Moscow Car-Share Bubble Set to Pop

By Roma Nazarov

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12th November 2019

Moscow’s car-sharing trips and fleet had doubled in the first half of 2019.

According to the city authorities, 24M car-sharing trips were made, surpassing the total last year’s number. An average seven trips per car per day inspired the authorities to optimistically claim that each shared car replaces seven private ones, saving a space equivalent to that of one of the town’s parks.

Long live private car

Nevertheless, a thorough examination of the statistics takes us back to the cautious forecast that car-sharing, on the contrary, increases the urban fleet at least for the time being. Firstly, a considerable amount of new car-sharing clients originate from either public transport passengers or pedestrians and not from private drivers. According to an estimate by car-sharing company BelkaCar, they amount to as many as 40% of the total. Another reason is car owners don’t rush into selling their vehicles when they take up car-sharing but save them for out-of-town trips. Thus, private cars don’t disappear but occupy parking spaces.

“At the initial phase, yes,” agrees Loriana Sardar, BelkaCar’s co-founder and managing partner. “Yet, in many cases, these people say they’re not going to buy a next car. Some of them drop from two cars in the family to just one. Anyway, streets are becoming less congested.”

At current levels, though, local analysts believe that car-sharing is still too small a sector to give the total fleet a noticeable push up or down so its influence on the dynamics stays undetermined.

Endurance race

From the point of view of the operators, car-sharing’s fast growth is a race up a steep sandy slope with unknown distance left to the finish. The list of operators is shortening fast. “Of the initial 16 or 17 players, nine had made it until now,” says Sardar. “We expect only five or six will stay next year, then may be even three or four. The market is on the rapid rise and absolutely all the operators are loosing money – competition is fierce.”

The companies are in a non-stop search of investments to cover fleet expansion costs while lowing tariffs in order to attract new users. According to local edition Motorpage, renting a car in Moscow typically costs six to 10 rubles per minute ($0.1-0.15) but it can be as low as three rubles ($0.05).

“Moscow’s car-sharing market is in the same situation as the taxi cabs market two or three years ago when the ride-sharing aggregators’ predatory pricing had led to unsustainable low fares,” says Sardar. “After several mergers and bankruptcies fares went up and the market had stabilized. The car-sharing operators are now offering service below cost so the same compensation is inevitable, the fares will increase by the order of 20%.”

A bubble ahead

The car-sharing fleet in the town had doubled during last year having exceeded 21,000 units, projected by the authorities to reach 30,000 next year. Victoria Sinichkina, advisory director at PwC Russia’s automotive group, thinks that the forecast is a realistic one albeit prone to correction to the upper side because of the growth of the customers’ interest, popularity of the concept of sharing among the young, and the governmental support. “The initial 30,000 units forecast was founded on an assumption that car-sharing would replace half of the town’s 60,000 taxi cabs,” she explains.

Sardar says that the perception of ‘the ceiling’ is changing with the market’s ballooning: “When we were starting the business in 2013, global analysts were recommending to presume that 1% to 3% of urban population will use car-sharing. As of 2016, the range was shifted to 5% to 6%. In 2018, it was 8% to 9%. I think that is why the town’s department of transport is re-calculating the forecast endlessly. In the most developed European markets, 15% to 20% of population have become car-sharing users. We believe that there will soon be many more than 30,000 shared cars in Moscow.”

Developer of car-sharing telematics, UBI Technologies, agrees with CEO Igor Kheresh saying: “Taking Moscow’s new districts into consideration, our analysts believe 40,000 to 45,000 is a more correct number.” The likelihood of this scenario had become higher with this summer’s news that holding Mail.ru Group had acquired car-sharing company Youdrive and claims to quadruple its 2,500 car fleet before the year end. Just one company is about to add 7,500 vehicles in a short time.

Isn’t it a sign of a near bubble? When fast expansion is over, those who miss the mark can face the inability to return the investment. More cautious managers are feeling concerned about sustainability of future growth. “For now, the market is allowing more cars and we’re increasing our fleet but keeping a moderate pace, always careful to back it up with more clients,” says Sardar.