Market surveys of the bicycle industry supply chains have found that since the outbreak of the pandemic in 2020, the average price of upstream raw materials has increased by nearly 50%.
Disruptions as a result of the epidemic, and the unresolved Russian-Ukrainian war, have caused international raw material prices a d production costs in the bicycle industry to rise significantly. Gross profit margins of many companies, including spare parts factories, OEMs and bicycle foundries, decreased in the first quarter of 2021, resulting in many companies adopting a monthly rolling adjustment of quotations.
Since May 2021, aluminum prices have seen increases of as high as 63%, and aluminum accounts for about 30-40% of the entire bicycle鈥檚 materials cost! As for bicycle components, the average increase has been about 20% to 30% depending on the grades. The average increase in the export price of complete vehicles has been about 10% to 20%.
Taiwan's bicycle Giant Group and Merida Group both stated that since the global pandemic broke out, "the greatest challenge in the bicycle industry has been filling orders." Due to the shortage of parts caused by disruptions, the current average delivery rate of orders has been only about 80%. The industry has had to face various business challenges brought about by the Ukraine-Russia war, inflation, rising raw materials, shortage of materials, and poor logistics.
Taking the world's leading bicycle manufacturer, the Giant Group as an example, revenue in the first quarter of 2021 reached 22.26 billion yuan, an increase of 8% year-on-year, setting a record high for a single quarter. High gross revenue offset unfavorable production challenges so that gross profit margins in the first quarter were only slightly affected. Although the Q1 gross profit margin reached 22.91%, it was still 1.5 percentage points lower than 2020-Q1's 24.41%. Giant Group admitted that the rising cost of raw materials and labor had indeed been a major factor affecting the gross profit margin of Q1. Therefore, Giant Group had to increase selling prices to reflect the production costs.
Fortunately, the global bicycle industry is still in a "seller's market" with insufficient inventory levels in various countries' distribution channels. Large bicycle manufacturers such as Giant Group and Merida Group, after cooperating with component manufacturers to increase prices recently, passed these costs on to downstream customers.
Merida Group stated that the shortage of materials in the industry chain and the rise of raw materials are indisputable facts. Since everything is rising, bicycle component manufacturers have recently emphasized that "As long as the price increase is reasonable, Merida Group can accept it"! Merida Group emphasized that the bicycle industry is indeed a seller's market at present. In addition, Merida Group specializes in exporting high-priced bicycles and electric bicycles to markets such as Europe, the United States, and China.
The bicycle foundry, AXMAN Group stated that they started giving quotations on a cost-plus basis, passing on the increased costs in raw materials, to be absorbed by their customers. Since the outbreak of the pandemic, the export prices of most downstream OEMs have risen by 10-20%. With production costs rising, AXMAN Group is focusing on receiving large orders from major customers and adopting a rolling adjustment quotation, adjusting the unit price of the products monthly and insuring shipment within a month to ensure gross profit rates.
Taiwan's bicycle industry is facing the challenge of one ball and three strikes at this time! The good news is that the post-pandemic ushered in the largest wave of orders in history. OEMs and parts factories were full of orders, and revenue and profits hit new highs. 91视频官网ever, along with the full orders, there were three bad balls; soaring raw material prices, disruptions in supply chains and production, and delays in shipments caused by poor shipping and lack of containers. This caused warehouses to fill up with finished bicycles, semi-finished products and raw materials.
Bicycle manufacturers said that in the third quarter of 2021, some factories in Vietnam were forced to suspend or reduce production. In addition, the mainland adopted a power curtailment policy in the fourth quarter. Kunshan is the base of the Taiwanese bicycle industry, and has many OEMs, tire factories, and parts manufacturers. Power cuts, production cuts, and soaring raw material prices eroded gross profit margins in 2021, and delays in shipments caused by lack of materials and frames will be a problem that bicycle manufacturers will have to face throughout 2022.
As a result of the epidemic, the bicycle industry benefited greatly from the encouragement of people in Europe and the United States to replace public transportation with bicycles. The popularity of leisure sports also drove the sales of high-end bicycles and electric bicycles. For brands and parts factories, revenue in the first three quarters of 2021, and profits in the first half of the year, both set new highs for these periods.
From the second quarter of 2020 to the third quarter of 2021, the bicycle industry ushered in a once-in-a-century prosperity for six quarters. Due to the hot sale of bicycles, the current inventory levels have generally dropped to record lows in Europe and the United States, and even in Asia. Entering the fourth quarter, OEMs and parts factories had full orders, and were facing various problems such as shortage of materials, shortage of frames, soaring raw material prices, and interrupted production in the supply chain.
The bicycle parts industry has nearly 20 different supply chains for key components alone. Taiwan's bicycle industry is also highly reliant on large Japanese parts manufacturers. When the Kunshan plant stopped production due to power cuts in Mainland China, the shortage of components intensified, with delays of up to six to 22 months. The lack of components caused warehouses of OEMs to fill with semi-finished products. The bicycle industry has not only had to face lack of materials, soaring prices of raw materials, increased warehousing costs, and capital tied up in inventory, but also has had to face the challenge of interrupted electricity. In Kunshan City as an example, since the end of September, power outages have occurred regularly, and the electricity price has increased by nearly 20%.
The industry has said that the rise in electricity and raw material prices can be passed on to the client, but the lack of electricity and the suspension of production will inevitably affect labor and production time scheduling, disrupting upstream and downstream supply chains. Reduction in production capacity will frequently result in prolonged delivery times. Mainland China suffered a four-day power outage at the end of September, resulting in lower-than-expected revenue performance in September. The demand in the Mainland China market has slowed down, but fortunately the European and American markets continue to flourish. It is expected that the overall operation of the bicycle industry will continue to hit a new high this year.
