The future is electric: how bike-sharing and rental startups are trying to crack unit economics

Last year, when Ola invested $100 million in Vogo for a majority share, it was a vote of confidence - one which said that investors believed the era of micro-mobility was here to stay. While the celebrations were justified, insiders at two-wheeler mobility solution companies say that the industry may have grossly underestimated operational costs.

While bike rentals – a $300 million market in India - seem to be working, the point-A-to-point-B solutions or last-mile mobility, a $5 billion market, is a cash burner for most two-wheeler mobility companies. The unit economics are broken, because rides are offered at the steeply discounted price of Rs 6 per km. The running costs are 3x that.

Add that to the cost of maintenance, insurance, rebalancing, man power, and asset amortisation, and you can see how tough it becomes to staunch the bleeding.

“Most bikes in the inventory are used only once a day and this is where they are burning cash. One is really not going to make money while running gasoline engines for a point A to B solution,” a source in a top mobility company told YourStory on condition of anonymity.

The numbers prove it: in the past, companies like Tazzo and Iryd, among others, had to shut shop, mostly because the high burn was unsustainable, and investors could neither back them nor merge them with competition.

Some cash burn is justified in a nascent industry to acquire and educate customers. But there is a bigger problem – the petrol engine market will not be sustainable under the current model of high burn (see table). One only has to see the numbers of FY 2017-2018 to understand the nature of the burn. While Onn Bikes has the lowest burn, the growth of Bounce and Vogo can be largely attributed to the fund raise.

Also read: Cabinet clears Transformative Mobility and Battery Storage mission for phased manufacturing of EV batteries

Why electric is better than petrol

There are several other issues that plague ride-sharing platforms, especially bike-sharing, where regulations vary from one state to another and companies have often run into trouble with the transport departments. A source in Ola told YourStory that the fights with the authorities become a massive drain for the company. As such, going the electric way will help as authorities are now more flexible with electric vehicles.

Ola-backed Vogo, primarily into bike rentals, is also opting for electric vehicles. Says Vogo Founder Anand Ayyadurai,

“It is early days, but we are all working with manufacturers and ecosystem builders to create an infrastructure and ecosystem.”

The numbers (see table above) will tell you that the petrol/fossil fuels model does not work. Further, customer acquisition cost for last mile mobility is the highest in the bike rental industry.

Bike taxi startup Rapido has become popular with younger commuters, but the company is still waiting for regulations to change in several states where it operates. There is always the fear of being shut down without any notice when regulations change or are interpreted differently. At present, it functions in 25 cities and claims that it completes 100,000 trips a day. For now, the focus is on smaller cities like Bhopal, Coimbatore and Vijayawada. In the next 12 months, the company wants to expand to 100 cities across the country. Explains Arvind Sanka, Co-founder of Rapido,

“We are a zero-asset model and believe that since the asset is already available with owners, we get them to earn a little extra income while going from point A to B by dropping people.”

He adds that he would never do the inventory model in mobility because it would never recover the cost of the asset in the long run.

At present, bike taxis are allowed in 15 states while others are still coming out with regulations for them. 

“Although these are early days for the bike-sharing industry, one has to go the electric vehicle way for micro mobility to succeed. I want to bring the cost per km down to 0.40 paise for the customer,” says Namit Jain, Co-founder of Onn Bikes.

He adds that while the company has done very well with gasoline vehicles, the operational structure was not sustainable for the industry in the long run:

“With electric vehicles, the investments are low and the returns are high. It has lesser capital and running costs.”

Another green-tech start-up, Mobycy, launched Zypp a custom-made e-scooter. Zypp is fitted with IoT devices to enable smart and remote unlocking of the same. With Zypp, everyday commuters can cover short-mile distance in a greener and cost-effective fashion. Akash Gupta, Co-Founder, Mobycy says,

“With the launch of e-scooters, we aim to disrupt the short-mile connectivity. Twenty percent of Indians are impacted daily when it comes to their last mile or first mile commute. That’s a huge problem to solve. So, at Mobycy, we are driven by the vision of turning India into a greener city via smart, mobility solutions."

The drive to go all electric

Namit is readying himself to launch 1,000 electric cycles with smart mobility solutions in Pune by March 31, 2019. In Bengaluru, Yulu has already begun their electric cycle strategy. Yulu Miracle is a dock-less, lithium battery-powered scooter piloted at the city’s M.G. Road Metro Station. 

Amit Gupta, Co-founder of Yulu, says, “Our umbrella problem is solving the mess of traffic congestion and air quality. When we look at the pattern of any big city across the globe, two-third of the trips are below 5 km.”

Yulu plans to deploy 250 electric scooters in Bengaluru's central business district and a couple of suburbs this week. The startup will keep adding 250 to 500 vehicles every week for the next eight to 10 weeks, covering all its six currently operational clusters. In the next two to three months, it expects to cover the entire city. The startup has over 850 Yulu zones or parking areas across the city, which it will use to park Yulu Miracles as well.

For Yulu, the cost of the EV is just 25 percent of a petrol bike. The only challenge is to manage the battery swap or charging infrastructure.

“In the next five years, you will see electric mobility become mainstream with companies investing lesser and lesser on gasoline bikes,” says Namit.

What’s next on the road

Rapido believes that future of bike taxi is electric. “Electric mobility brings the cost of maintenance down and puts more money in the pockets of the bike captains,” says Arvind.

He says that if the pilot goes well, we will be seeing more electric bike taxis by the end of this year. The bike has no maintenance of engine and other moving parts.

“The cost of electric bikes or cars will drop rapidly because the government is already pushing to set up of EV infrastructure. These vehicles are perfect for a commute of one to three km, depending on the type of vehicle and battery capacity. It requires good infrastructure and setting up this infrastructure itself is a business opportunity,” says Maxson Lewis, Founder of Magenta Power, which is setting up 450 charging stations by next year.

In the US, electric mobility solutions companies like Bird and Lime are present in more than 50 cities. Both offer electric scooters or trikes for the entire day for just Rs 70. But, every company expanding in this space needs to ensure that the number of users goes up, lest they meet the fate of Chinese bike-sharing company Ofo, which was once a unicorn, now on the verge of a financial meltdown. 

At its peak, Ofo deployed 10 million bikes globally and offered rates as low as Rs 16 per hour.

If these are the signs, then the portents of the industry getting hijacked by capital is clear. Entrepreneurs should focus on the unit economics and create a fine balance between gasoline bikes and electric cycles and scooters.

The way forward is not just about reducing the cash burn. According to a highly placed source in Ola,

“When you look at sharing and point-to-point ride-hailing, bikes have the opportunity to touch a wider base of audiences and base than cars.”

So while the conversion to EVs is accelerating in order to fix the unit economics, for EVs overall to succeed will require infrastructure of the kind that does not exist. That’s something we will examine in our next article in our series, India’s EV Story.

Also read: These electric bike startups are spearheading India's switch to clean energy