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Competition heats up as Chinese companies target global bike share markets

Published July 12, 2017

BEIJING (BRAIN) — Ofo, a Chinese company with plans to rewrite the global rules on bike sharing, got a $700 million cash infusion last week in another round of financing. The cash will help finance its plans to more than triple its distinctive yellow bikes with a global fleet of 20 million units stationed in 200 cities worldwide.

And The Wall Street Journal reported Monday that Mobike, Ofo's chief rival, began advertising for help in the Washington, D.C., area as the company makes plans to move into the U.S. market.

Mobike is seeking candidates for two positions in the nation's capitol — a social media creator and an operations manager. The operations manager would be responsible for overseeing Mobike's fleet of rental units. The jobs were listed three days ago on LinkedIn.

Also on Monday China Daily reported that Ofo will beef up its operations in the U.S. and in the United Kingdom as it stakes out markets against Mobike. Ofo has been running trials in both countries, Yu Xin, Ofo's co-founder, told China Daily.

Ofo's decision to aggressively enter countries outside of China got a boost after it launched its service in Singapore. The company claims that in 100 days it brought in 100,000 customers. In Singapore, the company claims to be processing 20,000 trips daily with some 10,000 bikes on Singapore's street. Xin said the company's experience in Singapore gives it the confidence to enter U.S. and European markets.

Ofo has been running trials in Cambridge in the UK and in two California cities, San Diego and Palo Alto near Stanford University. Ofo had put its yellow bikes on the University of San Diego's campus but was forced by school officials in late April to remove them. The company had failed to get permission for placement on campus.

Leading Ofo's search for expansion capital was China's e-commerce giant, Alibaba Group, Hony Capital, and CITIC Private Equity. It was the largest round of financing in the bike sharing sector to date and makes Ofo the highest valued bike sharing company in the world.

Backing Mofo, also known as Beijing Mobike Technology, is Tencent Holdings, the fourth largest internet company globally based on revenue. Tencent is traded on the Hong Kong Exchange under 700:HK. Other financial backers behind Mobike include private equity firms TPG and Warburg Pincus.

TPG, with headquarter offices in Fort Worth and San Francisco, was one of the first to enter Asia. It's TPG Capital Asia, with offices in Beijing and elsewhere, currently manages more than $6 billion in Asian investments. The company, as a whole, manages more than $72 billion in assets worldwide.

Warburg Pincus initially invested in Mobike in 2016. The company has headquarters in New York and currently manages more than $40 billion in assets.

Both Ofo and Mobike use dockless systems based on cellphone apps and GPS. Users can find and rent them on their cellphones. When done, users can leave them anywhere for another user.

Both companies are charging mere pennies to rent them based on dynamic pricing. In other words, the further a rider goes or how long a rider uses the bike generates a fee.

But financial analysts who are following the two companies are raising some concerns. Bike sharing companies are capital intensive; not only do they have to buy bikes but they must in some fashion maintain them. And fares for companies like Ofo, Mobike and others are low.

Paul Gillis, a professor and co-director at Peking University's Guanghua School of Management, told CNBC recently that the low fares charged at present are unlikely to earn a positive cash flow. The fleets are also prey for vandals and thieves.

Wang Chenxi, an analyst at Analysys, a Beijing-based research company, said Ofo is seeing explosive growth in the number of users, but how to maintain them will be a tougher question. And both are running into trouble with city authorities.

For example, on Friday, after continuous complaints from scooter users in Taipei, officials are expediting rules on regulating bike-rental systems. The new rules will be put in force early next year. Since the dockless bikes, owned by Singapore company Obikes, were introduced in April in ten Taiwan cities, they have been taking up parking spaces reserved for scooters.

That sparked a massive online campaign on Facebook that labeled them a nuisance. Taiwan has more than 13 million scooter users.


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