SCOOTIN’ AROUND

Is the elec­tric scooter a dan­ger­ous toy, or to­mor­row’s ve­hi­cle of the fu­ture?

Toronto Star - - STAR BUSINESS JOURNAL - MARK BER­GEN AND JOSHUA BRUSTEIN BLOOMBERG

Scooter-shar­ing com­pany Lime re­cently re­layed a trou­bling mes­sag­ing to its users: a por­tion of its fleet was at risk of burst­ing into flames.

The startup re­called about 2,000 ve­hi­cles (less than one per cent of its scoot­ers) fol­low­ing its Oct. 30 warn­ing. The sit­u­a­tion brought to mind scenes from three years ago of hov­er­boards catch­ing fire and promptly fall­ing out of use. Would spon­ta­neous com­bus­tion sink the scooter next?

Lime blamed a man­u­fac­tur­ing de­fect at one of its sup­pli­ers, Bei­jing-based Ninebot Inc. But the com­pany isn’t just any scooter as­sem­bler. Ninebot has be­come the sin­gle-big­gest source of scoot­ers in the world. The lit­tle-known man­u­fac­turer is an es­sen­tial provider for just about ev­ery­one try­ing to ride the rise of mi­cro-mo­bil­ity, a move­ment that aims to trans­form ur­ban trans­porta­tion through the pro­lif­er­a­tion of cheap al­ter­na­tives to cars and mass tran­sit.

The scooter trend be­gan last year with the launch of Bird Rides Inc. in Santa Mon­ica, Calif., set­ting off a ven­ture cap­i­tal-fu­elled boom in mi­cro-mo­bil­ity. In­vestors soon poured in hun­dreds of mil­lions of dol­lars, giv­ing Lime and Bird val­u­a­tions north of a bil­lion dol­lars, while Uber Tech­nolo­gies Inc., Lyft Inc. and ma­jor car­mak­ers rushed to launch scooter ser­vices of their own.

Lime elec­tric scoot­ers en­tered the Cana­dian mar­ket for the first time with a pilot pro­ject in Water­loo this fall. The com­pany said it hoped to roll out the e-scoot­ers to other Cana­dian mar­kets even­tu­ally.

All of this brought more busi­ness to Ninebot. Uber now sees Bird and Lime as po­ten­tial ac­qui­si­tion tar­gets, in part to ad­dress the dif­fi­culty in get­ting enough scoot­ers to put on the road, ac­cord­ing to re­ports in the In­for­ma­tion and Fi­nan­cial Times.

“We’re work­ing with all the ca­pa­ble play­ers that you can imag­ine,” Ninebot CEO Gao Lufeng said. Ninebot’s scooter sales grew six­fold this year, he said, and the com­pany es­ti­mates that 80 per cent of elec­tric scoot­ers in use world­wide come from one of its three fac­to­ries, al­though Gao de­clined to re­veal the to­tal num­ber of scoot­ers it ships. The six-yearold firm is now val­ued more than $1.5 bil­lion (U.S.), and is plot­ting a pub­lic of­fer­ing.

In this sur­prise year of the scooter, Ninebot was one of the only as­sem­blers with the ex­per­tise to turn them out in large num­bers. But, as the af­ter­math of the Lime re­call shows, there are risks from be­ing the big­gest maker of scoot­ers. The Chi­nese man­u­fac­turer’s busi­ness partners ap­pear am­biva­lent about help­ing it en­trench it­self any fur­ther.

Vis­i­tors to Ninebot’s head­quar­ters are greeted with a dis­play that re­sem­bles a strange mu­seum from the fu­ture. Lined up on a white linoleum pedestal is roller skate-hov­er­board hy­brid dubbed the Drift W1, a onewheeled orb with re­tractable foot stands and a go-kart that trav­els 15 miles per hour. There’s some­thing called the miniPro that looks like a Seg­way sawed off midthigh. A video screen at the of­fice shows a group of svelte mod­els danc­ing, some­how, perched atop miniPros.

The Seg­way it­self is also part of Ninebot’s prod­uct lineup. Back in 2015, Ninebot ac­quired the once-buzzy maker of self­bal­anc­ing, two-wheeled ve­hi­cles. The Seg­way was to the early 2000s what hov­er­boards were to 2015 and scoot­ers are to to­day: a new form of ur­ban trans­porta­tion in­spir­ing ridicule, even as en­thu­si­asts in­sist it will trans­form cities. The Seg­way rev­o­lu­tion never ma­te­ri­al­ized, and the odd-look­ing peo­ple-movers are now mostly re­mem­bered as nov­elty de­vices.

Ninebot never stopped mak­ing Seg­ways, along with other as­sorted ve­hi­cles for short trips such as elec­tric uni­cy­cles and a se­ries of L-shaped kick-scoot­ers with elec­tric en­gines. At first, the scoot­ers didn’t seem earth-shat­ter­ing. They were ba­si­cally adult-sized ver­sions of a kid’s toy. But lu­cra­tive busi­ness of­ten comes from the un­like­li­est places.

Gao’s of­fice is on the sec­ond floor, just up the stairs from rows of young peo­ple typ­ing away at com­put­ers. Ninebot has about 3,000 em­ploy­ees and plans to add up to 400 more next year. Some staffers com­mute to the of­fice on Ninebot de­vices or use them to zip around the sprawl­ing cam­pus. Gao, who doesn’t scoot to the of­fice, is soft-spo­ken and wears thick-rimmed glasses and a ca- sual black jacket with a small, white com­pany logo.

Next to a pol­ished desk there’s an award from Xiaomi Corp., the phone maker that, to­gether with the in­vest­ment arm of its founder, Lei Jun, owns about 20 per cent of Ninebot. Un­like other young Chi­nese en­trepreneurs, Gao, 39, never stud­ied in the U.S. or worked for a Chi­nese tech king­maker. He started the pre­cur­sor to Ninebot in 2012 and now he runs, by most es­ti­mates, the world’s largest short­dis­tance ve­hi­cle man­u­fac­turer. Gao slices the short-trip tran­sit mar­ket of the fu­ture into five dif­fer­ent seg­ments, rang­ing from scoot­ers to air travel. “We aim to make our foot­print in all these tiers,” he said.

Yet, there are se­ri­ous ques­tions about whether hun­dreds of thou­sands of peo­ple will be scoot­ing to work a year from now. De­trac­tors see the scooter craze as a pass­ing fad that brings un­war­ranted risks. Ac­ci­dents have led to a hand­ful of fa­tal­i­ties as well as a wave of con­cus­sions, chipped teeth and bro­ken bones. A law­suit filed in Cal­i­for­nia in Oc­to­ber blamed the in­juries on neg­li­gent op­er­a­tors and man­u­fac­tur­ers, in­clud­ing Lime and Ninebot.

Lime’s re­call sup­ports the case that the scoot­ers are dan­ger­ous toys, al­though Gao in­sisted the blame shouldn’t lie at his feet. Three days af­ter Lime’s state­ment, Ninebot is­sued its own ac­count that faulted Lime and warned scooter riders to take an oper­a­tor’s safety record into ac­count. “We prefer more pro­fes­sional com­pa­nies to pro­vide main­te­nance ser­vices, but it seems Lime wanted to have its own team do­ing so,” Gao said later.

Gao was re­fer­ring to Lime’s “juicers,” the term for in­de­pen­dent con­trac­tors the com­pany pays a fee to re­trieve de­pleted scoot­ers off the streets for charg­ing. These con­trac­tors, Gao said, caused the prob­lem by us­ing charg­ers that weren’t com­pat­i­ble with Ninebot scoot­ers. “Of all the con­sumers we have,” he said, “Lime is the only one with this is­sue.”

Even be­fore the an­nounce­ment, Lime and Ninebot sev­ered ties. Gao brushed off the dis­pute, not­ing that Lime ac­counted for less than10 per cent of his ship­ments. It wasn’t his first con­flict with a U.S.-based partner. The Solowheel is an elec­tric uni­cy­cle, and an in­ven­tor in the U.S. named Shane Chen wanted some­one to be­lieve in its po­ten­tial.

In spring 2014, a year be­fore the deal to buy Seg­way, Chen said that Ninebot in­vited him to Bei­jing to dis­cuss the Solowheel and even­tu­ally of­fered a part­ner­ship. The Bei­jing na­tive was ini­tially in­ter­ested and re­mem­bers Ninebot boast­ing that it would top­ple Seg­way in the mar­ket. When Chen asked for more time, he said Ninebot got pushy and then told him he was un­nec­es­sary.

By Au­gust, Ninebot had re­leased its own one-wheeled scooter, the Ninebot One. “They were a lit­tle bit like bul­lies,” Chen said.

Chen filed patent law­suits in the U.S. and China over the Solowheel, and he claimed Ninebot lifted his de­sign for elec­tri­fied skates. Chen said the U.S. case is still pend­ing and that Ninebot is ap­peal­ing a ver­dict in China in Chen’s favour. Gao called the ac­cu­sa­tions about the skates “ground­less,” and a Ninebot spokesper­son re­sponded to sev­eral ques­tions about the dis­pute with iden­ti­cal word­ing: “We do not rec­om­mend putting this in­for­ma­tion in the news story.”

Ninebot has been ac­cused of turn­ing out de­signs sim­i­lar to those made by ri­vals. Be­fore buy­ing Seg­way, Gao spent years squar­ing off against the Amer­i­can com­pany. Seg­way sued Ninebot and other Chi­nese man­u­fac­tur­ers re­peat­edly, claim­ing they ripped off de­signs. At one point, Seg­way tried to block Ninebot from sell­ing in the U.S. Then, in April 2015, Gao called a news con­fer­ence, sup­pos­edly to dis­cuss new in­vestors. To­ward the end, a mes­sage flashed be­hind Gao in Chi­nese: “Ninebot buys Seg­way.”

Ninebot re­port­edly paid more than $75 mil­lion for the com­pany, which had cy­cled through mul­ti­ple owners and tragic turns.

A prior owner, James He­selden, plunged to his death off a cliff rid­ing a Seg­way. From Bei­jing, the deal was a marker of a shift in the epi­cen­tre of per­son­al­ized trans­porta­tion tech.

“To­day, it’s not just copy­cat China,” Neil Shen, a Ninebot in­vestor with Se­quoia Cap­i­tal, boasted at the event. “China will ex­pand through its own in­no­va­tions and through ac­qui­si­tions.”

The idea of shared tran­sit had al­ready cap­tured the imag­i­na­tion of the tech in­dus­try at the time Ninebot closed its deal for Seg­way. Uber and Didi, the Chi­nese ride-hail­ing gi­ant, had be­come ma­jor forces point­ing to a fu­ture that didn’t nec­es­sar­ily de­pend on in­di­vid­u­ally owned cars. But Gao had no spe­cial in­sight that the same eco­nomic model would work for scoot­ers. “We didn’t ex­pect the shar­ing busi­ness would have such hy­per­growth,” he said.

A for­mer Ninebot ex­ec­u­tive said the com­pany was tin­ker­ing with around 10 ve­hi­cle forms be­fore the scooter boom. One, the Seg­way-in­spired miniPro, didn’t have han­dle­bars at first and so riders didn’t have a grace­ful way to get off. The ad­di­tion of han­dles still left Ninebot un­sure ex­actly how peo­ple would use it. At one point the com­pany con­sid­ered pitch­ing BMW on a plan to put them in­side car trunks.

Af­ter Gao met Bird CEO Travis Van­derZan­den ear­lier this year, Ninebot’s scoot­ers started show­ing up Los An­ge­les and other cities. More clients lined up, in­clud­ing tra­di­tional au­tomak­ers. Ninebot sells ve­hi­cles to Spin, a scooter com­pany re­cently pur­chased by Ford, and Gao said that he is sup­ply­ing both Lyft and Uber.

The rush of com­peti­tors into the scooter-shar­ing mar­ket has meant that op­er­a­tors are pres­sur­ing sup­pli­ers to make scoot­ers that last longer, hold up in the rain and come with fea­tures that set ri­val scooter ser­vices apart from one an­other.

If al­most ev­ery­one look­ing to launch a scooter-shar­ing ser­vice has turned to Ninebot, the op­er­a­tors have come to see that reliance on a com­mon man­u­fac­turer is a vul­ner­a­bil­ity. It’s tricky for any com­pany to claim to have a su­pe­rior ve­hi­cle when ev­ery­one’s buy­ing them from the same place.

Right now, Lime jug­gles mul­ti­ple sup­pli­ers, re­ly­ing on one to fill an or­der while an­other makes a new batch of scoot­ers. Be­fore cut­ting ties with Ninebot, Lime only used Gao’s firm to “fill in some gaps,” said Joe Kraus, Lime’s chief op­er­at­ing of­fi­cer. “It is hard to get enough scoot­ers.”

Thomas Yao, a partner at IMO Ven­tures, which in­vests in Lime, sees the scooter mar­ket still grap­pling with sup­ply short­ages.

But those short­ages might ease as Ninebot faces new com­pe­ti­tion. Yao said there are now four other “qual­ity” scooter sup­pli­ers in China.

“We’re work­ing with all the ca­pa­ble play­ers that you can imag­ine.” GAO LUFENG NINEBOT CEO

DAVID BEBEE WATER­LOO RE­GION RECORD

Lime elec­tric scoot­ers en­tered the Cana­dian mar­ket with a pilot pro­ject in Water­loo this fall. Other Cana­dian mar­kets are ex­pected.

ME­HDI FEDOUACH AGENCE FRANCE-PRESSE

Lime’s re­call of its elec­tric scoot­ers sup­ports the case that the ve­hi­cles are dan­ger­ous toys.

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