Ofo buys 37pc of planned bicycles from Phoenix as cities in China clamp down on dockless rentals
Since late last year, dozens of Chinese cities including Beijing, Shanghai and Shenzhen have barred the country’s more than 70 bicycle-rental companies from putting more new bikes on the streets to avoid chaos.
Ofo, one of China’s largest bike-sharing companies, took up only 37 per cent of an original bike purchase order amid tighter local government controls on two-wheeled rentals to deal with increasingly congested roads, according to a statement from the bike supplier.
Beijing-based Ofo, which had an original plan to purchase at least 5 million bikes from Shanghai Phoenix Bicycles, a subsidiary controlled by well-known Chinese bicycle brand Shanghai Phoenix Enterprise Group, ended up buying only 1.86 million bikes at a total estimated value of 637 million yuan (US$100 million).
Ofo said on Monday that after two years of rapid development some Chinese cities have halted distribution of new bikes. “We have been working with regulators to further improve the overall operational efficiency of the bike-sharing industry,” said Ofo. The company expects “long-term and steady demand” for new bikes with some existing models due for replacement under China’s three-year compulsory scrappage program.
Shanghai Phoenix Enterprise said in a statement filed on Saturday that the lower-than-expected order was mainly down to increased local government regulation of the bike-sharing market. Shanghai Phoenix and Ofo, which operates a total of more than 10 million bikes across 21 countries, inked a strategic cooperation agreement in May 2017, with Ofo commissioning Phoenix Bicycles to supply at least 5 million bikes in the next 12 months.
Since late last year dozens of Chinese cities including Beijing, Shanghai and Shenzhen, have barred the country’s more than 70 bicycle-rental companies from putting more new bikes on the streets to avoid chaos on the roads amid widespread traffic congestion. According to China’s transport authority, cutthroat competition for market share led to an estimated 16 million rental bicycles in Chinese cities by September 2017, and their ride-anywhere and park-anywhere business models were becoming “an unsightly public nuisance” despite the last-mile convenience provided to city commuters.
Ofo’s reduced order provides an insight into the current state of China’s bike-sharing industry, in which the aggressive cash-burning competition over the past year to carpet city sidewalks with millions of bikes to fight for market share has likely come to an end. As the market matures, Ofo and its biggest rival Mobike, will now have to grapple with generating new revenue streams after their previous focus on achieving scale.
Dai Wei, founder and chief executive of Ofo, said in a company statement after it secured US$866 million in a funding round led by Alibaba Group Holding in March, that Ofo was transitioning from a phase of rapid growth to a stage of high-quality development. “Ofo will continue to put our customers first and lead the bike-sharing industry with technological innovation and efficient operation,” he said in the statement.
Alibaba is the parent company of the South China Morning Post.