Discussion: How Hype and Greed Are Ruining Chinese Bike-Sharing (i.e., Mobike and Ofo) | Jeffrey Towson
During the 2007 financial crisis, former Citigroup CEO Charles Prince famously said: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance.”
Looking at the bike-sharing business in China today, you see a lot of such dancing. You see a nice simple business that has been deluged with hype and money.
But most importantly, you also see a lot of very questionable, non-economic behavior that will probably end badly, especially for investors. For example:
- Prices, increasingly subsidized by investors, remain very low and are almost certainly unprofitable, typically RMB 0.5-1 (7-14 US cents) per half hour.
- Leading bike sharing companies such as Mobike and Ofo are now carpet bombing China with hundreds of thousands of bikes – despite the still serious questions about their business models’ profitability. This is a big change from when Ofo used to put cheap bikes on college campuses – which are fairly controlled environments with clear demand and likely profitable pricing.
- The bikes are getting fancier and likely more expensive. Mobike bicycles are reported to cost RMB 2,000 (290 US dollars) to manufacture for the regular version and RMB 600 (86 US dollars) for the ‘Lite’ version. Assuming an average usage per bike of eight times a day (a big assumption), it would still take about a year to recoup the production expense of a bike, not to mention maintenance, theft and vandalism charges. This is a big change from back when Ofo was deploying cheap bikes, probably costing RMB 150, on campuses.
CEIBS, MBA Student, Treasurer Public Speaking Club | BITS Pilani, B Pharmacy
You have painted the true picture of the business model. In fact, what in your view is a better way of addressing this challenging business model. Can the pricing model of per km used by all cab service providing companies work for this industry. Please suggest. Thanks.
Fiber Optic Products Sourcing & Manufacturing, Sales & Marketing (FTTH/FTTx/GEPON total solutions )
@Jeffrey Towson good analysis but don’t forget users pay deposit 300 RMB almost $43.47 and their millions of peopple are using Mobike and these deposit the company used to invest in another business.I just heard saturday the company become like a bank .They have such huge asset then their lending money to people for startup.Also the Mobike price from Manufacture is less than 300 rmb I heard cuz paying $290 for such bike in china is ridiculous
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