Bike-sharing battle may breed overcapacity: Analysis

China’s ongoing battle between Mobike and Ofo, two major bike-sharing startups, may bring about unexpected side effects causing overcapacity and even damaging related brick-and-mortar businesses.

With an idea of pursuing a low-carbon lifestyle and providing convenience for urban commuters, both companies are ploughing hundreds of millions of dollars into the fledging market.

The Shanghai-based Mobike, backed by tech giant Tencent Holdings, have reportedly secured another US$215 million in its series D funding round, with total investment reaching US$400 million, while the Beijing-based Ofo, backed by taxi-hailing company Didi Chuxing, is said to have gained around US$200 million after its latest round of financing last October.

According to a McKinsey research report and multiple statistics, the bike-sharing market in China is estimated to be around 1.72 billion yuan, slightly over US$250 million - much smaller than expected.

This may fuel the ever stiffening competition among rivals and inadvertently hurt bike factories and local economies, analysts say.

With so much money getting pumped into the industry, bike-sharing rivalries are bound to beef up their “arsenal” and bike factories need to expand their production capacity in face of ever increasing orders which means risks.

Take Yihao for example, Ofo’s OEM factory in Tianjin. It will need to sacrifice the production of its own brands in order to meet growing demand from the bike-sharing start-up.

If Ofo were to lose the battle and merge with its competitor, OEM factories might be the hardest hit, losing its original brand and seeing dwindling OEM orders.

Observers say the bike-sharing battle will also result in excess bikes in the market that will also threaten the upper stream of the supply chain, i.e., the manufacturers and hence the local economy.

For better or worse, the final analysis of this ongoing bike-sharing revolution that aims to put China back on two wheels is still hard to tell.

This story was published with permission from China.org.cn

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