As the bicycle-sharing bubble looms in China, its collapse would allow sustainable business models to emerge, an industry insider said last week.
With immense investments pouring into more than 30 operators including Mobike Technology Co Ltd (摩拜科技) and Ofo Inc (共享單車), China’s bike-sharing market is becoming a chaotic battlefield with cutthroat competition, said Wu Ying-chin (吳盈進), chairman of one of the world’s biggest bicycle-chain makers, KMC Kuei Meng International Inc (桂盟國際).
“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 during an investment forum organized by the Taiwan Stock Exchange (TWSE) on Thursday.
KMC early in January said it was positive about this year’s business outlook, citing rising components demand from Chinese bike-sharing start-ups.
Wu said the 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.
However, he said that its bike-sharing schemes do not use stations to manage access, and people can use their smartphones to find bikes wherever they are parked.
In contrast, Taiwan’s YouBike must be docked at designated stations.
It is 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, he said.
“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.
For the whole of last year, KMC reported sales rose by 18.78 percent annually to NT$4.04 billion (US$132 million), with its net income increasing 22.43 percent to NT$857 million. Earnings per share were NT$7.14.
The company’s gross margin rose from 38.46 to 44.66 last year, while its operating margin advanced from 22.33 percent to 27.25 percent.
Its major clients include Giant Manufacturing Co (巨大機械), Merida Industry Co (美利達) and Japan’s Shimano Inc.
Besides bicycle chains, it also manufactures motorcycle chains and transmission kits.
KMC shares closed at NT$152 on Friday in Taipei trading. The stock has jumped 33.92 percent so far this year, compared with the broader market’s 9.09 percent rise over the same period, the TWSE data showed.
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