China Consumer

Peddling uphill

Ofo struggles to stay afloat as China’s sharing economy hits brakes

Ofo-w

Can it last the journey?

The Chinese for shared bicycles is gong xiang dan che or “publicly enjoyed vehicles”.

But users of Ofo, one of China’s largest dockless bike providers, have not experienced much pleasure in recent months.

In December things came to a head when some 13 million quit the scheme and asked for their security deposits back.

The company’s inability to repay their deposited cash – which varied in amount between Rmb99 ($14.5) to Rmb199 per user, depending on when they joined – confirmed what many had long suspected: that Ofo was struggling for survival.

In a letter to employees on December 19 the company’s CEO Dai Wei said he had considered filing for bankruptcy but had decided to carry on and repay “every penny” Ofo owes. “Whenever I think of giving up I see one of our users riding a small yellow bike to work or carrying a heavy load, and I think about how we are providing services to millions of people,” he wrote.

That said, Dai is cycling uphill with a heavy load. Jiemian, a financial news website, said Ofo carried debt of Rmb6.39 billion, of which Rmb3.6 billion is user deposits. Caixin also reported that the company owes at least Rmb56 million to suppliers based on court documents.

Tencent owns a key stake in Meituan-Dianping which bought Ofo’s main rival Mobike for $2.7 billion in April last year. The purchase was disastrous for Ofo because it provided Mobike with the funds to do away with the need for a security deposit and thus attract more customers.

Meanwhile Ofo was having to cut back on maintenance costs, meaning more of its bikes were unusable, whilst also having to increase prices.

As cashflows got really tight last year it closed operations in India, the UK and the US. On Tuesday it was reported that it had officially ceased services in all of the 20 countries it had expanded into over the past two years.

The 50 or so Chinese employees working in overseas offices were told to transfer back home and have their salary cut in half until April or May, or to leave without compensation and be paid in full for December and January, Chinese Entrepreneur magazine wrote.

Without new funding it is unclear how Ofo will pull through. One option would be to sell out to car-hailing firm Didi which already has a 30% stake in Ofo.

Alibaba, which controls at least a 12% stake would likely oppose any such deal. As might Dai, who is fiercely independent and who resisted a merger with Mobike in 2017 – locking the two companies into a disastrous cash-burning battle for market share. Neither yet make any profit despite the fact their bikes are used by about seven million people every day.

Part of the reason Didi wants to buy Ofo is to round out its portfolio of services and to diversify away from its core car business.

Public trust in Didi is still low after two drivers associated with the company raped and killed two women last year. As of January 1 would be Didi-drivers now have to obtain two licences to accept fares. One involves a personal background check (on criminal history) and the other requires the driver to register their car as a commercial vehicle – which means additional cost.

So in a move to diversify the company announced on January 2 the launch of Didi Finance which offers services such as car insurance, personal loans and a crowdfunded medical insurance scheme.

Analysts say the move into fintech will bring Didi into greater competition with Alibaba’s Ant Financial and Tencent’s WeBank.

But with Didi’s main line of business still facing headwinds, the new strategy is a way to find an alternate means to monetise its large user base and persuade fund managers to buy into its IPO, which is now likely to occur this year having been postponed in 2018.


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