The Disrupted Bike Manufacturing Industry And Unreliable Shared Bike Sector

摘要: This wave of shared bikes has given traditional bike makers lots of profits, but nobody really knows if shared bikes would become the strategic assets of Internet giants. Therefore, it’s unwise to put their faith into the hands of shared bike platforms.

(Chinese Version)

The shared bike industry is an enormous black hole, drawing traditional bike makers in. However, it doesn’t guarantee anything for these traditional manufacturers’ future. No matter how this war of bikes, driven by the capital, will end, the stream of revenue will eventually come to an end for traditional bike makers.

Every 15 seconds a shared bike will enter the market.

Wangqingtuo town is considered as the Bike Town in China. This small town with only a population of over 30,000 accounted for 10% of the bike production in China in 2015. Low and mid-end bike production brings about very low profit. As the supply gradually surpassed the demand, it didn’t take more than a few years for the profit to drop from ¥20 per bike to ¥2 per bike in 2016.

In the beginning, these bike makers relied on export instead of today’s Internet+ wave. In 2016, around 53 million bikes (e-bikes not included) had been manufactured here in Wangqingtuo town, 72% of which were exported to overseas countries. As a matter of fact, over 70% of the bikes around the world were made in China.

However, since most of these exported bikes are from low or mid-end brands, and the fact that there is a lack of Chinese brands, Chinese bike manufacturing industry’s low price strategy is losing its edge. “Shared bike sounds like a business operation revolution. Its backbone is bikes, supported by the real economy,” Li Keqiang, prime minister of China once commented on the shared bike sector.
The Bike Town of China is resurrected by the shared bike wave

The Bike Town of China is resurrected by the shared bike wave

Subsequently, shared bike platforms, being the new data flow entries when new fields such as AI, VR/AR etc. are still maturing, enjoy the dividend presented by the demand.

Fushida, ofo’s current main supplier, once participated in a public bike project led by the government. It was a station shared bike project, through which users needed to have specific cards to borrow the bike. After use, users would need to return them to certain stations instead of parking them by the roadside like what we do with stationless shared bikes. Most of these bikes end up in a very bad shape, rusty, after hours of hours being splashed by the rain and wind.

To provide bikes for ofo, FushidaTianjin increased its production capacity from 10 million to 12 million in 2016. According to official statement, an ofo bike is being manufactured every 15 seconds and 1.5 million bikes per month. Another supplier, FlyingPigeon, opened three new production lines for ofo, running in full capacity to produce 400,000 ofo bikes monthly.

That’s how the capital driven craze of bike orders came. These bike makers have endless bike orders coming in. Their production capacity became the only bargaining chip they worry about. Manufacturers with more funds are now considering to introduce welding robots to their factories while small-scale manufacturers are hiring more temporary workers to boost their busy production lines.

Turning to ofo from Mobike, how far will low-quality OEM factories go?

Mobike’s investor Li Bin had the following suggestions for Mobike in the company’s early stage: the core of the bike sharing model is maintenance free; these shared bikes should be highly recognizable on the street; the biking experience matters. Therefore, when Mobike was designing their first bike, the company wanted a bike that could operate without maintenance for four years.

After talking to many suppliers, Mobike’s founder Hu Weiwei found that these bike makers didn’t really care for their ideas. They didn’t even give Hu a price offer because they believed Mobike’s requirements were too high for OEMs. For instance, Mobike wanted spokes that could last for four years. “Spokes are cheap. Why don’t you just change one if it’s broke,” this is the reply Hu got from the bike makers.

In contrast to that, ofo had a very different opening. In its early stage, ofo targeted in-campus short distance demand, and therefore ofo wanted to purchased massive fleets of bikes at a low price so as to penetrate as many college campuses as possible. That’s why ofo only asked bike makers for common-quality bikes that could meet the demand of short trip with lower price. Perhaps bike makers at that time were also confused with ofo’s requests like they were with Mobike: Why would ofo want bikes with lower quality?
In the first half of 2016, the general public didn’t like Mobike. It wasn’t until Mobike Lite was rolled out to the market that users started to stop criticizing Mobikes for being too heavy

In the first half of 2016, the general public didn’t like Mobike. It wasn’t until Mobike Lite was rolled out to the market that users started to stop criticizing Mobikes for being too heavy

It’s for sure that the Internet industry is really good at using the low-cost and high-subsidy strategy to grab market share for next moves.  Promotion campaigns like free weekend ride, weekly free ride, and cash back etc. are still the main moves among shared bike players. However, this is only temporary as shared bike platforms would eventually have to fix serious issues like GPS problem, and damage rate.

Recently, ofo launched a new bike model, ofo Curve, in hopes of transforming from the high maintenance cost period to the low cost period and increasing the life cycle of its bike fleets.

In comparison, Mobike hasn’t changed its strategy yet, which is enhance its production capacity to bring about more bikes with better quality. Unlike ofo, Mobike chose Foxconn as their main supplier, who is not a traditional bike maker. Mobike, who got Foxconn’s investment, would enjoy the OEM giant’s production capacity of five million bikes.

As more players enter the arena, new players care the most about how to spread more bikes in the market. In the aspect of bikes, the priority would be increasing the production capacity, and therefore no player will choose to develop and produce their bikes. There is little time to do all that.

However, some Taiwaness companies like Giant believe that this industry would not be able to maintain the rapid growth for long, and thus aren’t willing to invest too much in increasing the production capacity.

The surge in orders also brings up the cost of components and labor. In the past, hiring a worker only cost ¥3000, but now it’s around 4k to 5k. According to statistics, the cost of a bike with mechanical lock is around ¥300-¥500, while the cost of a bike with smart lock is around ¥1000-¥2000. These are the numbers after the component cost has risen.

To have more advantages after the cost surge, many bike makers that got a mass amount of orders started to purchase components in cash. Shared bike makers would pay a 30% deposit to the assemblers. After the transaction is completed, they would pay up the rest. This no doubt generate more risks for many bike makers.

Some manufacturers want to boost the production efficiency by importing more advanced equipment. However, nobody really had the gut the do so since they are not sure when this bubble will burst eventually. Once the production capacity surpasses the demand, chances are the new equipment will be left unused.

Zhang Xiangdong, the founder of 700bike, a bike making company started from manufacturing high-quality bikes, believes that it’s unwise for traditional manufacturing companies to increase their production capacity to acquire more orders from shared bike companies as they lack design capability and would find it hard to transit to mid and high-end upstream. That said, it would result in a massive wave of bankruptcy. One example is FlyingPigeon, who has been trying out high-end product lines while manufacturing for ofo.

There are also unconventional players in the traditional bike manufacturing industry. Let’s look at bike maker Forever for example. Forever poured in to make Ubike, which is less risky since they have the supply chain in their own disposal. They have their own bike making business aside from making shared bikes.

In this shared bike wave, shared bike platforms like Mobike and ofo have become traditional bike makers’ major clients. If they couldn’t find a new direction and adjust themselves in time, they would end up to be big brands’ OEMs. In other words, they might go out of business once the bubble bursts.

Chinese innovation has to become more independent from capital

Chinese people are probably the best players with projects that emerge frequently, take off fast, and fade out quick. It only takes the cab hailing industry five years to become truly mainstream in China. While the bike sharing industry only spent one year to achieve similar status. Even so, this also generates great uncertainties.

One uncertainty comes from the bilateral Internet effect. The bilateral sides, which are the supply and demand, come from different sources. In C2C sharing model, Airbnb connects the house owners and renters. In the B2C rental sharing economy model, shared bike platforms connect bike companies and users.

The Internet effect becomes active when in a bilateral market, both sides have a cost as well as income, and that a platform provides services, in other words, cost, and generate income as well. Both sides rely on each other to survive.

In C2C sharing model, such effect is more obvious. More users will stimulate more suppliers to provide service. More service providers will make user experience better.

That said, when the supply and demand of both sides are in a balance, the value would be greater.

The bike sharing industry, grown from the B2C rental model, doesn’t have such strong bilateral Internet effect. Although you might emphasize on the user experience, and that if you could find a car more easily, these factors don’t necessarily construct Mobike and ofo’s competence. Today’s new players in the arena are choosing to work with WeChat and Alipay. They don’t require users to put a guarantee deposit or demand them to install an app. This enables them find replacement easily. The bike sharing industry is not a tech-driven industry, and therefore local companies in a prefecture city can easily dominate the local market once they acquire thousands of bikes.

Another uncertainty is presented by the policies. We have to admit that Shanghai is once again the forerunner in regulating an emerging industry. For instance, Shanghai and Tianjin implemented a new rule stating that shared bikes can only operate for three years and can not re-enter the market after refurnishing.

Shanghai even brings up hardware standards and managing regulations for shared bikes. For example, the components must be water-proof and rust-proof. There is also a rule requiring that every fleet of 1000 bikes must have five people managing them. This leads to disadvantages for companies that adopt the low-risk deployment and high-cost maintenance strategy like ofo. Once implemented such operation, the expired bikes would influence the company’s profit period.

People who are chasing the craze have their own goals. Some new foundations want to take this opportunity to get their name out there. Some are thinking that a field in which Tencent and Didi have participated must be lucrative, and that even if this craze eventually crumbles, the industry giants will deal with the mess.

This wave of shared bikes has given traditional bike makers lots of profits, but nobody really knows if shared bikes would become the strategic asset of Internet giants. Therefore, it’s unwise to put their faith into the hands of shared bike platforms.

(Like our Facebook page and follow us now on Twitter @tmtpostenglish, on Medium @TMTpost, on Instagram @tmtpost_english and on AppleNews@TMTpost)

The article is published with authorization from the author @PMCAFF, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.





Our official account in English/English Version of TMTpost.com


Oh! no