Bike-Sharing Woes Put Skids on Suppliers’ Earnings

Profits tumbled by three-quarters at a pair of suppliers to China’s top two bike-sharing operators as the industry hit the brakes after several years of breakneck growth.

After experiencing a massive boom in 2017, China’s bike-sharing market shifted into a slower gear last year as investors tired of providing millions of dollars in fresh funds needed to keep the duo of Mobike and Ofo rolling. Cost cutting by both firms has, in turn, dampened business for makers of bikes and bike components like Shanghai Phoenix Enterprise Group Co. Ltd. and HL Corp. (Shenzhen).

Phoenix, a supplier of bikes to Ofo, saw its net profit plunge 73.7% to 20.2 million yuan ($3 million) last year. Similarly, profits at HL Corp., which supplies bike components to Mobike, fell 76.1% to 10.9 million yuan. Both companies had previously reported strong profit growth the previous year as the bike-sharing industry surged.

But all of that has suddenly changed. Ofo is reportedly on life support as it struggles to pay its obligations, while Mobike is also undergoing an overhaul after being purchased last year by internet giant Meituan Dianping.

Phoenix said delayed payments from its bike-sharing operator clients had a “significant impact” on its business. HL Corp. said a 90% drop in orders from shared-bike clients caused its bike component sales to fall by 17.3% last year.

Thousands of abandoned Ofo bicycles are piled up in an unfinished building in Wuxi, East China's Jiangsu province on March 16. Photo: IC Photo

The bicycle industry had been slowing for a long time as growing numbers of Chinese switched to cars and major cities built new mass transit systems as the country modernized. The bike-sharing industry helped to briefly reverse that trend, but now the impact has begun to dissipate, said Zhao Zhanling, an intellectual property researcher at the China University of Political Science and Law.

Before the bike-sharing tide, Phoenix had posted a profit of about 5 million yuan in 2013 and 2014, equal to just a fourth of its weak profit last year. The company posted a loss of 55 million yuan in 2015.

The company’s fortunes first picked up in 2017 when Ofo signed a deal to buy 5 million of its bikes. That business helped Shanghai Phoenix to earn a 1.4 billion yuan in revenue that year, more than double the amount in 2016.

Contact reporter Tang Ziyi (ziyitang@caixin.com)