Bike-sharing firms start financing war despite concerns over profitability

A user is riding a Mobike bike. Photo: AP

Mobike and ofo, the two largest bike-sharing startups in China, are squaring up to gain market share by attracting strategic investment from venture capitalists.

The escalating investment in the two fledgling bike-sharing services comes as the Shanghai-based Mobike branches out into the cities of Beijing and Guangzhou and the Beijing-headquartered ofo, which was initially targeted at university campuses, begins navigating the city streets.

On October 10, ofo, which was established in 2014 by three Peking University students, announced that it had secured a $130 million investment from American technology hedge fund Coatue, smartphone marker Xiaomi, CITIC Private Equity and ride-hailing titan Didi Chuxing in its series C round of fundraising. Didi Chuxing, which bought its American archrival Uber's Chinese operation in August, said in September that it had invested "tens of millions of US dollars" in ofo.

The $130 million investment followed Mobike which obtained $100 million in its third financing round that closed on September 30, and was led by Asian-focused Hillhouse Capital, Warburg Pincus and so on. On October 13, Mobike, which was set up in 2015, announced investment by Chinese Internet company Tencent and Wang Xing, the founder of Meituan, a group-buying website in China. Mobike's investors also include Sequoia Capital, Panda Capital, Qiming Venture Partners, Joy Capital and Sinovation Ventures.

Concerns over sustainability

The fundraising war in China's bike-sharing market seems similar with that in the ride-hailing battlefield, where Didi Chuxing and Uber had been burning a great sum of money in exchange for more users, leading to the Chinese player buying all assets of Uber China, whose investors had been upset about the unprofitable investment for a long time.

Concerns over profitability of the bike-sharing business are reflected in Mobike founder and CEO Wang Xiaofeng's public statements, in which he acknowledged that he "has no idea about how to make money at the current stage". In response to an Internet user's question posted on the Zhihu platform, a popular question-and-answer website in China, Wang explicitly said that the profit model is not an area of concern for the time being, comparing the exploration of ways to making profit to "climbing a mountain".
But Wang, who was the general manager of Uber Shanghai, pointed out that Mobike's business development cannot be separated from the government's support, as it is good to the cause of public welfare.

Recently, Beijing rolled out a draft regulation for the Internet-based taxi industry, setting strict requirements on who can drive and what type of cars can be used. According to the draft regulation, drivers who possess a Beijing residency registration (hukou) and whose private cars are registered locally and are equipped with a 1.8-liter turbocharged engine or a 2.0-liter engine are eligible to offer ride-hailing services. The move has triggered concerns that the businesses of ride-hailing apps will be affected. The cities of Shanghai, Guangzhou and Shenzhen also released similar industry rules which set relatively high entry thresholds.

Mobike's rival, ofo, also faces potential threats, with the biggest one from Didi Chuxing, one of its own venture backers which is planning to incorporate ofo's bike-sharing service into its own mobile app, as the dominant ride-hailing company is likely to penetrate deeper into China's urban green transportation system.

According to a Caixin report, Didi Chuxing has been considering whether to set up a self-controlled arm or cooperate with an established partner to provide short-distance ride services.

In addition, a government report deals a blow to the prospects of the bike-sharing business. According to a survey conducted by the Beijing Municipal Commission of Transport, public demand for cycling trips is seeing a slowdown, with 16 percent of respondents saying that the bikeway infrastructure is not good, while 24 percent of people surveyed preferring the convenient, economical public transportation services offered by the government.

However, the government is still stepping up its efforts to improve cycling infrastructure by building more lanes exclusively used by bikes and offering state-run bike rental services.

What's more, some industry experts said that the Internet-based bus could compete with the Web-based bike in the short-distance trip segment by virtue of passenger comfort especially in the conditions of bad weather.

Pig84, a bus-sharing service provider in China, has opened special routes near subway stations in the cities of Beijing, Shenzhen, Hangzhou and Xi'an for daily commuters, meeting their demands for the "last-kilometer" trips that connect the offices with the subway stations.

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