Can e-bikes save the Covid bike boom?

Is air escaping from the arrow of the bicycle? Recent profit warnings from European bicycle companies suggest that weakening demand and excess inventory are becoming a problem.

“The industry has over-ordered bikes. Dealers have been over-excited and stores have also felt pressured to place orders due to supply chain issues,” says Will Butler-Adams, managing director of the UK-based bike company. folding bikes Brompton Bicycle Ltd.

The recent downturn is a stark change from the past two years, when the pandemic sent consumers flocking to bike dealers so they can avoid public transport, entertain their children and spend more time outdoors. . Back then, buyers were often forced to pay high prices for whatever was available or wait over a year for their new vehicle to be delivered.

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

Still, although regular bikes have had a tough time, the long-term outlook for the industry still looks rosy. Cities are finally making room for cyclists and e-bikes are massively popular. Why buy a car or van for city trips when two wheels (plus an electric motor) can do the job for a fraction of the price?

Last week, Swedish cycling equipment company Thule Group AB warned that retailer inventories of bicycles and cycling equipment had increased in the third quarter. Combined with consumer uncertainty related to inflation, he said “bicycle retailers around the world have significantly reduced their purchases”. A day later, helmet company MIPS AB warned of “too high stock levels” of bikes and bike accessories at dealerships. (Thule, MIPS and Brompton’s Butler-Adams all said long-term cycling trends remain encouraging.)

A normalization of demand was inevitable: in total, around 4.5 million more bikes have been sold in Europe over the past two years compared to pre-pandemic levels. And the industry isn’t alone in suffering from what’s known as the “whiplash effect,” where stretched delivery times and inaccurate demand assessments lead to excessive inventory. Exercise bike company Peloton Interactive Inc. had much the same problem, as did 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 saves fuel, potential customers may think twice before splashing four or five figures on a two-wheeler. Consumers have recently diverted more of their disposable income to experiences like travel, rather than buying things. Japanese bicycle components giant Shimano Inc. and British bicycle retailer Halfords Group Inc. have also warned of cooling demand.

For now, the stock glut is mostly in the cheaper end of the market. German direct-to-consumer brand Canyon Bicycle Gmbh, which serves the mid- to high-end market, generated 330 million euros ($329.6 million) in sales in the first six months of 2022, a 25% increase.

Another bright spot are e-bikes, which contain an electric motor giving the rider more punch when pedaling. Signa Sports United NV said last month that the e-bikes sold out “within days” when they became available on its websites.

Around 5 million e-bikes were sold in Europe in 2021, more than a fifth of total bike purchases. In Germany, e-bikes now account for more than 40% of bicycle sales and there are around 25 times more e-bikes on the streets than e-cars. For those of us who wish cities weren’t so beholden to car owners – battery-powered or not – that’s great news.

The boom is partly due to the popularity of employer-sponsored leasing plans, which make the around $2,000 cost of an e-bike more manageable, and apps such as Lime that allow customers to rent them for a few euros. No wonder e-bikes are an increasingly popular choice for commuting, back-to-school, and last-mile commercial delivery.

Bike manufacturing still remains fairly low-margin – and passion, not profit, drives many dealers and niche producers. Yet the advent of e-bikes is causing the cost of a new bike to nearly triple over the past decade, and this additional potential profit is driving consolidation and attracting new investment.

Last month, KKR & Co. completed a €1.6 billion takeover of publicly traded Dutch bicycle conglomerate Accell Group NV. Accell owns Raleigh and the Babboe cargo bike brand and more than half of its sales are e-bikes. While one might wonder about KKR’s timing and the high price paid, he’s not the only one spying on a long-term financial opportunity.

Dutch bicycle conglomerate Pon Holdings BV in January acquired Cannondale and other bicycle brands from Dorel Industries Inc. for more than $800 million. Basketball player LeBron James was part of a consortium that invested 30 million euros in Canyon in July. Luxury automaker Porsche AG recently announced two new e-bike joint ventures as well as several investments in e-bike companies. Even oil giant Shell Plc is joining the e-bike rush.

Despite the energy crisis, there are also encouraging signs that bicycle manufacturing is making a comeback in Europe, after being largely concentrated in Asia for the past few decades. European bicycle production rose 10% last year to around 16 million units, according to European bicycle industry association CONEBI.

The Portuguese town of Agueda has been dubbed the “Bicycle Valley” after becoming a hotspot for such investments. German automotive supplier Robert Bosch GmbH produces motors and batteries for e-bikes in Hungary. Italian road bike brand Bianchi is investing 40 million euros to produce carbon fiber frames in its home market. And Brompton this year unveiled plans to build a £100million bicycle factory in south-east England.

“European demand is large enough to develop a domestic supply chain,” says Butler-Adams, whose company already produces many components in the UK. “The rise of urban cycling is no surprise. We are in the process of removing cars from cities.

Notwithstanding the current difficulties in the industry, I am convinced that he is correct on both counts.

More from Bloomberg Opinion:

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• Peloton’s new strategy spins everywhere: Andrea Felsted

• Michael Burry’s ‘Bullwhip’ tweet deserves attention: Jared Dillian

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

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

More stories like this are available at bloomberg.com/opinion

Wiley C. Thompson