China has a new way of moving in the shared bike market – batteries, which means tougher requirements for the companies, technically, financially, and legally.

A fully charged high-quality battery can drive bikes for 45 kilometers nonstop. The distance is more than enough for shared bike service provider, Ant Finance-backed Hello Bike. Adding the batteries to the bikes means some new rules for users. They are required to park their bikes at designated spots rather than just casually dropping them off anywhere. That's important for the company.

"If e-bikes are managed precisely and effectively, the cost over the full life cycle of the bike can be reduced, and of course the price for an e-bike is higher. And compared to the usual shared-bikes, there is less chance for us to lose them. Since users are required to park their e-bikes in designated places, we have to move them around less, and that has reduced our overall costs," said Cheng Liang, general manager of Supply Chain Management at Hello Bike.

All this takes better technological support. Fabless semiconductor company Unisoc launched a new chip, which meets the latest Cat-1 standard for the 4G Internet of Things, replacing its original 2G chips.

"This chip is the first time we've used an OpenCPU structure for an application under the Internet of Things. It has the communication abilities of the Cat-1 bis. Compared to 2G chips, its versatility, power consumption and response speed are all greatly improved. And it has both Bluetooth and wifi positioning functions," said Xian Miao, vice president at Unisoc.

The advanced technology has allowed Hello Bike to ride into 320 markets in second- and third-tier cities. There are tougher regulations on all of these. In April, China started to implement new national standards for electric bicycles, ensuring that they also have pedal functions and that speeds cannot exceed 25 kilometers per hour. Transportation administrations in first-tier cities like Beijing and Shanghai have said they won't allow electric shared bikes for now, due to potential risks if they are improperly charged.

Shared electric bikes were once a battleground for small players, like Shanghai's Xiangqi or Ningbo's Liubike, but few of those now survive. It's the bigger players like Meituan and Didi that are moving into the market now, and the competition is tough. Will the shared e-bike market follow the same disastrous path that the pedal-powered bikes rode?

"The shared bike has now entered into a new stage with dominant players still there. And because of operational efficiency and customer acquisition cost, the leading shared e-bike players are still the three shared bike players. Although there will be more capability requirements for battery operation, the shared e-bike market will continue to grow in a healthier competition structure," said Neil Wu, principal at Roland Berger.

According to Wu, shared e-bikes will not be a replacement for the pedal-powered versions, but will be more of a supplementary option, targeting riders with different demands. Most users who take a bike for less than three kilometers prefer pedal power, while those traveling longer distances tend to prefer the electric versions.  

But he also warned that to ensure healthy development, companies need to be careful with their pricing structure, so as to avoid internal cannibalization between shared-bike business and shared e-bike business, which could be an interesting ride.

Cautious optimism 

Founding Partner of Sky Saga Capital Gary Yang says the pandemic boosts shared electric bikes' growth as people choose them over metro and bus. However, Yang expressed cautious optimism on the sector's outlook.

Hello Bike estimates that China's daily transport demand to be 2.8 billion times, among which 1 billion are fulfilled by two wheels, especially battery-driven bikes. The huge two-wheel transport demand could translate into a 200 billion yuan market annually, as estimated by Hello Bike.

Shared-bike players, including Hello Bike, have already invested big money to upgrade their existing fleet. However, Yang observed that "investors tend to be over-optimistic "when a new business opportunity emerges. The growth "will be mild and moderate" after the initial fever, said Yang.

In 2019, China's central government issued a catalog for environment-friendly industries, including the shared battery bikes. However, populous cities like Beijing and Shanghai have expressly rejected shared electric bicycles.

Governments in these cities are concerned with public safety regarding the battery as well as urban management issues such as the occupation of the pedestrian path. "It's very difficult for cities to control and manage e-bikes. It's also difficult to define traffic responsibilities," said Yang, "it will probably take quite a long time for big cities to accept e-bike."

On the other hand, smaller Chinese cities are more tolerant of the shortcomings of e-bikes and allowed operators market access. Shared e-bikes fill the transport supply blank left between shared pedal bike, convenient for transport within three kilometers, and taxis, which moves people to destinations five kilometers far.

The market positioning is just a hair above that of shared pedal bikes, but the initial investments and subsequent maintenance costs grow exponentially. "It's very hard for a company to develop sustainably. The commercial and business capabilities are very low," said Yang.