E-bike popular,
New Track for Made in China Going Abroad?
Levin lives alone in a small town in Germany, and for this 86 year old single person, the most important activity every day is to go to the clinic for follow-up visits and purchase daily necessities. In August 2022, Levin bought a foldable electric bike on Amazon, more commonly known as e-bike. This trendy toy made Levin's daily travel much easier.
"Fast enough," American road cyclist Ted became obsessed with riding e-bikes after the pandemic, calling his "sturdy little bike" a "beast" and "mountain killer". After his first e-bike was taken over by his wife, he searched for it for a long time and finally bought a new wide tire electric assisted bicycle online in January 2023.
The electric assisted bicycles they purchased online, although of different brands, are all from China.
"In 2022, there will be 7.5 million e-bikes worldwide, with China accounting for 3-3.3 million," said Ma Yuchi, co-founder and CEO of Dayu Zhixing, in a media statement. Several international research institutions have given expectations for a compound annual growth rate of over 10% for the market development of electric bicycles in the coming years, exceeding the overall expected growth level of the global bicycle industry.
It is hard to imagine that in the context of sluggish global economic growth, e-bikes with a unit price of tens of thousands of yuan were once in short supply, growing rapidly against the trend, and even predicted by industry research institutions to run a new track of billions of dollars.
China has more than half of the global bicycle production capacity, but it has been hovering in the mid to low-end market for a long time. Entering this wave of e-bike fever, can domestic brands enter the first tier with their supply chain advantages?
More popular than imagined
Just like how shared bicycles swept through Chinese cities back then, e-bikes are occupying the streets of the United States, and the most prominent display window of bicycle shops has long been replaced by the latest e-bikes.
According to Deloitte statistics, the sales of electric bicycles in the United States have almost doubled, from 290000 in 2019 to 550000 in 2021. During the same period, market research firm NPD Group pointed out that the sales revenue of electric bicycles in the United States more than doubled, from $240 million to $778 million.
Especially after the epidemic, e-bikes have embarked on a rapid growth model. According to data from the Light Electric Vehicle Association (LEVA), the United States imported over 790000 e-bikes in 2021, a 70% increase compared to the previous year. In 2021, the number of e-bikes purchased by Americans has exceeded the total amount of electric and hybrid vehicles.
In Europe, the largest market for e-bikes, major bicycle countries such as Germany and the Netherlands have seen a growth rate of over 30% in the past two years. Institutions such as the European Bicycle Industry Federation (CONEBI) and the World Economic Forum predict that the sales of e-bikes in Europe are expected to exceed 12 million units by 2025.
In the United States, the Chinese brand Dayu Zhixing e-bike has a market share of over 40%. The two bicycles purchased by American road cyclist Ted online come from this company.
"In the first four years before going abroad, the annual sales volume doubled," Tian Jinliang, the general manager of Shenzhen Dayu Zhixing Technology Co., Ltd., told China Newsweek. Last year, due to the epidemic, the expected target was not achieved, but it remained basically the same as 2021, achieving an export volume of 500000 units.
From the appearance, e-bikes are similar to traditional bicycles, retaining the pedals, and the motor is usually installed in the middle of the body or in the wheel hub. Simply put, e-bike is the addition of the "three electric" components, battery, motor, and electronic control system, on top of traditional bicycles.
"E-bike achieves a mixed output of manpower and electricity." Tian Jinliang explained that if manpower can no longer ride, add some "electricity". E-bike combines sports and entertainment functions, making cycling more effortless. This is also the fundamental difference between E-bike and domestic "little electric donkeys" - it cannot be driven solely by electricity without human labor.
"The motor start is not a dull or sudden feeling, but more like a gentle push from the back when she was five years old and learning to ride a bicycle." American writer Patricia Marx, after experiencing e-bike riding, wrote in "The New Yorker" that what surprised her even more was the "stable control of the car body". When sliding downhill, the motor can keenly sense "when it is not needed", which has to mention the high-tech "torque sensor" in e-bikes.
During the cycling process, the sensor monitors in real-time the torque and shaft speed applied to the bottom center shaft by the stepping action, and feeds back these signals to the power control system, thereby providing assistance output based on the corresponding motion mode algorithm. "Before 2017, torque sensors mainly relied on imports. In recent years, with the development of electric power technology, domestic torque sensors have reached the international level and are more cost-effective," said Tian Jinliang.
Cycling e-bikes in American cities with pedal assisted or throttle assisted electric bicycles, the top speed does not exceed 32 kilometers per hour. In Europe, the speed of e-bikes is strictly controlled within 25 miles per hour. Although the speed is clearly not as fast as domestic electric donkeys, e-bikes still exude fatal appeal in the European and American markets.
After the outbreak of the epidemic, the public's fear of "public transportation" and their thirst for "outdoor sports" further released the market demand for e-bikes. European bus fares are getting higher and higher. In Berlin, Germany, buying a monthly subway ticket for commuting costs nearly a thousand euros per year, while most e-bikes are priced at 1000-3000 euros. Buying an e-bike for three to five years may be more cost-effective.
On the path of pursuing "low-carbon and environmental protection", "oil to electricity" has become an inevitable trend in the field of transportation, and the genuine subsidies from governments around the world have made e-bike the most cost-effective travel solution.
On November 19, 2021, the United States House of Representatives passed the Reconstruction of a Better Future Act, which allows citizens who purchase two wheeled electric vehicles to enjoy a 30% tax reduction on the body price. European countries have introduced e-bike related subsidy policies earlier. Since January 2018, the Paris region of France has provided hundreds to thousands of euros in subsidies for purchasing electric self driving "trucks" (including e-bikes) to combat urban pollution. More than ten European countries, including Germany, the Netherlands, Italy, and Belgium, have launched similar subsidy programs.
In 2020, the Dutch e-bike brand VanMoof saw significant growth in sales in the European and American markets, with Germany and the United States experiencing growth rates of 226% and 138%, respectively. Due to factors such as regional conflicts, energy crises, and rising living costs, more and more European and American residents are choosing e-bikes as their new preferred means of transportation.
Financial difficulties have boosted "sporty travel"
Several Chinese domestic brands that have been pre positioned have just caught up with the market dividend brought by the epidemic.
Around 2017, there was a small peak in entrepreneurship in China. "We are transitioning from unicycles to two wheelers on the track of electrification for short distance travel," recalls Tian Jinliang. In order to avoid fierce competition in the traditional electric vehicle field, Dayu Zhixing further positioned itself in the segmented market of bicycle electrification.
China's leading domestic bicycle company, Qianlida, has also been exploring since 2016. In May 2021, Qianlida invested in the establishment of the electric assisted bicycle brand TENWAYS, dedicated to solving urban commuting, mainly targeting European and American consumers. According to official reports, TENWAYS received over $850000 in IGG crowdfunding in just one year of its establishment, and established a sales headquarters in the Netherlands with over 200 physical stores.
The market is developing rapidly, and many emerging international brands such as VanMoff, Cannondale, and Rad Power have emerged. Old bicycle brands such as Giant, Lightning, and Trick are also launching e-bike products. According to incomplete statistics, there are over 300 e-bike brands with independent websites.
Luxury car brands have also set their sights on electric bicycles. Following in the footsteps of Audi, Lamborghini, and BMW, Porsche, one of the world's three major sports car brands, has also released two electric bicycles, the Porsche e-Bike Cross and Sport, priced at $9500 and $11750 respectively.
Market research firm Allied Market Research predicts that the global e-bike market size will reach $118.6 billion by 2030, with a compound annual growth rate of approximately 10.5% from 2020 to 2030.
Ma Yuchi, co-founder and CEO of Dayu Zhixing, has made a more optimistic estimate that "the current industry landscape is uncertain and sufficiently dispersed." According to an average of $1000 per e-bike, a shipment of 1 million units means a company with a turnover of $1 billion. "By 2025, at least 20 such companies can be accommodated worldwide at the same time."
Capital is swayed by the wind. According to data from CVSource Investment, in less than two years since July 2021, more than 20 two wheeled electric vehicle companies, including electric motorcycle companies and e-bike projects, have received financing, with a total amount exceeding 10 billion yuan. The highest single financing amount is the C-round financing of VanMoof, a Dutch brand led by Hillhouse, with a total amount of 128 million US dollars. VanMoof is known as "Tesla in the electric bicycles". In addition, Hillhouse also participated in two investments by TENWAYS.
"The competition between modes of transportation is also an economic issue... The economic crisis has always fueled the development of bicycles." French economist Frederick Herlan explained in "The Return of Bicycles: 1817-2050" that as long as bicycles always maintain their price advantage, are easy to maintain, and convenient to use, once there are financial difficulties, decision-makers and users will rush towards bicycles as the first choice to solve economic problems. Once the economic crisis turns into a long-lasting recession in history, the capital originally intended for the automotive industry may shift towards the so-called "sporty mode of transportation", which is walking and cycling.
"Investing in innovative enterprises in a rapidly growing emerging market is essentially investing in the future of this brand, hoping that it has greater say and premium space," Li Jinning, Investment Director of Haofang Venture Capital, told China Newsweek.
Why is it launching a comeback in the European market?
The technology of electric assisted bicycles is not complicated, it only electrifies traditional bicycles. How did it make a comeback in overseas markets, especially in Europe? Some Chinese entrepreneurs accidentally entered this track.
After being forced to transition to the e-bike field for entrepreneurship, Zhu Dankui, a post-60s foreign trade professional, encountered a strange situation: a customer placed two orders within a month, purchased the same product online, and sent it to the same address. The first reaction of Zhu Dankui, who has been doing 2B business for years, is "Did the user click the wrong button?". Finally, after the customer placed their third order, the team couldn't help but be curious and asked the answer. It turned out that the customer had a good riding experience and bought two units for their family.
"E-bike cannot replace bicycles, but it can indeed meet some travel needs." Zhu Dankui gave an example, saying that many small towns in Europe have narrow streets, multiple corners, and complex road conditions, making it more suitable for two wheeled travel. For elderly people with poor physical strength and office workers commuting 30-40 kilometers daily, e-bike is a good choice.
A survey data from the European Union shows that from 2014 to September 2017, the number of electric bicycles exported from China to the EU more than doubled, with a market share of 35%, while the average price decreased by 11%. On July 19, 2018, the European Union decided to temporarily impose anti-dumping tariffs ranging from 21.8% to 83.6% on electric bicycles imported from China.
This high entry barrier actually provides protection for Chinese start-up brands to survive in Europe. "High taxes have blocked many brands that want to adopt a pricing strategy, and players who stay in the market are not likely to slide into a situation of low price competition so quickly. High taxes correspond to high pricing, and reasonable returns are more conducive to enterprises' sustained focus on product research and development, relying on products to establish a stable market." Zhu Dankui said.
According to a research report by Oriental Securities, as the largest consumer market for e-bikes, the penetration rate of products in Europe has reached 20%. Countries such as the Netherlands, Germany, Belgium, and Denmark have a long history of cycling culture, complete infrastructure such as bike lanes, and high public acceptance of e-bikes. The market space is still considerable.
"European consumers are not price sensitive, have a high repurchase rate, and strong hands-on ability, which reduces the difficulty of the assembly process." Zhu Dankui told China Newsweek that the company currently does not have offline stores overseas for after-sales service, and can only mail "semi-finished products" to customers. After receiving them, they assemble them themselves. Therefore, users have the most problems in the assembly process, and may even return products due to high assembly difficulty rather than product quality issues.
In addition to the instruction manual, we have also made teaching videos specifically. Zhu Dankui is also learning how to become a better e-commerce platform.
In fact, Zhu Dankui's entrepreneurship this time originated from an "unpleasant experience". At that time, he was still doing foreign trade business, providing procurement, transportation, and account settlement services for cross-border e-commerce. In 2020, the sudden outbreak of the epidemic cut off the customer's financial chain, causing boxes of goods to be stranded in warehouses after being shipped overseas, leaving no one to receive them. Zhudankui could only inquire and self learn about e-commerce, selling this batch of goods, including e-bikes.
"High unit price, good sales, and low market trial and error costs." Zhu Dankui and her partner quickly discovered market opportunities. In Europe, pure electric drive vehicles with a power greater than 250W and a speed greater than 25km/h are classified as L1E models. Products entering this framework require certification, a driver's license, insurance, helmet wearing, and cannot be ridden on non motorized lanes. This means that in the European electric two wheel travel market, the more competitive "domestic electric donkey" is blocked outside the door, and e-bikes can bypass these policy obstacles, eliminating complex road procedures, and are popular among European and American cyclists.
In 2021, Zhu Dankui and his partner officially established the e-bike brand FaFrees, with sales exceeding 10000 units in 2022 and expected to continue to double in 2023.
Zhu Dankui urgently hopes to establish a more direct connection with users. Since its establishment, he has not been to Europe yet. The company is headquartered in Shenzhen and has overseas markets, which is similar to the growth path of most overseas brands. FaFrees has also established an independent website and entered platforms such as Amazon to do online sales. It has always maintained close contact with users through the network and international express delivery.
Bicycles are different from other manufacturing products in that they are inevitably bumped and require frequent maintenance. To improve consumer experience and maintain brand loyalty, offline experience and after-sales service become particularly important.
"Users have reported that bicycle parts are faulty. From an e-commerce perspective, it may be a maintenance issue, but from a user's perspective, travel may be hindered for one day or even the next week." Zhu Dankui, who has passed the year without confusion, self deprecates that she cannot keep up with the trend, does not understand e-commerce, and has not yet learned the step of marketing and promotion. The brand's growth in Europe is the result of natural growth through word-of-mouth. FaFrees currently does not have a store, and when encountering situations that require repair, customer service has the authority to directly send consumers a fee of 30-100 euros after determining that it is a product quality issue, making it easier for users to go to the store for repair.
"Most competitors are domestic brands"
For domestic brands, the well-established supply chain system in China has added fuel to the popularity of e-bike in overseas markets.
Compared to the pursuit of cycling quality by Europeans, the North American market shows greater tolerance for cost-effective products. According to Amazon US data, e-bike has a wider mainstream sales price range and lower bottom price on Amazon, ranging from $400 to $2000. The total market share of the top five brands is 39.3%.
"The intuitive experience on the consumer end is the ultimate cost-effectiveness. At the same price point, domestic e-bikes can provide more services, or at the same quality, domestic e-bikes are priced lower." Li Jinning, Investment Director of Haofang Venture Capital, pointed out that in the past few years, the rapid development of new energy vehicles in China has brought about technological spillovers, creating technological conditions for e-bikes. The continuous improvement of the three electric technologies has made e-bikes both lightweight, stable, and long-lasting. At the same time, as a major bicycle country, a mature manufacturing foundation and a complete supply chain provide cost advantages.
As an extension of the bicycle category, the mainstream sales channel for e-bikes is still offline. The main influencing factors of user purchasing decisions are hard indicators such as experience, configuration parameters, and after-sales costs. According to data from People for Bikes, independent bicycle dealers and market malls accounted for 55% of sales in the North American market in 2020. In terms of sales models, DTC accounted for about 32%.
Da Yu Zhi Xing, which is entering the North American market, has chosen to collaborate with Costco, a leading chain supermarket in the United States. "Initially, e-bikes and electric scooters were used as electronic sports products, with a compact and attractive appearance. Supermarkets were the best display and sales scenario," recalls Tian Jinliang. After multiple negotiations, the company ultimately chose Costco, which also values cost-effectiveness. In order to enter overseas supermarkets, Dayu Zhixing further optimized costs while ensuring quality, and invested more than eight months in certification and review, becoming the first Chinese brand in the United States to obtain UL2849 certification and enter Costco.
"There are shared bicycles and electric vehicles in China, but the market has never been enthusiastic about e-bikes. After the launch of the new e-bike, its sales in China gradually declined, and going abroad was almost the only way for Dayu Zhixing at that time." Tian Jinliang said, now it seems that this step was taken correctly. In 2018, Costco ordered 8000 e-bikes from Dayu Zhixing, and by April of the following year, an additional 20000 units were ordered, opening up the market like this.
In the past three years of the epidemic, domestic e-bike brands have also survived numerous crises from "waiting for goods" to "waiting for goods". "But as the number of nominees increases, the competition will also become more intense." A practitioner told China Newsweek that a tried and tested way for Chinese companies to enter the market is to win over others through extreme cost-effectiveness, and then start thinking about making money, leaving them dead and surviving.
Li Jinning analyzed that it is not difficult to make products based on the existing supply chain advantages and technological reserves in China. The difficulty lies in how to make differences and maintain distinctive advantages, which depends on the supply chain integration ability of the entrepreneurial team and the comprehensive management ability in brand operation in the future.
The above practitioners give an example that for an e-bike priced at 1000 euros, the domestic procurement cost is about 400 euros, the shipping cost is 200-250 euros, and the e-commerce commission accounts for 15% to 20%. In addition to Shanghai's foreign taxes, "these fixed costs cannot be reduced, and can only be reduced in two directions: front-end manufacturing and back-end brand premium to increase efficiency."
"The concentration of top brands in the bicycle industry is low, but there are many product types, with multiple standards and dozens of sizes for tires alone. This leads to scattered manufacturing in various stages, and many processes still rely on manpower." The practitioner analyzed that how to further reduce manufacturing costs and improve intelligence level may require external forces to "reduce dimensions and integrate".
Internet companies and traditional manufacturing enterprises have joined the e-bike track. At the end of 2021, Xiaomi entered the market through an ecological chain model and invested in the new electric transportation enterprise "Suzhou Tantu". The latter's main business includes electric motorcycles, electric scooters, bicycles, etc. In April 2022, Midea announced the acquisition of 55% equity in Wuhan Tianteng Power, officially entering the field of two wheeled electric vehicles.
"Product advantage does not equal brand advantage." Li Jinning analyzed that as the e-bike market moves from blue ocean to red ocean, whether to provide differentiated services has become a necessary test for brands, from product positioning, marketing strategy formulation, sales channel layout, to understanding local consumption habits, how to provide after-sales service, and even on what platform, how much money to spend, and who to hire as endorsers.
Can the current overseas market still accommodate more Chinese brands? According to a research report by Oriental Securities, the North American market started relatively late and currently has a low penetration rate of only 2% in 2020. The popularization of low-carbon environmental protection combined with policy subsidies, as well as people's pursuit of healthy living after the epidemic, have shown greater potential in the North American market. According to Amazon US data, over 50% of brands have been on the shelves for less than a year, resulting in low market concentration in the e-bike market, leaving many opportunities for new brands, but time is running out.
"North America is the largest regional market, which is beneficial for companies to increase profits through economies of scale. Most brands are in the early stages and have obvious competitive advantages. In the next three to five years, the North American market is relatively more likely to run out of top companies." Li Jinning analyzed that e-bike, as a sharp tool, can help China's bicycle industry break through in the European and American markets. With the strong advantage of the domestic supply chain, excellent entrepreneurial teams in China still have the opportunity to showcase their skills in the global market.