Over the last few months as hype over dockless electric scooters has ramped up, some of us have gotten a haunting feeling that something just isn’t right.
And it’s starting to look like our hunch was correct.
One day your city looks totally normal and the next it is completely inundated with electric scooters, littering the streets and sidewalks, parked anywhere and everywhere. And people are getting spooked and swiped on sidewalks as scooter riders illegally whizz by.
Bird and Lime have touted numbers that made Uber and Lyft envious. And between them, they’ve raised hundreds of millions of dollars in venture capital.
But the thing many of us can’t get our collective heads around is how could these scooters ever make money when they’re only charging around $1 per ride, while paying scooter charger people $5 to charge each scooter once a day, paying more than $500 for the scooters themselves, scooters which can easily be destroyed, trashed or thrown into a river!
It just doesn’t seem like a sustainable business model. In fact, it seems more like one of those ideas wannabe entrepreneurs come up with that they know will impress investors while their real goal is to raise a lot of money, burn through it and then close down, but close down a lot more famous and rich than when they started.
So, here’s the skinny… Bird told prospective investors in June 2018, that they were gonna make piles of cash. They told them the cost of the scooters was low, and they were going to get it even lower. They told them a lot of people were going to ride each scooter every day and they were going to make a killing.
The bottom line was, as it was pitched to investors at the time, that Bird was going to keep the scooters so busy that they would be able to recoup their initial costs on each scooter within about a month. And they’d have to because the lifespan of the scooters isn’t much more than a month.
After the first 30 days or so everything they made on each scooter would be pure profit. They projected that each scooter would last several months and they would make many times over what each scooter cost.
In other words, it was going to be a hugely profitable business, and those investors who were smart and far-sighted enough to get in on this ground-floor opportunity were going to hit it big. This would be the first huge unicorn of the twenty-teens.
Bird execs told investors in June, that they were on pace to earn around $65 million in revenue this year. Lime said they were projecting a $25 million pace this year, but expecting a $500 million pace by the first of 2019, according to Axios.
Bird even told investors they expected to attain a gross profit margin in the “near term”, “to a level that would nearly match what ride-hailing firm Lyft recorded when it was five years old,” according to The Information.
What Could Possibly Go Wrong?
Pretty much everything that could go wrong has gone wrong. First, some cities banned Bird and other scooter companies entirely from operation. Next, unexpected competition has come in from Lime and now Uber and Lyft.
From an outsider’s perspective, it looks like these things are cutting into Bird’s projected income. And that begs the question; did they really take these competitive and regulatory threats into consideration when they pitched investors in June?
But the biggest thing that has gone wrong is that none of Bird’s numbers are adding up the way they were supposed to.
The scooters themselves are costing Bird far more than originally projected. And there have been supply chain problems getting enough scooters out of China.
Bird’s Impossible Path to Profitability
The bottom line looks like this:
- Bird is currently paying $551 per scooter, which includes the GPS device, shipping, assembly and Bird branding. Bird’s original projections of scooter costs were $360 per scooter. (But even at $360 they’d still be losing money as we’ll show in a minute).
- The scooters are generating $3.65 in revenue per ride
- It’s costing Bird $1.72 per ride to charge the scooter batteries
- Repairs are costing on average $0.51 per ride
- Credit card fees come to $0.41 per ride
- Permitting fees are $0.20 per ride
- Customer support equals $0.06 per ride
- Insurance equals $0.05 per ride.
That means Bird is making a grand profit of $0.70 per ride. It’s now starting to look like Uber and Lyft had a better idea – use vehicles that somebody else owns and pays for!
$551 doesn’t sound like much to purchase one unit of a mode of transportation. But when you’re only making $0.70 per ride and you’re only doing five rides per day and the vehicle only lasts for one to two months, then suddenly that $551 is a huge cost to overcome.
In fact, it’s so huge that it can’t be overcome. If you break down the math it comes out like this:
Scooter costs $551
Scooter earns $3.50 per day ($0.70 per ride, five times a day)
It would therefore take 157 days to pay for each scooter.
However, 157 days is much longer than the scooters have proven to last. They’re only lasting one to two months at most. And 157 days is 5 and a quarter months!
Bird Skating Dangerously Close to the Line Between Profitability and Loss
Even if they were able to get their scooter costs down to their originally-projected $360, and if they were doing six rides per day per scooter, rather than five, it would still take 103 days to recoup their costs and that’s almost three and a half months. But the scooters don’t last more than two months and many give out after just a month!
They are losing big money on each scooter they put on the streets. And that doesn’t begin to account for stolen, damaged and abused scooters that will last far less time than a month.
After all, people aren’t exactly treating them nicely…
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Aside from realizing that unhappy citizens would mercilessly destroy their assets, Bird’s projections also didn’t take into consideration regulatory costs, fees and fines.
In July of this year, Beverly Hills banned Bird scooters and other dockless devices for six months. And apparently since Bird was founded by a former high-level Uber and Lyft employee, Travis VanderZanden, they went rogue and didn’t comply with the ban.
Beverly Hills then issued a no-tolerance order to the police who then began picking up and impounding scooters wherever they found them. If they saw somebody riding one, they confiscated it.
Beverly Hills cops apparently picked up and impounded almost 600 scooters at $172 a pop – costing bird more than $100,000 in fines.
Subtract that fine from the 170,000 rides per week Bird gave in early May and you’ll have to subtract another $0.59 from the profit on each ride. Not much, except, it’s enough to add another 30 days to the time it will take to recoup the cost on each of those scooters. Now we’re looking way past the scooter’s projected lifetime. In other words, when you’re skating that close to the line between profit and loss, you can’t afford another 59 cents in costs.
What will the VCs Do?
In a sane world, you’d think impossible numbers like this would close the spigot to any further fundraising rounds. However, we don’t expect any such sanity from Silicon Valley VCs. After all, this is a money-losing business and that’s what they seem to thrive on!
What are your thoughts on dockless electric scooters? Do you agree that they’re changing the way people get around, or are they impacting society for the worse? Let us know by dropping a comment below!