Chinese bike-share company Ofo, is being sued Shanghai Phoenix Bicycles, the manufacturer of its bikes, over “unpaid bills” that total nearly $10 million USD, the latest setback for the company this year. The business lawsuit also shows the problems that on-demand bike companies are facing around the world.
According to Chinese media reports, Ofo signed a contract in May 2017 that guaranteed the company would buy five million bikes from Shanghai Phoenix over the course of one year. However, during the period of the contract, Ofo purchased only two million bikes, leaving Shanghai Phoenix Bicycles with a 55% drop in income, which prompted the lawsuit.
Shanghai Phoenix, in a report to investors in early 2018, said that it expected to deliver less than 100,000 bikes to Ofo between January and April, whereas it had projected delivering 1,500,000+ bikes during this period, based upon the 2017 contract.
Ofo said that its inability to take deliveries of the bikes from Shanghai Phoenix and the subsequent lawsuit was because of a dramatic slow-down in the bike-share industry due to completion and regulation. Because of the slow-down, Ofo is slowing its expansion plans in both China and internationally for 2018 and 2019 and that regulatory problems in most countries, will be settled by the end of 2019, and that from 2020 the industry will expand.
Although completion in the bike-share industry is coming from a variety of start-ups across the globe, regulatory problems are the biggest problem for the industry as cities around the world, that initially embraced bike-sharing, have become dismayed with the industry and the reality of bikes littered across their streets and consumers have complained of bikes that are broken and barely work.
The business model for bike-share companies has been questioned. Under the most popular systems, consumers use their smartphones to locate bikes and then pay a fee for unlocking the bikes and then a per minute fee for usage. Once consumers finish with the bikes they leave them on the street wherever they want.