China’s Bike Sharing Bubble to Burst
SHENZHEN, China- The bike sharing bubble in China is about to burst as the market is becoming a chaotic battlefield with cutthroat competition. Also cities are getting ever more cluttered as currently there are more than 20 million shared bikes. The huge production numbers for bicycles destined for bike sharing use are currently leading to parts shortages.
Robert Wu, Chairman of KMC, predicted the bike sharing bubble burst at a recent investment forum organized by the Taiwan Stock Exchange (TWSE). Here he said “Instead of building sustainable profitability, Chinese operators are fixated on rapid growth in a bid to absorb its rivals, adding doubt to long-term prospects.”
Wu said further that such frenzy is not unusual in China’s emerging industries, as seen in its ride-sharing market, where price wars have left only a few operators standing. He also pointed to the fact that China’s bike-sharing schemes do not use docking stations to manage access, and people can use their smartphones to find bikes wherever they are parked. In contrast, Taiwan’s YouBike (as well as bike sharing systems in Europe) need for bikes that must be docked at designated stations.
China’s ‘lazy’ business model
China operates a ‘lazy’ business model that does not require major public infrastructure investment, Wu said, adding that the low barrier of entry makes it easy for operators to join the fray. The result is rising theft, misuse and public inconvenience that have begun to draw the ire of local governments as cityscapes become cluttered by more than 20 million shared bikes.
Bubble to collapse
“I am expecting the bubble to collapse this year or next year, but that is not necessarily a bad thing in the long term,” Wu said, noting that Taiwanese suppliers have been positioning themselves to expand into China. “It would take some time before China finds an optimal and sustainable business model that meets the government’s regulations and expectations, such as in Europe,” he said, adding that bikes used in Europe’s shared fleets cost about 10 times as much as the bikes used in China.
Meanwhile, slowing bicycle sales in China that have dragged on Taiwanese manufacturers are expected to lessen this year as a round of inventory correction concludes, Wu said. “The worst of the oversupply pressures were mostly concentrated in the 2017 models, and inventory stocking has remained strong as manufacturers prepare to launch their 2018 models this summer,” Wu said, citing a healthy demand for KMC’s bicycle chains.
The recovery is mostly due to a government campaign to adjust the nation’s excess production output by imposing limits on loans and elevating environmental and safety standards, he said.
Regarding electric bicycles, Wu said that leading German and Japanese manufacturers are planning to launch products with a lower retail price of 1,000 euros (US$1,059) to accelerate market expansion, compared with the current average of 2,500 euros. He said sales of high-end e-bikes are expected to rise from 2.5 million last year to 6 million in 2022.