THE HPS JANUARY LETTER: INFLATION EASES, BUT BEWARE OF PHANTOM DEBT AND ZOMBIES!

11-28-23: “Lectric e-bikes rose to the top of sales, and now they are giving it all away,” electrek: “In just four years, Phoenix-based Lectric Ebikes quickly grew into a major player in the U.S. e-bike market. The garage startup story of how Lectric’s founders rode the brand’s budget-priced e-bikes all the way to the top has been told many times. Just as fascinating, yet less well-known, is how committed the company has been to giving back through major donations and philanthropy.” HPS Analysis: It took the better part of the past year to bring the whole picture of the American bicycle market into focus. It started with an assignment to research and write a 2022 U.S. Bicycle Market Overview Report. What I found was at first confusing because I was clinging to the mistaken belief that the post-pandemic bicycle market was the same as the pre-pandemic market. What I slowly began to realize was the pandemic-induced disruptions created by (1) a surge in demand for traditional and electric bicycles by (2) both traditional bicycle consumers and consumers totally new to bicycling that (3) scattered the demand over a new, broader product selection and offerings that (4) embraced traditional bicycles, mid-drive pedal-assist electric bikes offered by the traditional mainstream brands and (5) a variety of hub drive, pedal assist, throttled, fat-tire electric bikes offered to the American market by (6) dozens of new, emerging electric bicycle brands that started in the decade before the pandemic, marketed (7) primarily through Direct-To-Consumer (D2C) distribution. All of this is to say that Lectric E-bikes and the online electrek daily newsletter represent a new, viable segment of a new American bicycle market and business that emerged from the disruptions of the pandemic. This is just one of the stories that needs to be studied and understood.

11-30-23: “Investors descend on Dubai,” Bloomberg Green Daily: “The larger-than-usual group of investors and bankers in attendance at COP28 in Dubai are not there primarily (if at all) for altruistic reasons. They’ve traveled to the United Arab Emirates for the same reason they’d go to an airshow or a heavy industry convention: the possibility of making a lot of money. For Nikita Singhal, co-head of sustainable investment & ESG at Lazard Asset Management, the climate crisis is too often portrayed as a risk in investors’ portfolios, while the opportunities to profit handsomely from the economic changes required to slow global warming are regularly overlooked. Climate change is ‘one of the largest economic disruptions of our lifetime,’ [emphasis added] Singhal said at the Bloomberg Business Forum at COP28. The other side of that coin, she says, might be a chance for ‘the greatest alpha-generation or investment-return’ in a long time.” HPS Analysis: COP28 did not, to the knowledge of HPS, receive any trade press coverage by the bicycle industry and there was no attempt on the part of the American micromobility sector to reach out and connect with “one of the largest economic disruptions of our lifetime.” Climate change has been, and will be, one of the leading disruptors, impacting strategic thinking and planning relative to the bicycle industry as it merges into the micromobility sector going forward. The significance of COP28 is the attention now being paid by the world’s financial community to all of the aspects of climate change, including the investments in fossil fuels, alternate forms of energy and power and mobility and micromobility.

12-5-23: “Companies are going broke gradually, not suddenly,” Bloomberg Opinion: “Lots of things were supposed to happen this year, but didn’t. With only weeks to go, neither the recession in the U.S. nor the dramatic post-Covid rebound in China have come to pass. But perhaps the strangest non-event has been the widely anticipated wave of corporate defaults. That doesn’t mean that problems aren’t coming. Oleg Melentyev of Bank of America points out that the bankruptcy of WeWork happened ‘relatively quietly,’ even though it was the largest U.S. company to go bust since the global financial crisis, while the Austrian property group Signa, whose assets included a share in New York’s Chrysler Building, last week became Europe’s biggest post-GFC insolvency. A major repricing of the credit markets to account for those awaited defaults has also failed to happen. But if widespread corporate failures did arrive, they might provide just the catalyst to bring along the much-delayed recession.” HPS Analysis: There is, in HPS’s opinion, a definite difference between the European trade press coverage of the financial events of the past year compared to U.S. coverage that, again in our opinion, tended to focus more on specialty retailers and less on companies, suppliers and brands. With this said, HPS has come to the realization that companies in the bicycle and micromobility space are: “…Going Broke Gradually. Not Suddenly.” It’s like slow motion and it is also because debt-dependent firms and investors in and around all aspects of micromobility are approaching their maturity wall and will have to refinance soon, and at higher interest rates, if they can actually get access to higher interest financing. Stay tuned.

12-5-23: “China’s debt outlook downgraded as economy slows,” BBC News: “China’s debt outlook downgraded as economy slows. Moody’s issued a warning as it cut its outlook on the government’s debt to negative, from stable. The firm is the latest to raise concern about problems facing the world’s second-largest economy. China said it was disappointed by the move, calling the economy resilient. The country has signalled plans to ramp up stimulus spending, as it battles soaring youth unemployment, weaker global demand hitting its manufacturing industry and deepening woes in the property sector.” HPS Analysis: Keeping in mind that the U.S. credit rating was downgraded in the third quarter of last year, this action by Moody’s to downgrade China from stable to negative adds another uncertainty to an already increased risk to North American, European and Asian companies to doing business with and in China. Keeping in mind that China represents both the primary manufacturing source and a key growth consumer market for the multinational bicycle business brands, this additional uncertainty serves to add to the risk going into 2024.

12-5-23: “Canyon sales up 23 percent in first three quarters, but profitability declines.” Bicycle Retailer and Industry News: “Privately-held Canyon Bicycles announced December 4 that its year-on-year sales increased 23 percent in the first nine months of 2023. According to a statement from Groupe Bruxelles Lambert, which acquired Canyon in 2020, the bike brand’s sales in the first nine months of 2023 were 621 million euros ($670.5 million at today’s exchange rate), up from 506 million euros in the same period of 2022. Despite higher sales volume, Canyon’s EBITDA growth declined 6 percent in the period. GBL said the EBITDA performance was due to ‘higher discounts on certain bike categories and a supply shortage of high-demand bikes due to issues at on of its suppliers.’ The supplier issues affected the availability of Canyon’s road and gravel bikes in the third quarter and have since been resolved, according to GBL.” HPS Analysis: An increase in sales and a decrease in profitability is not a sustainable financial strategy over the long term and is unfortunately indicative of what brands are facing through the last quarter of 2023 and going into 2024. Canyon’s Direct-To-Consumer (D2C) business model is built on the premise that it can provide top of the line quality at bargain pricing and generate the same profitability as traditional distribution.

12-7-23: “Ride1Up Portola review: Is this the new go-to low-cost electric bike?” electrek: “When Ride1Up unveiled the Portola folding electric bike, it was obviously a major play to snatch the title for the leading low-cost electric bike. Now that we’ve had sufficient time in the saddle, it’s high time to see how this budget electric bike stacks up. When it comes to low-cost e-bikes, there are essentially two groups. Sure, that’s oversimplifying it, but stick with me here. There are ultra-budget mega-retailer bikes, like those found on Amazon, Walmart, etc. You can often find those e-bikes in the $500-$800 range. Then there are the actual e-bike companies that sell really low-cost e-bikes, such as those from Lectric Ebikes, Rad-Power Bikes, Aventon and today’s review, Ride1Up. These budget e-bikes are usually a bit more expensive, often starting at between $800-$1,200 (and increasing from there), but they have more reliable service and support because they come directly from an electric bicycle maker that deals only in e-bikes. not also in toasters and air mattresses. So that’s the lens through which we have to look at the Ride1Up Portola. At $995, it’s not going to compete well against the super cheap price of a Walmart e-bike, but it still undercuts most of the main e-bike players in the market, and comes from an e-bike brand that stands behind its products. Plus, it’s got way more features and nicer build quality than you’d ever find on a typical Walmart or Amazon special.” HPS Analysis: You have probably noticed that American bicycle market consumer pricing has been pummeled by discounting and sale pricing with the end result that the race to the bottom has resulted in e-bike pricing steadily dropping over the last four quarters. Micah Toll, writing for electrek, is providing an explanation for the bifurcation of the D2C portion of the e-bike segment of the American market. Walmart and Amazon, or what Micha Toll calls the “ultra-budget mega-retailer bikes” in the $500 to $800 retail range, and “budget e-bikes” sold by “actual e-bike companies that sell really low-cost e-bikes” in the $800 and $1,200 retail range. Ride1Up is what Micha Toll calls an “actual e-bike” company and the focus is on the introduction of the Ride1Up Portola 20-inch fat tire folding e-bike sold D2C for $995. HPS’s concern is not the retail price but testing and certification by a NRTL (nationally recognized testing lab) to UL2849 (which is inclusive of UL2271). HPS called Ride1Up and talked to a customer service representative, and found out that all Ride1Up lithium-ion batteries are tested to the UL2271 lithium-ion battery standard, but complete electrical propulsion systems are not tested to UL2849 because of the cost of testing. HPS maintains that this is no longer acceptable as an excuse nor as a standard for customer and consumer safety. Walmart and Amazon both have programs for testing and certification of e-bike electric propulsion systems to UL2849, which includes testing to UL2271 and for aftermarket and replacement lithium-ion batteries to UL221. NBDA has already posted and distributed eBike Lithium-Ion Battery Pack Storage, Use and Care Protocols (Updated December 26, 2023), and it is now time for all industry trade associations to adopt and similar protocols and guidance to members. In addition, online and print publications like electric need to include “Tested and Certified by a NRTL to UL 2849” as a standard line item, indicating “yes” or “no” for each e-bike they test and evaluate so consumers know what e-bikes are certified and which are not yet certified.

12-7-23: “Shimano investigating report of ‘modern slavery’ at one of its Malaysian suppliers.” Bicycle Retailer and Industry News: “Shimano says it is investigating after a news report that a supplier to its factory in Malaysia has operated under conditions that are ‘akin to modern slavery.’ The U.K.’s The Telegraph reported December 7 that the factory, Kwang Li Industry, has deducted fees from foreign worker paychecks that reduce pay by as much as a third, putting the pay below Malaysia’s minimum wage. Additionally, the article said workers from Nepal and Bangladesh have to take out high-interest loans to pay recruitment fees to a third-party agency the factory uses. According to The Telegraph, the recruitment payments by workers are in breach of a 2018 memorandum between Malaysia and Nepal that requires employers to pay recruitment fees. The Telegraph also cited reports of worker abuse in the Kwang Li factory. Andy Hall, a British labor rights specialist, told The Telegraph that conditions at the factory were ‘akin to modern slavery.” HPS Analysis: Does anyone else see the irony in The Telegraph publishing this story on December 7? This is the date, December 7, 1941, that Japan attacked at Pearl Harbor, Hawaii and brought the U.S. into World War II. Beside what HPS thinks is an obvious attempt by The Telegraph to add prejudice to its allegations, what is described is totally unacceptable, and cannot be tolerated, but is also all too common throughout the world. The poor and incarcerated of every nation are taken advantage of and so called “modern slavery” is sadly found in the U.S. as well as throughout Asia. The global and U.S. bicycle industry associations need to work with Shimano and every multinational company and brand in the bicycle industry to establish manufacturing and sourcing codes of conduct that include standards for employment and work

12-8-23: “RIP to fast and free shipping.” Bloomberg Opinion: “This year might go down in history as the end of free and fast shipping. The good old days were sweet. Nearly any online goods, big or small, could arrive at your door within a couple of days for free and often could be sent back at no cost. It was exhilarating. For a time, businesses were willing to eat the cost of shipping, which can take as much as 10 percent to 15 percent of a company’s profits, because they were in a fierce fight for e-commerce dollars. But over the last year, retailers have been quietly rolling back options that would get orders to your door within days as their operating margins suffered. To cut down on costs, retailers, including Amazon.com Inc., Walmart Inc., Chewy Inc. and Wayfair Inc. have closed or canceled the opening of distribution centers this year. At the same time, retailers have followed the lead of companies such as L.L. Bean Inc. by adding new minimum order values for free shipping after years of requiring no minimum. HPS Analysis: What is happening here is rising costs of handling and shipping eating into profitability, as the article states. “Fast and Free Shipping” has been one of the advantages that D2C retailers have had over brick-n-mortar retailers, and this will serve to level the playing field somewhat. In addition to cost, the demise of free shipping takes away one of the marketing points made about the advantage of buying online.

12-10-23: “Don’t burn your house down. Here’s how to buy safer electronics.” The Wall Street Journal: “Faulty electronics are causing more fires in homes lately. This holiday season I don’t want to give my neighbors the wrong kind of light show, so I sought advice on how to avoid buying potentially dangerous devices. E-bike and e-scooter battery fires are soaring, particularly in New York, where 17 people have died and dozens have been injured this year.” “Chances are, your electronics won’t become incendiary devices the moment you plug them in. But safety officials and product testers say that if you buy cheap, low-quality or fake products, you increase your risk of a fire and face other hazards. Online shopping, while convenient and cost-effective, exacerbates the problem. In marketplaces hosted by Amazon and other major retailers, items sold by third-party sellers aren’t vetted with the same rigor as merchandise sold directly by the stores. As a result, you have to be extra diligent.” “Look for a certification label from a nationally recognized testing laboratory, markings such as UL, ETL, CSA, or SGS, said Patty Davis, a spokeswoman for the U.S. Consumer Product Safety Commission. These typically appear on packaging or the product itself, which is why it is sometimes easier to assess product quality in-person.” “When it comes to e-scooters and other mobility devices, the UL label is particularly important, says the CPSC. A 2022 letter from the agency highlighted a ‘rise in fires and other thermal events’ and urged manufacturers and retailers to adopt UL certification to ‘significantly reduce the risk of injuries and deaths.’ “ HPS Analysis: This was a very good and well-researched article that the American bicycle market can use more of. Electric bicycles, while not the only “electronics” covered, are prominent and there certainly is enough good information that can educate consumers, not the least of which is the advice to: “Look for a certification label from a nationally recognized testing laboratory, markings such as UL, ETL, CSA, or SGS.” The U.S. bicycle trade association representing e-bike and lithium-ion battery brands and distributers has an opportunity to send out press releases and provide articles by and interviews with “experts” providing useful educational information about e-bikes and the care and maintenance of lithium-ion batteries.

12-12-23: “LEVA and NBDA bring E-Bike training to CABDA 2024.” Bicycle Retailer and Industry News: “The Light Electric Vehicle Association (LEVA), in partnership with the National Bicycle Dealers Association (NBDA) and the Chicago Area Bicycle Dealers Association, is proud to bring fresh e-bike training content to CABDA Midwest 2024 from February 6-8. Together, they are adding three education opportunities to visiting retailers, including a half-day hands-on technician training workshop on the day before CABDA officially opens, a battery safety and handling certification on both show days, and a presentation on the state of the U.S. e-bike market in 2024, including forecast on how the market will develop in the coming years.” HPS Analysis: While several brands now conduct proprietary technical training exclusively for their dealers, this is the first step in the bicycle industry providing hands-on e-bike and lithium-ion battery technician training for all independent specialty bicycle retailers. The half-day training is for a modest fee February 6 at the Schaumberg Convention Center and is co-sponsored by CABDA and the NBDA, and conducted by LEVA. In addition, LEVA will conduct seminars and an e-bike market presentation during the CABDA Midwest Expo and HPS’s chief technology officer, Mike Fritz will present two technology and lithium-ion battery seminars per day, February 7 and 8. Please refer to the CABDA Midwest Expo Schedule for details.   

12-13-23: “Fed begins pivot toward lowering rates as inflation declines.” The Wall Street Journal: “Slowing inflation prompted Federal Reserve Chair Jerome Powell to pivot away from raising interest rates and toward considering when to cut them, igniting a rally on Wall Street. The Fed held its benchmark federal-funds rate steady at a 22-year high on December 13, and offered every reason to think that its most recent increase this past July probably marked the end of the most aggressive cycle of hikes in four decades.” HPS Analysis: While Treasury Secretary Yellen may have been premature in declaring a soft landing for the U.S. economy, the Fed chair made it clear that raising interest rates may be over, and that the central bank’s attention is now focused on when it will begin cutting rates. Meanwhile, HPS is advising clients not to expect reductions during the first quarter of 2024, and that resulting reductions in the cost of loans will probably mot be a reality until the second quarter at the earliest.

12-13-23: “2024 retail predictions: five trends to watch.” Chain Store Age CSA: “The rise of the physical store. Research shows that improving customer experience remains the number one priority for businesses. The rise of the ‘phygital” store is the result of a fusion of physical and digital retail strategies to create a cohesive customer journey. The physical approach recognizes that customers move seamlessly between physical and digital touch points when shopping. While customers know how to use retailers’ online stores to make their purchases, when they go into physical stores they are not just looking for a specific product, but also the purchasing experience.” HPS Analysis: The other four retail predictions are important, but we feel the number one prediction: “The rise of the physical store” is not only significant, but lands right in the middle of the specialty bicycle retail strategy going forward. Physical stores are growing in importance, even among those retailers that have been strictly D2C up to 2024.

12-15-23: “It’s a bad time in the cycling industry and a great time to buy a new bike.” Bicycling: “The Tarmac SL7 Expert is one of the nearly 200 Specialized bikes on sale. I take no joy in saying this: The bicycle industry seems kinda effed right now. While I am decidedly not a business expert, headlines and conditions seem grim, and many people and brands are feeling the pain. However, it’s also an extremely good time to shop for a new bicycle.” HPS Analysis: Specialized isn’t alone. This article also mentions Kona’s Process bike two-for-one deal, with a link, Cannondale with 100 models on sale, Trek with over 50 models on sale and Giant with 100 bikes on sale (and of course links), 40 Canyon models on sale with a link, Santa Cruz, Pivot, Cervelo, Yeti, Ibis, Norco, with a link to Competitive Cyclist, Allied, Alchemy and SCOR with links, and e-bike brands Rad Power, Aventon and REI’s Co-op house brand with, of course, links. The secondary market is also covered with references to Facebook’s used bike group and Pinkbike’s BuySell postings and The Pro’s Closet with a link to an “extensive list of products on sale.” The author, Matt Phillips, senior test editor for Bicycling, has an extensive interview with Rick Vosper. Phillips opines, “Although things are grim right now, the bike industry expects the overstock problem to (eventually) correct itself. I’ve seen statements from brand representatives and experts expressing confidence that the inventory situation will normalize… in 2025 or 2026.”

12-16-23: “‘Underwater’ car loans signal U.S. consumers slammed by high rates.” Bloomberg Wealth: “Negative equity on automobiles is at the highest level in more than three years, with higher prices and borrowing costs hitting owners. It’s a tough time to be a car owner in the US. Prices for new vehicles are high and interest rate hikes have made loans more expensive. And many car owners now owe more on their loans than their vehicle is worth. This situation, commonly called being ‘underwater’ or having ‘negative equity,’ occurs when the price of a car falls faster than the owner can pay down the loan for it. In November, people with negative equity were underwater by an average of $6,054, the most since April 2020 and well above pre-pandemic averages, according to automotive information firm Edmunds.com Inc. It’s a precarious spot for many Americans, coming after a twin surge in car buying and interest rates has strained finances and fueled an uptick in automobile repossessions.” HPS Analysis: This is bad news because it means many consumers will have less expendable money to spend on things like new bicycles, but good news because it makes an investment in a regular bike or e-bike as a low cost, environmentally friendly, clean means of transport a good investment. Rebates and subsidies for e-bikes are added incentives.

12-17-23: “Buy now, pay later keeps people spending – without credit agencies knowing.” The Wall Street Journal: “Consumers are shifting more of their spending to so-called buy now, pay later lenders, a trend that is only accelerating as high interest rates dent budgets and pandemic savings dry up. That is sounding alarms at consumer-advocacy groups that say companies like Afterpay and Klarna provide fewer protections than credit cards and encourage shoppers to take on more debt than they can afford. A quarter of all American adult consumers have used buy now, pay later loans, according to LexisNexis Risk Solutions. Over Black Friday and Cyber Week, such payment plans accounted for 7.2 percent of all online sales, a 25 percent jump from last year, Adobe found. (They were also a big factor in the declining use of store credit cards.) Buy now, pay-later firms can extend loans as large as $25,000, offering annual interest rates ranging from 0 percent to 36 percent. The rates offered are dynamic and depend on the borrower’s standing, payment timeline and the item being purchased. Retailers can also pay fees to offer better terms, such as 0 percent interest, at checkouts. In comparison, the average annual interest rate on credit cards is 21.19 percent, according to the Federal Reserve.” HPS Analysis:  There is no question that bicycle retailers and D2C brands have employed Buy Now Pay Later tactics to close sales during the last quarter of 2023 and continue to use this tool going into 2024. 7.2 percent of all online sales may not sound like much, but this amounts to a little over $16 billion that may not have been spent in whole or part if this means of getting a loan to make a retail purchase wasn’t available. That’s the upside. Read on to learn about the downside.

12-17-23: “Electric Bike Report best electric bikes of 2023, December 17, 2023.” Electric Bike Report: “Our picks for the Best Electric Bikes of 2023:

• Best Fat Tire Electric Bike: Aventon Aventure 2
• Best Folding Electric Bike: Lectric XP 3.0
• Best Electric Bike for Women: Electric Bike Co. Model S
• Best Budget Class 3 Commuter: Ride1Up 700 Series
• Best Electric Bike for Seniors: Aventon Pace 500 3 ST
• Best Commuter Electric Bike: Aventon Level 2
• Best Utility Electric Bike: Rad Power Bikes RadRunner Plus
• Best Budget Fat Tire Electric Bike: Lectric XPeak
• Best Step-Thru Commuter Electric Bike: Rad Power Bikes RadCity 5 Plus

HPA Analysis: There is also a “best price” category, to which you can add Mokwheel Basalt, and the Blix Sol Eclipse to the five e-bike brands and models listed above by Electric Bike Report. Lastly, a “best high-end” category lists seven models between five brands, including Specialized with three models, Evelo, QuietKat, GoCycle and Trek with one model each. This dovetails into my earlier “rant” and preliminary list of pandemic induced disruptive changes they were instrumental in creating. If you do not already read electrek, Electric Bike Report and Bicycling every day, I recommend you do so. Why Bicycling? Because it not only is an indicator of what is trending in the gearhead and enthusiast segment, this consumer publication, in the opinion of HPS, does an objective job of covering the e-bike market and both traditional and new brands. There are other trade and consumer publications and please let me know of any that you recommend.

12-17-23: “1903-The First Flight.” National Park Service: “December17, 1903 The 27-m.p.h. wind was harder than they would have liked, since their predicted cruising speed was only 30-35 m.p.h. The headwind would slow their groundspeed to a crawl, but they proceeded anyway. With a sheet, they signaled the volunteers from the nearby lifesaving station that they were about to try again. Now it was Orville’s turn. Remembering Wilbur’s experience, he positioned himself and tested the controls. The stick that moved the horizontal elevator-controlled climb and descent. The cradle that he swung with his hips warped the wings and swung the vertical tails, which in combination turned the machine. A lever controlled the gas flow and airspeed recorder. The controls were simple and few, but Orville knew it would take all his finesse to handle the new and heavier aircraft. At 10:35 he released the restraining wire. The flyer moved down the rail as Wilbur steadied the wings. Just as Orville left the ground, John Daniels from the lifesaving station snapped the shutter on a preset camera, capturing the historic image of the airborne aircraft with Wilbur running alongside. Again, the flyer was unruly, pitching up and down as Orville overcompensated with the controls. But he kept it aloft until it hit the sand about 120 feet from the rail.” HPS Analysis: The brothers, who were from Dayton, Ohio, flew four more times that day, taking turns. Wilbur’s second flight and the fourth and last on December 17, 1903, was an impressive 852 feet in 59 seconds. But it was Orville’ first 120-foot flight of the day that would go into the history books as man’s first powered flight. What I personally marvel at is the total disregard that the American bicycle industry has for, in my opinion, the single most significant historical event in our industry and business. Orville and Wilbur Wright not only owned and operated the Wright Cycle Company, they designed front hubs and a coaster brake, as well as assembling and eventually manufacturing their own line of bicycles. Orville and Wilbur were top-tier bicycle mechanics, and perhaps not up to the level of today’s Cat 1 UCI Certified team mechanics, they designed and built the first wind tunnel, light-weight aircraft engine, the first functional propeller and the first airplane, all in their bike shop in Dayton, Ohio, and the bicycle industry totally ignores these wonderful historical facts. This didn’t happen anywhere else in the world. It happened right here in the good old U.S.A., and everyone in the bicycle business and particularly those of us that worked in a bike shop should not only be proud, we should celebrate every year on December 17.  My question to the powers that be in the American bicycle business is why don’t we?

12-18-23: “eBliss Global partners with automotive products manufacturer.” Bicycle Retailer and Industry News: “E-mobility company eBliss Global will collaborate with Petra Automotive Products to utilize its dealership partners for delivery, setup, and support in North America for its ALWAYS e-bikes. The ALWAYS line of e-bikes are designed exclusively for auto dealerships, including folding, e-cargo, and fat tire models. Entry-level models start at $3,495. ‘We want to meet customers who may have never considered an e-bike before where they already buy vehicles,’ said Dave Boyle, head of automotive at eBliss Global. ‘We are ecstatic to be partnering with Petra Automotive Products, a company these dealers know and trust, to help facilitate future relationships with auto dealerships.’ Petra Automotive Products is located in Houston and founded in 2010. It manufactures more than 360 maintenance products and services for automotive dealers, chains, and independent vehicle repair facilities.” HPS Analysis: If you have heard the monthly NBDA podcast, you have heard HPS talk about the automotive industry and our conviction that the future of the American bicycle industry and business is going to be driven (no pun intended) by the automobile industry and its vision for the future of micromobility, which includes the bicycle business. This may be an example, although we haven’t done enough homework to be sure yet. Note that this is not an automotive business that wants to attract and sell bike shop customers. This an automotive business that wants to attract and sell e-bikes to automotive customers.

12-20-23: “E-scooter company Bird files for bankruptcy.” electrek: “Global e-scooter company Bird, an early pioneer of shared micromobility, has seen better days. It has confirmed that is filing for bankruptcy for its service in the U.S., while keeping its Canadian and European operations intact for the time being. Bird released a press release this morning announcing it has entered ‘into a financial restructuring process aimed at strengthening its balance sheet and better positioning the company for long-term, sustainable growth.’ The company said it will continue to ‘operate as usual’ during the process by maintaining service and commitments to its partner cities, fleet managers, and employees. Bird runs its operations in some 350 cities around the world, with the bulk of those being in the U.S.. The company was founded in 2017 by Travis VanderZanden, a former Lyft and Uber executive, as one of the key dockless micromobility players on the scene. In 2021, Bird went public via a SPAC merger, but the stock plummeted from more than $2 billion at its New York Stock Exchange debut to $70 million a year later, which earned it a stern warning that its stock had dipped too low. In September, its stock became delisted from the NYSE because of its inability to lift its market cap to $15 million. Bird recently acquired its rival company Spin from Berlin-based Tier Mobility, and then announced a round of layoffs. According to Bloomberg, the Miami-based company listed assets and liabilities of between $100 million and $500 million in a court filing. The Chapter 11 bankruptcy will give Bird a chance to restructure its finances without the disruption of its day-to-day operations, with the ultimate goal of selling its assets within the next 90 to 120 days, according to the press release.” HPS Analysis: There are some in the specialty bicycle retail channel of trade that will be happy that Bird and other ride share companies are in financial trouble and are in danger of leaving the market. All in all, Bird going into Chapter 11 is not a good thing for the bicycle market or business, although it might be a good thing for Bird as a company to stabilize and develop a plan to become profitable across the board. The available data from the North American Bicycle Rideshare and Scooter Rideshare Association (NABSA) shows that ride share leads to consumer purchases of their own micromobility transport, and that the loss of bicycle and scooter rideshare results in more consumers utilizing mass transit. It would benefit the bicycle industry to work with bicycle rideshare companies like Bird to help them become more financially stable going forward.

12-20-23: “U.S. consumer confidence surges most since 2021 in broad upturn.” Bloomberg Economics: “U.S. consumer confidence rose in December by the most since early 2021 as Americans grew more upbeat about the labor market and the inflation outlook. The conference board’s index increased to 110.7 in December from a revised 101 reading in November, data published Wednesday showed. The median estimate in a Bloomberg survey of forecasters called for a 104.5 reading. A measure of expectations, which captures the outlook for about six months out, advanced as consumers saw better business conditions, incomes and labor market prospects. Expected inflation a year ahead fell to the lowest level since late 2020. Meanwhile a gauge of current conditions rebounded from the lowest reading in more than two years. The report showed optimism across the board, from job prospects and inflation to future incomes and business conditions. More Americans said they are planning to go on vacation, buy a car or purchase big appliances. The results point to an economy holding up well going into 2024.” HPS Analysis: This is welcome news after several months of low consumer confidence. While good news for the overall American economy, it may still not translate to an increase in consumer traffic in bike shops or shopping and buying online or in-store. The American bicycle industry can be its own worst enemy, and after months of slow business, sale pricing and discounting the brands and suppliers are telling the NBDA that they can not afford to step up and sponsor the consumer research that will provide guidance as to why consumer demand has ebbed, and when it will pick back up going forward.

12-20-23: “Americans may be taking on too much pay-later ‘phantom debt.’“ The New York Times: “Buy now, pay later loans are helping to fuel a record-setting holiday shopping season. Economists worry they could also be masking and exacerbating cracks in Americans’ financial well-being. The loans, which allow consumers to pay for purchases in installments, often interest free, have soared in popularity because of high prices and interest rates. Retailers have used them to attract customers and to get people to spend more. But such loans may be encouraging younger and lower-income Americans to take on too much debt, according to consumer groups and some lawmakers. And because such loans aren’t routinely reported to credit bureaus or captured in public data, they could also represent a hidden source of risk to the financial system. ‘The more I dig into it, the more concerned I am,’ said Tim Quinlan, a Wells Fargo economist who recently published a report that described pay-later loans as ‘phantom debt.’ Traditional measures of consumer credit indicate that U.S. household finances overall are relatively healthy. But, Quinlan said, ‘If those are missing the fastest-growing piece of the market, then those reassurances aren’t worth a darn.’” HPS Analysis: The 25 percent increase in Buy Now, Pay Later (BNPL) loans to pay for online purchases during the holiday season helped record retail sales for the holiday selling season, but it may have been part-and-parcel of consumers taking on too much “phantom debt.” Whether BNPL are going to hurt or help remains to be seen, but it does appear these loans have helped sell more bicycles and e-bikes during the last quarter of 2023.

12-21-23: “Is there light at the end of 2023?” Bike europe: “In contrast to recent years when the ‘best read’ items in Bike Europe were related to high-level investments and buoyant market developments, 2023 marked a vivid turning point. This year was notable for bankruptcies, closures and concerns over financial positioning. HPS Analysis: The whole Bike Europe article provides a chronological walk through insolvency, bankruptcy and the financial troubles of the bicycle industry across the pond. Bike Europe has, in the opinion of HPS, been candid and timely in reporting the problems and issue as they arose. The question is rhetorical and there unfortunately there is no light penetrating the fog of uncertainty – yet.

12-21-23: “Fitch Ratings warns Accell Group finances are ‘unsustainable.’” “Bike europe: “The reorganizations announced at three of its subsidiaries was already a clear indication of a new policy at Accell Group BV. Now the reason why has become clear. Fitch Ratings has downgraded Accell Group and questions the company’s possibility of meeting its financial commitment. According to Accell Group, ‘the Fitch report reflects the difficult market circumstances.’ “According to Accell Group, ‘KKR has continuously supported the liquidity needs of the business in this challenging environment with a long-term conviction on the industry and business outlook. Most recently, they have provided incremental funding of €150 million in addition to the €100 million made available in mid-2023. The commitment of €250 million in this year is a clear signal of the confidence they have in the business, and this provides Accell Group with sufficient liquidity to weather these short-term challenges. Other stakeholders have also been highly supportive including by providing a €75 million ABL facility (Asset Based Lending) and up to €100 million receivables securitization.” HPS Analysis: This would be a whole lot more scary if it were not for Accell Group being able to publicly disclose the financial support it has received from KKR and its other investors. However, with this said, the total financial support of €425 million so far discloses the magnitude of the financial problem, and the Fitch rating will not make the road back to financial health any easier.

12-25-23: “E-bike maker SONDORS up for sale as company enters receivership.” electrek: “After a series of financial setbacks, followed by an Electrek expose revealing the failed Metacycle electric motorcycle project, e-bike maker SONDORS has appeared to enter receivership. The search is now on for a buyer who can scoop up the company and its assets. Electrek has reviewed documents sent out by Rock Creek Financial Advisor (RCFA) indicating that an RFCA representative has been appointed as receiver of SONDORS, Inc. and that the company is being offered for sale along with its assets.” HPS Analysis: As an earlier article points out: “Companies are going broke gradually, not suddenly.” SONDORS financial troubles appeared to start when it got into the electric motorcycle business mid-pandemic, and it never was able to recover. In the first half of 2023 electrek reported that SONDORS had walked away from its motorcycle manufacturer in China without paying what was owed for finished goods sitting on the factory floor.

12-26-23: “USTR extends exclusions from China Section 301 tariffs to allow for comments on sunsetting of the exclusions and alignment with four-year review.” USTR Press Release December 26, 2023: “The Office of the United States Trade Representative today announced the further extension through May 31, 2024, of the reinstated and COVID-related exclusions in the China Section 301 investigation. The exclusions were previously scheduled to expire on December 31, 2023. USTR announced the opening of a docket for public comments on existing exclusions on January 22, 2024. The extension will enable the orderly sunsetting of the exclusions, except in cases where current information suggests that, consistent with statutory factors and objectives, additional time would enable shifts in sourcing to the United States or third countries. The extension will also facilitate the alignment of further decisions on these exclusions with the ongoing four-year review." HPS Analysis: Good news for the financially-challenged American bicycle industry, at least for the next five months until May 31, 2024. The Section 301 tariffs are an additional 25 percent which is added to the already existing import tariffs on bicycles, most bicycle parts and accessories and e-bikes originating in China. HPS refers to Section 301 as punitive tariffs, because they are paid within two weeks of the goods entering the customs territory of the U.S., by the importer of record. However, the Section 301 punitive tariffs have been suspended for over a year and the regular tariffs on complete bicycles of 5.5 percent and 11 percent have been collected and included in the landed cost of goods. The percentage collected is of the FOB, or factory cost of the goods. The price-cutting and discounting has, so far, been off of the landed cost of goods that, generally speaking, has not included the Section 301 punitive, or additional tariff of 25 percent. What has happened is the United States Special Trade Representative, or USTR, has kicked the can down the road and both allowed for more comments, and delayed a decision, about doing away with, or sunsetting, the suspension, or exceptions. That’s good, right? Not exactly. What it means is the additional 25 percent punitive tariff would go into effect at 1:01 a.m. June 1, 2024, unless the suspension or exceptions are continued, or the Section 301 punitive tariffs are done away with altogether, which at this point seems unlikely. If this is a major planning concern HPS suggests you consider submitting comments to the USTR following the guidelines provided and reach out to the trade associations already engaged in lobbying this issue.

12-27-23: “Big Four bike brands can be crucial for retailer success.” Bicycle Retailer and Industry News by David DeKeyser: “When I read Rick Vosper’s October opinion/analysis piece, headlined “Nearly half of U.S. bike shops don’t carry any Big Four brands,’ my obvious reaction was; ‘but more than half do.’ And it must be pointed out that the stores that carry a Big Four brand sell far more than half the products being sold in the dealer channel. I believe that a counterpoint to Rick’s column is necessary for bicycle retailers who are looking to bring on a brand from the Quadumvirate (Rick’s term), or perhaps those who are considering opening or purchasing a store. They should consider both the positive and negative implications of working with a Big Four brand.” HPS Analysis: David DeKeyser called and talked to me before he penned his rebuttal to Rick Vosper’s article, and I told him basically what I have detailed in my rant above. I think both Rick and David are making the same error I did in assuming the pre-pandemic bicycle market and business is the same, or relatively the same, as the post-pandemic bicycle market and business. The simple fact is that it is not, and it is dramatically different enough that the premise that one or more of the Big Four bike brands are crucial for retailer success is not longer valid.

12-27-23: “Banking crisis plays out at America’s smallest lenders.” The Wall Street Journal: “The failure to anticipate how quickly the Fed would raise interest rates has upended banks big and small this year. Three bigger ones collapsed this spring, but it is community banks that have been in a full-blown crisis. The losses on long-term bonds have unnerved depositors, investors and regulators who have questioned how bankers failed to properly protect themselves from interest-rate risks. Community banks typically focus on plain vanilla lending, making a lot of small-dollar loans to businesses and households that fuel local economies. They also usually stay close home, serving deeply loyal depositors but limiting their diversity and reach. In the wake of the pandemic, that business model has proven problematic. The banks were flooded with deposits. But loan growth had been slow, so banks turned to parking deposits in Treasuries, mortgage-backed securities and municipal bonds. While normally considered safe, the market value of those securities fell when interest rates climbed. That left many banks sitting on billions in paper losses, raising regulatory and investor concerns.” HPS Analysis: For many small to mid-sized businesses, including bike shops, the health and financial position of their local bank is crucial to their business viability, and particularly if they have a loan renewal or new loan request to finance their business going forward. HPS advises that if you have a maturity wall or other financial obligation coming due this year, talk to your loan officer as soon as possible and find out if (1) your business is eligible for a loan extension or (2) if your business is eligible for a loan, and (3) what terms are now being offered. Do this as early as possible so there is still time to explore options and/or alternatives.

12-28-23: “Why corporate bankruptcies were up in 2023 despite the improving economy.” National Public Radio: “Imagine taking a Bird scooter to Rite Aid before heading to a WeWork, where you read a news article on Vice and then buying a gift on Bed Bath & Beyond’s website. What is this, 2018? No, this is 2023 and you’ve just interacted with five of the hundreds of companies that filed for bankruptcy this year. Most of these companies have not completely collapsed, but they are limping along. While most major indicators like inflation finally cooling off and consumer confidence improving, show the economy turning the corner, corporate bankruptcies this year have moved in the opposite direction.” “According to S&P Global Intelligence, there were 591 corporate bankruptcies in 2023, one of the highest bankruptcy totals since 2011. Only 2020, with 639 corporate bankruptcies, witnessed more. ‘This is the market swing we’ve been expecting for some time,’ said Brook Gotberg, a professor at Brigham Young University who specializes in bankruptcy law. ‘Bankruptcies are cyclical,’ Gotberg said. ‘There are periods of prosperity. Companies borrow. Then a spike in interest rates, and companies can’t refinance, and bankruptcies suddenly surge,’ she said. Chapter 11 gives a little bit of time for a company to get their act together and fix their problems,’ said Edward Altman, a bankruptcy expert at New York University. Altman also studies what are known as ‘zombie companies,’ which are firms that do not make enough money to pay the interest on their debt. They are called zombies because despite not doing the very minimum on their debt obligations, they still exist, even if their fundamentals are essentially dead.” “The number of zombie companies, Altman’s research has shown, has grown from 1.5 percent in the 1990’s to nearly 10 percent today among publicly traded companies in the world’s 20 largest economies. ‘Corporate zombies are on the rise, and I predict it is going to get worse in 2024, when an enormous amount of corporate debt is coming due and companies are facing difficulties trying to refinance or pay off that debt,’ Altman said, pointing out that for many of the companies, insolvency will be their likely fate.” HPS Analysis:  We may be fixating on the whole Chapter 11 thing, but 591 corporate bankruptcies in 2023, and 639 in 2020, with 2011 being the next largest year, reinforces our concern for what may be coming. The zombie company thing is also a concern and their growth to approximately 10 percent of the publicly traded companies in the world’s 20 largest economies, and more specifically China. We will now have to wait and watch as Edward Altman predicts: “Corporate zombies are on the rise, and I predict it is going to get worse in 2024, when an enormous amount of corporate debt is coming due and companies are facing difficulties trying to refinance or pay off that debt.”

12-28-23: “Surveyed retailers say this past year was one of the worst ever when corrected for inflation.” Bicycle Retailer and Industry News: “Our industry is awash in bad news. As we publish this in December, and Christmas layaways already a distant memory, it’s certain that 2023 will turn out to be the worst sales year this century when corrected for inflation.” HPS Analysis: There are a whole bunch of statistics from the survey questions and quotes from bike shop owners that complete the bulk of this article by Ray Keener, but the headline and 3.5 lines above tell the tale. The industry association won’t have 12-month year-to-date 2023 data for a month or so, but it is readily apparent that there was no up-tick in the bike business during the last quarter of 2023 and isn’t likely to be an increase during the first quarter of 2024. Meanwhile the industry trade association, to our knowledge, continues to claim it doesn’t have the funds to help sponsor the consumer research NBDA has proposed to get answers, or at least guidance, from consumers as to why they stopped purchasing bicycles and related products and services and just as importantly, when and what they will start purchasing in the future. Maybe the specialty bicycle retail channels were the only retailers that report “… this past year was one of the worst ever when corrected for inflation” but we doubt it. The mass merchant, full-line sporting goods and D2C channels have had their problems with demand and sales, with the end result that it was not a good year for the total U.S. bicycle business. HPS has already gone on a rant about the 2024 American bicycle market being totally changed from the pre-pandemic market and as Pete Drucker warned, “The greatest danger in time of turbulence is not the turbulence – it is to act with yesterday’s logic.”

12-30-23: “As 2023’s abysmal bicycle and accessory sales year wraps up, hand-wringing and debate over the drivers behind the downturn, and the timing for a potential rebound are ricocheting around the cycling media.” THE OUTER LINE AIRmail Weekly Newsletter: “Everyone – from YouTube content creators to established bike industry analysts – seems to have an opinion about supply chain prioritization changes, demand forecasting mistakes, and the collapse of traditional product distribution channels like Wiggle. However, most agree that the market has been flooded by the late arrival of 2023 products (and even some from 2022) just as 2024 products are being delivered. Fire sales to dump dead stock, highlighted by online retailers purges of Wiggle’s Nukeproof and Vitus brands, historic discounts on major manufacturer brands, heartburn suffered by local bike shops, and even a 2-for-1 Kona deal (!?), seem likely to continue to suppress sales into 2024 as well.” HPS Analysis: THE OUTER LINE provides a hard-hitting and candid narrative that HPS feels is an accurate picture of 2023 from the enthusiast portion of the market. We recommend you add the AIRmail Weekly Newsletter to your reading list.

12-31-23: “The rules of the road are changing, but not fast enough for everyone” National Public Radio: “Traffic fatalities in the U.S. are up sharply since the beginning of the pandemic, especially for pedestrians and cyclists. That’s bringing attention to a previously obscure federal manual that’s sometimes called the Bible of road design. Since 1935, the Manual on Uniform Traffic Control Devices has set national standards for street signs and road design, with major revisions every decade or so. The latest version runs to more than 1,000 pages. And while the MUTCD doesn’t get much attention outside of transportation circles, it has a major impact.” “Safety advocates have been urging federal officials to make the manual friendlier to pedestrians and cyclists in the first major revisions to the document since 2009.” In the latest version, the bicycle section is twice as large as it was in the previous edition. HPS Analysis: We think this is a fitting close to this month’s The Micromobility Reporter because it is all about the all-capital letter SAFETY that the American bicycle industry and business is going to have to address, and soon, if it hopes to gain back and grow the number of butts that get on bicycles, including e-bikes. The League of American Bicyclists (LAB) is very aware of the Manual on Uniform Traffic Control Devices, o``r MUTCD, and why the latest version doesn’t go far enough in addressing motor vehicle speed to make a significant reduction in pedestrian and bicyclist motor vehicle accidents, injuries and fatalities. Make plans to attend the LAB National 2024 Bike Summit, March 19-21 at the Martin Luther King Jr. Memorial Library. Washington, D.C, to support and advance pedestrian and bicyclist SAFETY.

Contact Jay Townley: jay@humanpoweredsolutions.com