The Reason Investors' Frenzy For Electric Scooters Is Tailing Off

The reality is that, unlike Uber, on which the business was modeled, user rates are lower and costs are higher. JL

Eliot Brown and colleagues report in the Wall Street Journal:

The economics have proved tougher than expected. Scooters not designed for heavy use are breaking down quickly. In some markets, scooters last two months, less time than it takes to recoup the purchase cost. Vandalism (is) glorified on social media. "Our assumption was that if the theft rate is really high and the vandalism rate is really high, there is no way these other companies would be in the business. That ended up being an underestimate.”
The investor frenzy for shared electric scooters is cooling, as two leading startups lower their fundraising ambitions while dealing with vandalism, rising competition and other growing pains.
One of the companies, Bird Rides Inc., is planning to take on more investment at its current $2 billion valuation, people familiar with the discussions said. The year-old startup previously had told potential investors it was seeking hundreds of millions of dollars at a substantially higher valuation, but it shelved those plans because of a lack of interest, some of the people said.

That is a far cry from six months ago, when investors were so eager to get into the market that Bird’s value doubled in weeks to $2 billion in two successive rounds.
Its rival Lime also has scaled back, telling investors it expects to raise at a valuation of between $2 billion and $3 billion, below the roughly $4 billion it previously indicated to investors it was seeking, people familiar with those discussions said.
The valuations are still lofty—neither company is yet two years old—and the industry has plenty of backers. But some investors hope consolidation can stem losses. Uber Technologies Inc. has been considering an acquisition and in recent weeks has been in talks with Bird and Lime, people familiar with the matter said.
Bird said it isn’t for sale and isn’t in talks with Uber. Lime didn’t respond to requests for comment on talks with Uber.
Uber, which is an investor in Lime and has its own scooters, declined to comment on a potential acquisition. A spokeswoman said the company sees benefits in offering different types of transportation services.
Scooters barely existed as a business a year ago. But Bird, Lime and others rapidly deployed thousands of them last spring in cities around the U.S. The rides generally rent for $1 to start and 15 cents a minute; customers unlock them with a smartphone and leave the scooters on the sidewalk when they are done. Investors rushed in after seeing rapid adoption in several California cities. Some companies reported revenue of more than $20 a day for each scooter, suggesting significant profit potential given they cost about $500 apiece.
The economics, though, have proved tougher than expected, people familiar with the companies said.
One issue is scooters not designed for heavy use are breaking down quickly. In some markets, scooters last about two months, investors said, often less time than it takes to recoup the purchase cost. Another is vandalism, glorified on social media through video clips of people knocking over rows of scooters or throwing them off parking garages.
Scoot Networks, a small San Francisco operator of electric Vespa-like scooters, this summer won the right to launch a fleet of as many as 650 scooters there. It hoped to capitalize on the launch of Bird and Lime in the city months earlier. But within two weeks of its October launch, more than 200 scooters had been stolen or vandalized beyond repair, Chief Executive Michael Keating said. That was far more than he had estimated when he got into the business.
“Part of our assumption was that if the theft rate is really, really high and the vandalism rate is really, really high, there is no way these other companies would be in the business,” he said. “That ended up being an underestimate.”
Scoot Networks is planning a lock that requires customers to hitch the scooter to a bike rack when done. Other scooter companies say vandalism is worse in San Francisco than most cities.
Bird and Lime have told investors they believe these speed bumps are temporary. Both companies have rolled out more-durable scooters.
The industry’s struggles haven’t deterred new competitors. Ford Motor Co. and the toy scooter maker Razor USA LLC have jumped in, and other scooter startups are raising funds. Uber and its main rival Lyft Inc. both have scooters in multiple markets.
That has made for a deluge of product. As of September, Los Angeles had at least 17,000 scooters on its streets, while San Diego had at least 13,000, according to Victor Pontis, who runs Scootermap.com, an app used by workers who charge scooters at night. Multiple companies say they have seen riders per scooter each day in those cities fall well below seven or eight, a robust level that previously had attracted investors.Meanwhile, scooter companies are dealing with regulatory setbacks. Some cities have blocked them outright, while others have capped the number of scooters companies are allowed to deploy at a few hundred, slowing potential expansion.
Both Lime and Bird have trained their eyes on New York City, where they see the potential for tens of thousands of scooters and have been lobbying hard to legalize the business.