Challenges Facing Russia’s Soaring e-Scooter Sharing Market

In Russia, e-scooter rent volume is expected to triple by the end of the riding season.

“In 2020, pilot projects of e-scooter sharing were presented in the most major cities, a group of market leaders formed and early adopters got positive user experience,” Sergey Vikharev, director of emerging technologies of KPMG in the CIS, said. The industry is set for rapid expansion. “The market is quite unsaturated yet,” he said. “In those conditions, the market volume will depend, first and foremost, on the providers’ ability to expand fleets and geographical coverage.”

This is the moment when corporate investors replace angels as the main financial force behind the growth because scooters are a very capital-intensive business. The upscale maths is simple: to add 1,000 vehicles, an average provider needs $300,000. “There were a number of significant rounds of financing the e-scooter providers as well as other micro-mobility projects in 2020,” said Sergey Bogdanov, CEO at US-based venture capital fund YellowRockets.vc. A number of major acquisition deals followed early this year and the two leading network,s Whoosh and Urent, each got investments worth 1.9B rubles ($25M) from financial groups VTB, Sber and Otkritie in order to expand each fleet to 60,000 units.

Finding investment is relatively easy these days, said Konstantin Mantsurov, project head at Rusharing. The provider aims a five-fold increase of its 1,000 e-scooters network in this season, offered for recreational purposes in city parks. Being a niche player, Rusharing had declined acquisition offers from corporate investors and focused instead on collecting small investments through a collaboration program with local entrepreneurs and passive income seekers.

Scooters are not like cars

A similar sharp rising curve was observed in the Russian carsharing market during the last three to four years. Was it a success story? Yes, judging on the roughly thirty-fold growth in five years. No, accounting for the boom-related issues such as a fares war, provider bankruptcies, irresponsible consumers and tensions with city authorities. The scooter providers are about to face alike challenges, said Vikharev: “A period of severe competition to collect the largest consumer base can start. In that situation, the providers need to be prepared to operate a number of years with low profits or even losses.”

However, the e-scooter market has a higher self-regulating capability compared to the cars, suggested Mantsurov, because it differs in certain aspects such as a vehicle lifespan. Shared use e-scooters often reach their use limit in just two weeks, generating return on investment in a matter of days. Another reason is, service breaks in cold seasons “reboot” the competition and drive fee rates back to normal. “Finally, the lion share of the market is held by just two major scooter providers who would rather conspire over price than discount against each other,” he said.

Investment in scooter providers returns much faster because the inventory is many times cheaper, agreed Vikharev, while the two industries feature comparable rent fee rates. It is also essential that entrance barriers at the scooter sharing market, both monetary and administrative, are substantially lower.

Substantial threats remain

Mantsurov said that the Rusharing could easily collect funds enough for a ten-fold increase of the inventory but was unsure about opportunities to beneficially locate that many vehicles. “The top limiting factor for growth is administrative and bureaucratic barriers,” he explained.

“While scooter rent customers are quite loyal, that can’t be said about regulators and highway police,” Vikharev said. Some of the city authorities can introduce restrictive policies towards the providers because of the safety and parking issues. In the most likely outcome, shortages of riding and parking zones can adversely affect consumer uptake and profit margins at the providers. “However, in can be seen that regional and federal authorities in the country are taking on a generally supportive attitude towards scooter sharing providers so risks in regulation are a minor factor for investors,” he said.

Still, for many investors, too many negative factors exist in Russia such as under-developed infrastructure, the liquidity issue at the providers and, naturally, the climate that limits riding seasons to six months or less in the most large cities, Bogdanov said: “A risk is high that there will be no growth at the end of the scooter sharing boom of 2020-2021. We’re likely to observe a wave of mergers, acquisitions and bankruptcies in the next five to seven years. After that, two or three major providers will remain, each backed by one of the large business ecosystems. The latter can tolerate low profit margins for rather long periods in exchange for corporate identity benefits.”

Even in these circumstances, opportunities for newcomers still exist in the market, thinks Vikharev: “New entrants can still emerge and succeed, for example, if they enter an empty but promising regional market.”