Chinese ride hailing app Didi Chuxing is in talks to take over Ofo as the bike-sharing start-up bleeds cash in the cut-throat sector.
Once one of the fastest-growing fads in China, dockless bike-sharing companies proliferated over the past couple of years and expanded rapidly across the globe.
However, the fight for market share led rival groups to burn through vast sums of money and after some fell by the wayside, the sector has now been reduced to two companies: Alibaba-backed Ofo and Mobike, which was bought this year by food delivery and services company Meituan Dianping.
Vandalism, theft and poorly maintained bikes have added to the tales of woe, along with “bike graveyards” in cities across the nation. Ofo has been forced to retreat from an ambitious overseas push, unable to keep up with the spending of Mobike, which recently waived all Chinese users’ deposits in an effort to push out other players.
Last week, Chinese media reported that Ofo faced losing access to 3m of its bicycles after an anonymous supplier, which made its smart locks, threatened to “freeze” those locks if Ofo kept delaying its payments to the supplier.
“We already have a resolution for the problem of the service fees, that we are in the middle of implementing,” Ofo said. “There is no ‘frozen lock’ problem.”
Meituan, which is aiming for a $60bn valuation in its upcoming initial public offering in Hong Kong, has been making inroads into other sectors — not least ride-hailing, taking it on to Didi’s turf.
Didi, which already holds a stake in Ofo, has previously ended cash-burning competition by buying its rivals — including the Chinese operations of Uber, which it acquired in 2016 in return for a 20 per cent stake.
Talks over the future of Ofo, which has been eyed by several companies including Alibaba, have been frustrated by other backers’ right of veto, according to one banker. Local media have reported that Didi’s offer values Ofo at $1.5bn, about half the amount Meituan paid for Mobike.
In recent months, Didi has faced intense competition from Meituan in the food delivery business and continues to burn cash as it subsidises its customers.
The bike-sharing companies, like countless other sectors in China, rely on offering hefty subsidies to woo new customers — a policy that has left them shouldering heavy losses. These have led to an estimated $1.3bn of liabilities on Mobike’s balance sheet.
According to one industry insider, Mobike has been burning about $50m a month and Ofo roughly $25m.
One analyst said the rational move would be for Ofo and Mobike to merge, “but the founder of Ofo insists he doesn’t want to”.
Ofo and Didi declined to comment.