Notes from a members-only webinar
|Mar 12||Public post|| 8|
Last week, EV Premium readers had a chance to discuss micromobility with the leading technology analyst Horace Dediu. This is a members-only recap of that briefing that I wanted to give to you for free.
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Horace is one of the world's foremost technology analysts and the acknowledged global expert on micromobility, a term he coined to describe “utility-focused urban transport in sub 500kg vehicles, and predominantly electrically powered.”
We discussed how urban transport is being disrupted and will continue to be disrupted by the use of small, manually or electrically powered vehicles used to travel short distances and how traditional business models and customer behaviours will adapt and change.
If you missed the briefing, you can...
Why micromobility and why now?
There are at least three powerful trends coming together right now to enable micromobility.
First, increasing urbanisation is not only here to stay but it is poised to soar to new heights. To illustrate, the United Nations' estimates show a clear upward trajectory of urbanisation: in the 1950s, the absolute number of people living in cities was under 1 billion; in 1976 the number reached 1.6 billion which then led to today's 4 billion and culminating in a projected 7 billion in 2050. Until recently, secondary markets for transport - Africa and Asia - are becoming new urban hubs, with some of the most densely populated cities. It is no secret that with more people living and moving to cities, the urban infrastructure is under strain and urbanists are keen to solve a key problem: the car is no longer the most efficient, fast and reliable mode of transportation for short trips around the city. Short trips below 15 miles are the target segment for micromobility, compared to trips over 15 miles which are best served by the car.
Second, the price of personal travel has remained constant for 100 years; since Ford’s Model T, it’s been at 70c/mile to drive a personal car. Advancement of technology, such as automation, is shifting the gears (pun totally intended!) towards price depreciation, bringing it down to less than 30c/mile. While micromobility companies are still figuring out the right business model, we’re seeing massive demand emerge on the premises of affordable transport with the rise of ride-sharing, bike-and-scooter sharing.
This is related to the third key trend, technology advancements. The car as we’ve known it in the past one hundred years was not meant to change during its lifetime. As Horace notes, the problem of having a global fleet of 1.2 billion cars is that it will take two decades years to replace them (the software changes on a monthly cycle and the hardware that runs consumer software is changing annually). While bikes are fairly simple machines that don’t take rocket science to fix and advance, the real technological driver of flexibility that micromobility allows for lays in how easy it is to empower it with software: maps, GPS, payments, to start with.
And it is no wonder why we see such a disruption in this field: micromobility (akin to 'microcomputing') promises to be more energy efficient than (electric or not) cars, more space efficient, safer, economically inclusive and better for cities. There’s a strong case to be made for micromobility as it solves a key problem: it reduces the inefficient usage of cars for short trips. Instead, cars can be used for what they were initially engineered to help with: long-distance trips undertaken rarely. In Horace’s words:
The sellers are delivering a product that is far beyond what the what the average buyer needs. And the buyers are conditioned that that's what they must have. But if you give them an option that is not as they think they need, and then they tried it, they might actually switch. That's the premise of micromobility.
What are the opportunities in the micromobility market?
Let’s take a view of the “market for kilometers” and split it into long distance i.e. high-end markets vs. short distance i.e. low-end markets. We find that while high-end markets are well covered by cars, trains and aviation, the low-end markets are not well served yet and they offer opportunities for innovation.
When we look at what happens across different cities, we see a similar distribution for miles. The distribution for miles looks like this:
For New York City taxi, we notice that the most common trip distance is 1.5 and the second most popular is 0.5 to 1 mile.
If we look at data from Austin, we notice that the most common distance for scooters is 0.4 miles and for e-bikes is 0.8 miles. When we compare the two, it looks like the higher power and the bigger wheels allow people to go faster and therefore further.
San Francisco data echoes the trend in Austin - e-bikes allow people to go further and even tackle longer distances.
This shows that the trip distance distribution of a small lightweight vehicle begins to approximate that over a larger vehicle, then there's competition and potential substitution for shorter distances under 15 miles.
Thinking about the value of these markets, common sense nudges one to think that longer trips may be more valuable. But the numbers paint a different picture: in the US short trips are worth more than longer trips at ~$1 trillion vs. ~$750 billion dollars, respectively. Also, the addressable market for micromobility is based on numbers showing that trips 80% of trips in the US are less than 12 miles, while 90% are less than 20 miles. Separately, McKinsey estimates micromobility to be a $500bn annual opportunity by 2030.
Beyond the financial incentive, micromobility holds tremendous opportunities for changing urban transit for the better. Using bikes and scooters allows people to refocus their attention on the city as opposed to shutting it out. Better yet, it benefits local shops as riders stop to browse and shop. For instance, it was shown that cyclists and pedestrians spend more money over the course of a month in bars, restaurants and convenience stores than drivers.
Nothing this good comes easily so it is essential to address and overcome six key challenges to ensure micromobility’s success:
Regulation: obtaining operating permits may be difficult and the approval process may be time-consuming as cities are struggling to adopt a fast and effective regulatory approach. Once cities begin treating micromobility as an opportunity to strengthen their existing public infrastructure (and bikes and scooters become first- and last- mile option to public transit, and a better alternative to car commuting) we’ll be on a good path,
Competition: in the effort of growing fast, gaining market share and beating competitors, some companies may be cutting corners resulting in faulty hardware and software which impacts customer experience,
Pricing models: as ArkInvest reports in their recent assessment of the e-scooter market, companies follow a low-cost structure, relying on investors’ subsidies. Although companies like Bird are generating a healthy $2.43 in revenue per mile, their costs are roughly $2.55 per mile, well above the $0.53 that Ark believes will be possible as they scale,
Scaling: Horace emphasised that in his experience as a technology analyst, the galloping adoption rate for these new forms of transportation is unprecedented even when compared with PC and smartphone adoption, or even the rapid ascent of ride-sharing platforms. For example, it took only 2 years for Lime and Bird to reach 10 billion rides while Uber and Lyft got reached this goal after 4-5 years. This has been a blessing and a curse; a couple of admirable early leaders in micromobility were swept under alongside seemingly unlimited access to cash. It will take some time for companies to work out best short- and long-term strategies for growth; the above-mentioned Ark Invest report contains some sound recommendations. Vehicle longevity: the average lifespan of a scooter in Louisville, US from August to December is relatively short at 28 days, median lifespan 23 days making this a capital intensive business. The assets literally last about as a long as a litre of long-life milk, perhaps less long than that,
Weather: e-scooter fleets need good weather and terrain conditions otherwise usage goes down in some cities. Although cities with good cycle paths and road-clearing protocols do better: citizens of cities leading in micromobility such as Copenhagen and Amsterdam, report biking even in snow and rain because the infrastructure for bikes is much better maintained than it is for big vehicles This is the opposite for most cities and towns in the United States.
What to take away
Collectively, we need to start thinking about how new business models, ethical consumerism and smart regulations will affect micromobility. Individually, as customers, we have a choice to play a role in adopting micromobility: we can vote with our wallet in favour of a more efficient and more environmentally-friendly way of travelling around the city. In the future, I expect to see more and more cities investing in public transport and micromobility infrastructure. And that's only the beginning of a reinvented city.
Please share your thoughts below!