Can e-bikes save the Covid bike boom?

Can e-bikes save the Covid bike boom?

The bicycle industry is entering a rough patch with inflation rising. But the two-wheeled ride still looked like a long-term winner.

Is Air Leaking From a Bicycle Boom? Recent profit warnings from European bike companies indicate weak demand and overstocking has become an issue.

“The industry has over-demanded bikes. Dealers have been over-excited and stores have also felt pressured to place orders due to supply chain issues,” said Will Butler Adams, chief executive of UK folding bike company Brompton Bicycle Limited.

The recent slowdown is a stark change from the past two years when the pandemic prompted consumers to flock to bike dealers so they could avoid public transportation, entertain their kids and enjoy more time outdoors. At the time, buyers often had to pay high prices for whatever was available or wait more than a year for their new flight to be delivered.

Now stores may have to offer discounts for converting unwanted bikes, and holding unwanted inventory can cause cash flow problems for small dealers and manufacturers.

However, although regular bikes have reached a difficult stage, the industry’s long-term prospects are still rosy. Finally, cities make room for cyclists and e-bikes are very popular. Why buy a car or minivan for urban trips when two wheels (plus an electric motor) can get the job done for a fraction of the price?

Last week, Swedish bicycle equipment maker Thule Group AB warned that retailers’ inventories of bicycle and bicycle equipment rose during the third quarter. Combined with consumer uncertainty related to inflation, the report said that “cycling retailers around the world have significantly reduced purchases”. A day later, helmet company MIPS AB warned of “very high stock levels” of bikes and accessories at dealers. (Thule, MIPS and Brompton’s Butler-Adams said long-term cycling trends remain encouraging.)

The normalization of demand was inevitable: about 4.5 million more bikes were sold in Europe in the past two years compared to pre-pandemic levels. And the industry isn’t alone in suffering from the so-called “whip effect,” where extended delivery times and inaccurate assessments of demand lead to very large inventories. Sports bike company Peloton Interactive Inc. Same problem, as backyard grill makers.

The cost of living crisis is an additional headwind for this typically low-margin industry. While switching from a car to a bike that saves fuel, potential customers might think twice about spraying four or five numbers on two wheels. Consumers have recently been shifting more of their disposable income toward experiences like travel, rather than buying things. Japanese bike components giant Shimano and Halfords Group Inc. have also warned. For retail bicycles in the UK of cooling demand.

Right now, the stock glut is mostly at the cheaper end of the market. German direct-to-consumer brand Canyon Bicycle Gmbh, serving the mid-to-high-end market, generated sales of €330 million ($329.6 million) in the first six months of 2022, an increase of 25%.

E-bikes, which have an electric motor that gives the rider more oomph when pedaling, remain another bright spot. Signa Sports United NV said last month that the e-bikes sold out “within days” when they became available on their websites.

About 5 million e-bikes were sold in Europe in 2021, or more than a fifth of all bike purchases. In Germany, e-bikes now account for more than 40% of bicycle sales, and there are about 25 times more e-bikes on the streets than electric cars. For those of us who wish cities weren’t beholden to car owners—battery-powered or otherwise—this is great news.

This boom is thanks in part to the popularity of employer-sponsored rental plans, which make the roughly €2,000 cost of an e-bike more manageable, and apps like Lime that let rental customers sample them for just a few euros. No wonder e-bikes are an increasingly popular choice for commuting, school pick-up and last-mile commercial delivery.

Bicycle manufacturing is still fairly low-margin — and passion, not profit, motivates a lot of specialty dealers and producers. However, the arrival of e-bikes is the reason for nearly tripling the cost of a new bike in the past decade, and this additional potential profit is driving consolidation and attracting new investment.

Last month, KKR & Co. completed. A €1.6 billion acquisition of listed Dutch bike group Accell Group NV. Accell Raleigh and Babboe own the cargo bike brand and more than half of their sales are e-bikes. While one may wonder about the timing of KKR and the high price paid, he is not alone in spying on a long-term financial opportunity.

Dutch bike company Pon Holdings BV in January acquired Cannondale and other bike brands from Dorel Industries Inc. for more than $800 million. Basketball player LeBron James was part of a consortium that invested €30 million in Canyon in July. Luxury car maker Porsche announced two new e-bike joint ventures recently along with several investments in e-bike companies. Even oil giant Shell Plc is joining the scramble for an e-bike.

Despite the energy crunch, there are also encouraging signs that the bicycle industry is making a comeback in Europe, having been largely concentrated in Asia over the past few decades. European bicycle production rose 10% last year to about 16 million units, according to the European bicycle industry confederation CONEBI.

Portugal’s Agueda has been dubbed the “Valley of Bicycles” after it became a hot spot for such investment. German car supplier Robert Bosch GmbH produces engines and batteries for e-bikes in Hungary. Italian road bike brand Bianchi is investing 40 million euros to produce carbon fiber tires for its home market. Brompton revealed plans this year to build a 100 million pound bicycle factory in southeast England.

“European demand is big enough to develop a domestic supply chain,” says Butler Adams, whose company already produces many components in the UK. “The urban cycling boom is not just a moment. We are on a journey to remove cars from cities.”

For not tolerating the current difficulties in the industry, I’m sure he’s right on both counts.

Chris Bryant is a columnist for Bloomberg Opinion covering industrial companies in Europe. Previously, he worked as a reporter for the Financial Times.

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