotive or industrial company face.”

Shared-electric-scooter startups have blazed into cities across the world over the past two years. Fueled by roughly $1.5 billion in venture capital, industry leaders Bird Rides Inc. and Lime raced to set up sprawling networks of scooter fleets that users can rent with an app.

Over the past year, that breakneck pace of global growth—which has enabled users in more than 200 cities across the world to rent a scooter for a few hours and pay with their phones—has caught up with these companies.

Lime and Bird’s ambitious expansions outpaced operations set up essentially on the fly, according to more than a dozen current and former employees. The spotty logistics of their networks have weighed on the companies’ efforts to become profitable and led to safety concerns that this could endanger riders, these people allege.

Meanwhile, the U.S. Consumer Product Safety Commission is conducting two previously unreported probes into Lime’s scooters, according to Robert Dalton, an attorney adviser at the agency. A commission representative declined to provide further details. A Lime spokesman declined to comment on the probes.

Lime and Bird have spent much of the past year revamping global operations in a bid to cut costs. Lime, whose legal name is Neutron Holdings Inc., said earlier this month it would lay off 14% of its workforce and pull out of a dozen markets in the U.S. and overseas. In October, Bird said it would turn its focus from growth to shoring up losses.

Two years ago, the industry didn’t exist and there were definitely mistakes made along the way. But our level of precision, our level of control, is so dramatically better than three months ago, six months ago and a year ago,” said Wayne Ting, Lime’s global head of operations and strategy, in an interview.

Bird’s Chief Vehicle Officer Scott Rushforth said in a statement that Bird quickly learned from operations and supply chain forecasting challenges. The startup has created a logistics management system and developed vehicles that use fewer parts and require less repair, Mr. Rushforth added.

The renewed focus comes as the pair face pressure to transition from cash-hemorrhaging startups to profitable businesses after public investors hammered a string of highly valued but money-losing technology companies last year. Investors, including prominent Silicon Valley firms, have plowed roughly $3 billion into Bird, Lime and a handful of smaller scooter startups since 2017, according to data provider PitchBook Data Inc. Investors have valued Lime and Bird at roughly $2.5 billion each.

Collectively, Bird and Lime’s expansion has been dramatic. Founded in 2017, the startups dropped scooters into metropolitan areas in the U.S., Europe, Asia and the Middle East.

But operational problems soon arose.

Parts and scooter shortages in the companies’ dozens of repair warehouses around the world have caused Bird and Lime to rush components and vehicles by air from manufacturers in China at roughly 10 times the cost of regular shipping, according to current and former employees.

Alfredo Huerta, who worked as a Milwaukee-based Lime mechanic until October, said the scooter-rental service purchased more than 100 new vehicles at roughly $1,000 each last summer after a tool shortage prevented mechanics from repairing about 200 scooters that needed a simple fix involving the tightening of screws.

Mr. Ting said Lime, in general, has turned a corner on such inefficiencies.

“That is antithetical to what we stand for as a company. It’s not just bad operations, that is bad ethics and bad corporate citizenship,” Mr. Ting said.

The companies have found it difficult to forecast demand, in part because of inventory systems that offered limited visibility across networks of regional warehouses, said Christine Chang, who worked on Lime’s logistics and supply chain team until last summer, and other current and former employees.

Mr. Ting said Lime has improved its ability to forecast demand by implementing software that tracks inventory at its warehouses. This has reduced parts shortages and enabled the company to stop shipping parts and scooters by air, he said.

These improvements, which include a personnel shake-up of his operations team and more sophisticated use of data analytics, are critical to the company’s efforts to turn a profit this year, Mr. Ting added.

Expansions into new markets also have been costly. The startup was forced to delay its Brazil launch last summer by over a month because it didn’t have enough scooters on the ground there. To fix the problem, Lime shuffled in scooters from other countries, paying extra in custom duties, according to Ms. Chang and a person familiar with the matter.

Lime is set to retreat from Brazil as well as a handful of Latin American cities this year.

Bilal Zuberi, a partner at Lux Capital, a venture firm that focuses on investing in startups developing and operating physical technology, said he passed on investing in the sector, in part out of concern the logistics challenges of operating scooter fleets across continents would be significant.

“If the assumption early on is that something isn’t going to be a big cost, and then that changes on the ground—that’s a problem,” Mr. Zuberi said.

Bird also has turned its attention to tackling similar problems.

The continuous rollout of new scooter models designed to be more durable made it hard to establish a reliable supply chain for spare parts, while higher-than-expected shipping costs and duties weighed on Bird’s bottom line, according to a person familiar with Bird’s finances.

“The reality is these challenges look more like what an automotive or industrial company face,” said Kenneth Schlenker, the company’s managing director in France until last fall. Bird has since implemented new forecasting software, clamped down on the use of air shipping and trained more of its focus on smoothing out logistics inefficiencies, Mr. Schlenker said.

Also riding on Bird and Lime’s ability to remake their operations is the issue of safety. Mechanics for both startups say parts shortages affected markets suddenly and would often force them to scavenge parts—including brakes, wheels and throttles—from other broken scooters to make fixes.

Brian Kotts, who worked as a Boise, Idaho-based Bird mechanic until September, said mechanics there, facing shortages, routinely fixed scooters using old parts with unknown structural integrity.

“We were told: ‘If we didn’t have it, make it work,’ ” Mr. Kotts said.

Last summer, during peak scooter season in Los Angeles, a trend caught on where riders skidded scooters along the pavement by slamming on the brakes. Lime’s repair warehouse in the region became inundated by scooters with flat spots worn into the back wheel, said Jordan Van Loy, one of the lead mechanics there at the time.

Mr. Van Loy said the repair team tried to order spare wheels. “Like 200 arrived. But we needed 2,000,” he said.

Mechanics used old wheels from broken scooters that had piled up in the warehouse. Lime’s inventory systems made determining their age or if the parts previously had been involved in an accident difficult, Mr. Van Loy said.

Another shortage last year left mechanics to use their feet to bend several hundred bent scooter forks back into place, Mr. Van Loy added.

Mr. Ting said that Lime doesn’t compromise on safety and has checks and balances in place, such as an anonymous hotline that employees, including mechanics, can use to report safety concerns.

“I don’t know of an instance where we said we don’t have a spare part and we put the scooter on the road,” Mr. Ting said. “That has never ever happened on my watch, and I will never permit that to happen.”

“We never compromise the safety of our vehicles, riders or the communities we operate in,” Bird’s Mr. Rushforth said in a statement, adding that Bird’s logistics team works to ensure its service centers are properly stocked and each vehicle gets reviewed before being redeployed.