May 6, 2019

Shared Urban Mobility – Lessons from China’s 250M two-wheelers

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Across America, Europe, and Asia, two-wheelers – bicycles, scooters, and mopeds – have flooded cities. Depending on your perspective, as a rider or a pedestrian, this shared urban mobility can be seen as either a boon or a bane. The inspiration for these shared vehicles is from China, where they first appeared en masse from well-funded companies like Mobike and Ofo. At their peak in 2018, shared bikes in China accounted for more than 60 million daily rides.

Today Lime, Bird, Uber, and Lyft compete to lead the urban micro-mobility market across Europe and America. Shared two-wheeled transport is China’s latest greatest export. As city officials and residents wonder where these vehicles came from and where they are going, we can look to China for guidance.

China Biking – a long-established tradition

Until the 1990s, bikes were the first choice for commuting in China. Bicycles blossomed in China, growing from 74 million in 1978 to 523 million in 1996. Bike ownership peaked at 1.97 per urban household and 1.47 per rural household in 1995.

In 1988 Beijing cyclists used 76% of road space in 1988 and over 20,000 bicycles passed through busy intersections each hour.

High population density accommodated bike commuting across Asian cities. With over 600 million people living in 3,000 cities, China had one of the highest population densities in the world in its major cities. Since most people worked near where they lived, biking proliferated as the most common commuting option.

The long history of bicycles laid the foundation of the China two-wheeler market:

  1. Bike infrastructure: Bike lanes and parking for bikes were available on most urban streets.
  2. Commuter adoption: Consumer acceptance of two-wheelers was high, as biking was the predominant form of transport.
  3. Friendly regulation: Helmets and headlights were not required, two people riding together was common, and lax law enforcement encouraged bike usage.

The new era of electric motorcycles

Bike ownership in China peaked in 1995 and declined as the economy grew. Today, city residents commute longer distances in larger cities. Bikes remain an integral part of the multi-modal commute for the first and last miles to and from public transportation, but owning a bike is no longer necessary and is often impractical.

Electric motorcycles have become the beloved new two-wheelers in China. Electric motorcycles do not require pedaling and are faster than bikes, making them ideal for commutes of up to ten miles. They can use bike lanes, are easy to operate, require no driver’s license, work well in congested traffic, and are often faster than cars or subways.

There are now 250 million electric motorcycles in China, with 30 million units sold annually. Four of the companies making these vehicles have gone public. Last-mile delivery in China now relies on these two-wheelers.

Two-wheeler market, annual sales units, global comparison

Public electric motorcycle/motorcycle companies, global comparison

*market cap is as of April 29, 2019

Lessons learned from the China bike-share market

After raising over $7 billion in venture funding, China’s leading bike-share players are struggling. They have retreated from overseas markets after suffering a cash crunch amid negative unit economics. However, despite the struggles of Mobike and Ofo, other, less prominent players are doing well, suggesting that there may be opportunities amid the rubble.

Micro-mobility challenges

  1. Ridership & Pricing: Bikes are only part of the multi-modal transportation equation, as walking to and from the metros is a viable option for many. Low subway and bus fares effectively capped what commuters would pay for shared bikes used primarily to connect to the public transportation backbone. China’s bike-share players were only seeing ~1 daily ride per bike, on average, and very little revenue.
  2. High operational costs: With a daily “tidal phenomenon” of traffic during the commutes to and from work, bike placement was often imbalanced throughout the day. Operational ground crews redressed these imbalances by moving bikes from subway stations to apartment complexes in the morning and the other way in the evening. Each “reset” after only one ride spoiled the unit economics of low-priced rides and limited the useful lives of the bikes. With many users living on the outskirts of metro areas, bike-share companies expanded operations further afield to accommodate these users, exacerbating the rebalancing operations.
  3. Overfunding: With venture funding flooding the bike-share space, growth and price-cutting took precedence over profitability. Investors, enamored with growth and apparent scale, initially overlooked unit economics. Strategic investors, such as Alibaba, Tencent, Didi, and Meituan, entered the market, seeing consumer location and usage data as an alternative asset for bike-share companies. As losses and burn rates mounted, bike-share companies could not adjust quickly enough when funding became scarce.

Survival of the fittest, and the future

While Mobike and Ofo competed headlong in top-tier cities in China, Hellobike focused on tier-2 to tier-4 cities, which shared favorable population density but in smaller geographies. Hellobike had less competition in these smaller cities, so were able to avoid the higher burn rates common in top-tier cities. Today, Hellobike focuses on cost-effective operations while they expand to nearly 10 million bikes in 300 cities in China.

Hellobike has seen significant demand for electric motorcycles. The company is using geofencing to constrain operational coverage and cut off power if users ride beyond prescribed limits. They maintain solid unit economics in their e-bike sharing business. And they are expanding into new markets; the company recently launched a ride-hailing business and an electric motorcycle leasing business.

As the competition in tier-1 cities dissipates and companies focus on sustainability, bike-share pricing is becoming more rational. Hellobike, Mobike, and Bluegogo all recently raised fees to $0.15 for 15 minutes.

China is a market where two-wheelers play an essential role for short-haul commutes and getting to and from public transportation. The fundamentals for two-wheelers are improving, making bike sharing a viable transportation alternative.

As Western markets followed China into the bike share craze, US companies monitored the ongoing developments. To date, the US companies have focused more on profitability and avoided the price-cutting war that Ofo and Mobike waged. In fact, Bird and Lime recently announced price increases to combat increasing regulatory and operating costs. China has served as a good harbinger for micro-mobility trends and will likely continue to be as the market continues to evolve.