Why escooter startups will not survive in Southeast Asia

Barely a few months ago, escooters were the talk in town. Buoyed by the rapid growth (in valuation) of Lime and Bird in the US, and possibly by Yellow in Brazil, a number of startups based out of Singapore stepped on the pedals.

Lime hired a local team in late 2018 and started advertising on Facebook to recruit ‘juicers’ In the country. Beam, run by an ex-Uber-cum-ex-ofo team, received significant funding. The older, more timid, Telepod is raising money; so is the relatively newer Neuron Mobility. Anywheel and QiQ also joined the fray. And you can’t look at the industry properly if you ignore Grabwheels, run by Southeast Asia’s super app Grab.

Grabwheel currently only piloting in NUS

The regulators, having learnt a great deal from the whole bicycle-sharing episode, reacted fast. A licence is required for operators to deploy and operate escooters and the deadline for application falls in February.

They have to. They reacted to bicycle-sharing faster than they did to ride hailing – even though oBike still slipped through with some fraud, the city is not littered with broken bicycles, as the case in China where taxpayers had to clean up.

Would the sector prevail, or would it even survive – in 2019? Our prediction is that independent escooter companies would not.

The economics

Why was escooters attractive, especially compared to the fad of bicycle sharing? Well, operators can charge higher per ride; users are more willing to use (as the human nature always leads them to something more hassle-free); the range is higher (it can replace short bus/taxi rides, while bicycles mostly replaced walking).

Does the economics really work?

According to industry experts, these escooters lifespan range between 30-90 days before being broken beyond repairs. This also mean that the firm is holding on to a depreciating asset and they must be able to maximise their revenue within a maximum time length of 90 days.

We did some calculations, as we did with bicycle sharing:

(Generous) Assumptions:

Cost of scooter including tracker = $400

Utilisation = 5 times/scooter/day

Durection of each ride: 20 minutes

Fee model: $1 to unlock + $0.15/minute

Maintenance/charging cost = $5/scooter/day

Transaction costs (payment etc.) = $1/ride

Revenue/day = 5*($1+$0.15*20) = $20

Profit/day = $20-$5-$1*5= $10

Number of days to breakeven = $400/$10 = 40, which is within the range of lifespan by “experts”.

Seems to make a lot of sense, no?

Really that rosy?

However, assumptions above are quite generous. Five rides/scooter/day are quite unlikely – remember shared bicycles in Singapore incurred fewer than two rides a day. We are also quite sceptical about users paying $5 per ride – they have public transport if they want to save cost, and taxi if they do not want the hassle. So while it is attractive, the use case is quite limited.

If we change the utilisation to 2 times/day – the unique economics will no longer make sense. Let along cost recovery.

Not to mention that the cost of charging and maintenance is surely higher than what we assumed.

Other inhibiting factors

 There are other factors which are not in favour of escooters. As we analysed about bicycle sharing before, in most cities in the region, the infrastructure is not conducive. Besides, motor taxis are cheap enough, a further deterrent towards the utilisation and unit economics of such sharing models.

In humid tropical settings – the life span of escooters is certainly lower than that of their peers in sunny (but dry) california.

The only city in Southeast Asia where this might make sense is Singapore – payment is smooth, people are educated, and infrastructure is good. But as mentioned above, Singapore’s regulators have caught up and will not let the sector scale fast.

In addition to license requirements, they also started impounding escooters that violate parking rules. The fines could be hefty.

Furthermore, the general rules applied to such devices, including the recently announced speed limit of 10km/hour, further reduced the use cases for shared escooters.

 Time window gone

Anyway, what is the point of doing escooters in Southeast Asia? I guess for most is the hope that Grab or Go-Jek will buy the leading player out.

This hypothesis gained ground after Uber’s investment into Lime, and especially rumours that Uber might be buying either Lime or Bird.

Now with both Lime and Bird cutting valuation, if we were Uber we would wait out. The only reason to buy either of them is to quickly bump up number of transactions ahead of IPO – however, in such a volatile industry, simply waiting could make a potential acquisition much more attractive for Uber, from a pricing point of view.

How about Southeast Asia? Well, with Grab already doing Grabwheels, it is unlikely that any other company will become an attractive acquisition target (at least at the price points they need to command).

Going beyond Southeast Asia? That would make you even less attractive in the eyes of Grab, which is fiercely a regional player.

But maybe Masa is interested?

 

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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