Many new mobility companies struggle with slow growth and high initial investments. The idea of profitability almost seems too good to be true. But is it?
To the end consumer, new mobility services like ride hailing and vehicle sharing don’t present many problems. They’re convenient, easy to use and offer peace of mind when it comes to their own sustainability habits.
What the consumer doesn’t see are the operational challenges, most notably the immense financial investments that need to be made before a car sharing fleet can even get on the road.
High initial costs are the biggest barrier to entry for new and shared mobility services, sometimes big enough to make a business fold before it even had the chance to prove its value to customers.
The long-term goal of providing green and sustainable mobility options cannot be attained if these companies are not on the path to becoming profitable.
But is that even feasible? Can new mobility be profitable?
We spoke about this very topic to Sebastian Hofelich, the former CEO of DriveNow and former CFO of FreeNow, on the Wunder Mobility Podcast. Together with our CEO Gunnar Froh, Sebastian pinpointed that car sharing companies experience slow growth and can even go under soon after launch because there’s a heavy initial investment in assets - cars, scooters, bikes or mopeds - and because many companies don’t plan their operations meticulously enough to get in the black.
In spite of this, Sebastian thinks it’s possible for new mobility companies to become profitable. He identifies three key tactics that can help vehicle sharing and ride hailing businesses to become more financially viable – and in turn more attractive to investors if they’re looking to scale further.
How New Mobility Can Get On the Road to Profitability
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Focus on Quality Revenue Streams
Seems like a no-brainer, but Sebastian stresses that this shouldn’t be a “revenue at any cost” approach. The focus should be on generating quality revenue sources, and new mobility services can do this by analyzing routes and markets. Does focusing on longer trips to and from the airport make sense? Perhaps zeroing in on a particular neighborhood in a particular city? Where is the biggest demand and potential?
Instead of scaling too quickly and trying to cover as much ground as possible by having a car on every corner, finding the routes and locations in which to concentrate resources is the best way to generate quality income.
Expert tip: A reasonable pricing model can also add value here.
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Monitor Costs Very Closely
Tying into the first point, it’s crucial to monitor and analyze costs very closely to ensure the best use of financial resources. This means considering questions like:
- What kinds of vehicles to invest in? And how many?
- Where and how often should the vehicles undergo maintenance?
- When and where should they be reallocated?
And so on. Here again it’s not the goal to cut costs wherever possible, but to offer quality to the end consumer.
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Plan Fleet Capacity
Last but not least, a meticulous operational planning of fleet activities is essential. New mobility companies should permanently monitor and analyze customer behavior to quickly understand mobility patterns and market dynamics. This helps to predict months in advance how many vehicles they’ll need, where they’ll need their vehicles to be and how those calculations can change based on the hour of the day or the city they’re operating in. This way operators can make sure their fleet is being used to its utmost capacity and they’re not losing money by just standing around.
Not only can these three tactics put mobility companies on the road to profitability, investors are also more likely to target companies that can prove their financial savvy - definitely a win/win.
Curious for more? Listen to the full conversation between Gunnar and Sebastian on the Wunder Mobility Podcast, which you can find wherever you get your podcasts.