There has been a lot of chatter in the bicycle business of late about reshoring bicycle and e-bike manufacturing to the U.S. Anyone who follows my articles and op-eds knows I am a long-time proponent of reshoring (bringing bicycle and e-bike manufacturing back to America), or nearshoring (bringing manufacturing inside North America to Mexico, Canada or both).
To be clear, manufacturing is not assembly. The two terms of art have different meanings when applied to the bicycle business. They also require different levels of capital investment. However both require the same level of component support.
Manufacturing means rolling the tubing, or processing tubing, that is formed, welded, or otherwise joined into a frame, front fork or other frame configuration. This makes up the primary sub-assembly of a bicycle that may be coated in some form, and joined with other sub-assemblies like wheels, or electric propulsion systems, and then assembled and packaged with the required components to create a complete bicycle or e-bike for use by consumers.
In short, a bicycle manufacturer fabricates the frame and front fork, and combines them with all the required sub-assemblies and components into a packaged product for final assembly by a consumer or commercial assembler.
Assembly means purchasing the frame, front fork or other frame configuration pre-built. This becomes the bicycle’s primary sub-assembly that may be coated in some form, and joined with other sub-assemblies like wheels, or electric propulsion systems, and then assembled and packaged with the required components to create a complete bicycle or e-bike for use by consumers.
The short version is a bicycle assembler buys everything, and then assembles and packages the various pieces into a complete bicycle or e-bike for use by consumers.
Detroit Bicycle Company, owned by Cardinal Cycling Group, is currently the largest bicycle manufacturing plant in the U.S. with annual production estimated at 10,000 to 15,000 complete bicycles per year.
Bicycle Corporation of America (BCA), owned by Kent International, is the largest bicycle assembly plant in the U.S. with annual production estimated at 300,000 complete bicycles per year.
BCA has the capacity to assemble far more complete bicycles and e-bikes, and will eventually add all the machinery and other equipment required to become a manufacturer. The primary limitation to growth to a realistic annual production of around 1 million complete units per year, is the availability of component parts in-country that do not have to be imported from off-shore.
All the business entities currently involved in bicycle and e-bike manufacturing and assembly in the U.S. know and understand the nature and meaning of this limitation. It is significant.
Let us start by following the money from retailers in the U.S. up-stream, and following the revenue to the original equipment manufacturers (OEMs) and their sub-contractors and component suppliers.
When consumer demand was high, as it was from the second quarter 2020 to about the third quarter 2022, everybody paid full price and more. The discounting and price cutting that plagued the bicycle business and drove down gross margins for decades disappeared. It was replaced with fluid cash flow and high gross margins of profit for retailers, bicycle and e-bike brands, OEMs and component brands and manufacturers.
For the first time in decades, suppliers had the upper hand. Retailers, including Walmart, had to pay the price to get relatively hard-to-get finished bicycles and e-bikes, including ocean, air and trucking costs.
Giant and Shimano both made it clear that they were not going to expand production capacity by building new manufacturing facilities. They were looking at the probability that the so-called “boom” wasn’t going to last long enough for them to finish plant expansion before the added capacity would no longer be needed because consumer demand would recede. They did add shifts and worked what weekend and holidays they could, but all within existing manufacturing facilities.
During the pandemic a lot of money was wasted, but a lot of money was also made up and down the U.S. bicycle supply chain that begins in Asia.
Consumer demand has indeed receded, and the U.S. bicycle business is headed for an inventory-induced shakeout that will probably last from three to five years. Price cutting and discounting have already returned, along with the brands trying their best to manipulate retail pricing.
Pricing power has shifted back from suppliers to retailers, although mostly in the mass, full-line sporting goods and specialty outdoor channels. Bike shops are currently in a battle with brands over retail price control.
With all of this said, why would publicly-traded component brands want to invest in U.S. manufacturing, and explain the investment to shareholders, when they can continue to bank profits earned during the pandemic and pay dividends to investors?
Keep in mind some of the OEMs are publicly-traded companies, and they are in much the same situation relative to the U.S. market. The same question can be asked about privately-owned component companies and OEMs as well.
There is also the possibility of the component companies and OEMs, the majority of whom have invested in and built manufacturing facilities in Europe, shifting a portion of the U.S. supply chain to their European production facilities, particularly if the U.S. re-imposes the 301 tariffs on Chinese imports that are currently suspended, and if the war in the Ukraine further suppresses the European market.
While I am an advocate for reshoring and nearshoring, I am also a realist who worked in a large U.S. bicycle manufacturing company for 14 years before it had to take advantage of globalization and shut down domestic operations and become a large importer.
I spent the next 10 years supervising the company’s purchasing and logistics operations that involved buying complete bicycles, fitness equipment and accessories primarily in Taiwan, China, Singapore and Japan.
What I have observed since 1990 is bicycle manufacturing and assembly, as well as component manufacturing, leaving the U.S. and North America, relocating in Asia to be closer to manufacturing OEMs primarily in China (with the high end in Taiwan). The American bicycle business and market has become import dependent, and this takes us full circle, back to why reshoring is difficult and still a long way off.
There is a limit to the level of reshoring that can be realized because there is a limit to the revenue and profit that can be made as long as components have to be imported from outside North America.
This becomes a double-edged sword in that tariffs on imported componentry have to be kept within a reasonable range. If too high, as with the 25 percent punitive Section 301 tariffs on imports from China, this will discourage domestic assembly and manufacturing. If too low, this will discourage component manufacturers from investing in U.S. production because the domestic industry isn’t protected.
Since bicycles and e-bikes are not high tech, they are not going to attract much if any support from the government or private investors. The financial support is going to have to come, or at least start, from within the bicycle and e-bike business.
The support of state and local government in providing tax incentives and relief, as well as employment incentives, will be important. However, the most important incentives will have to be structured to make it attractive for component manufactures to build plants in the U.S. and/or North America if there is going to be any appreciable reshoring of bicycle and e-bike manufacturing.
Despite the geopolitical tensions between America and China, and Taiwan and China, the U.S. bicycle business is finding it difficult to extract itself from China. Even moving to Vietnam or Cambodia is difficult because of the dependency on raw materials and components from sources in China.
There is no easy answer, and the U.S. bicycle business is going to have to do careful planning and line up local and state political and financial support well in advance of turning the first shovel of dirt.
Perhaps even more important is going to be the effort that local and state governments are going to have to make to attract and convince a sufficient number of component manufacturers to commit to the U.S. to support domestic assemblers and manufacturers who can than grow their business with brands and retailers.
Crafting a plan, and then being patient and flexible, is going to be required if reshoring is going to actually happen at any scale in the U.S.
Questions or comments? Contact me at: firstname.lastname@example.org.