Oversharing is a fantastic newsletter by Alison Griswold that covers the economics and strategy of the sharing economy. Griswold used Bird financial data to break down the economics of scooter companies. These data show that the scooter company makes money each time a scooter gets rented, but that revenue doesn’t pay off the initial purchase cost fast enough. To be profitable, scooter companies need to raise prices or make their scooters last longer when frequently used. They may do both.
Bird Makes Money For Each Trip
From Griswold’s analysis:
“A scooter generated $3.65 in revenue per ride. Bird spent $1.72 per ride on charging costs. It spent another $0.51 per ride, on average, on repairs. Credit card fees cost $0.41 per ride. Fees to city permits are $0.20 per ride. Customer support adds $0.06 per ride. Insurance is $0.05 per ride. That leaves about $0.70 per ride, or a 19% gross profit margin.”
That’s good. 19 percent seems like a healthy margin.
Companies Are Paying Too Much for Short-Lasting Scooters
The above figures don’t account for the initial cost of each scooter. That cost and other fixed costs mean Bird doesn’t have net profit yet. Again, from Oversharing: “Each scooter cost $551 (price includes a GPS device, shipping, assembly, and Bird branding).” How fast can Bird pay down that purchase price by renting that scooter out? It turns out that they can’t make up the cost before that scooter depreciates so much that it can’t be used.
“Investors and industry executives told The Information that today’s electric scooters tend to last one to two months before they need to be replaced, which sounds about right. That makes Bird’s effort to build custom scooters with more battery life and durability all the more urgent.”
“If a Bird scooter that cost $551 was earning $0.70 per ride at five rides a day, that’s $3.50 a day. At that rate, it would take 157 days or 5.25 months for Bird to recoup the scooter’s initial cost.” But, Bird scooters last 1-2 months. To get fully profitable, Bird needs to do a combination of paying less per scooter, make each scooter longer-lasting, and charge higher prices. The company, with their second-generation model, aim to do the first two:
“At the goal cost of $360 [Bird’s target], it would take 103 days or a little less than 3.5 months” to repay the cost of the scooter.
Bird Needs to Build Twice the Scooter at Half the Price
By my math then, Bird needs to double the scooter’s longevity and pay 35 percent less per unit. That’s a tall order. For now, they’ve got lots of funding to buy over-priced, flimsy models and drive R&D toward new designs. They’ve already finished a second-generation model. That might not be enough to earn a net profit on each trip.
You think they can do it?