"Seattle e-bike company says tariffs could puncture growth of its $50M business"

ebikemom

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https://www.seattletimes.com/busine...fs-could-puncture-growth-of-its-50m-business/

Seattle e-bike company says tariffs could puncture growth of its $50M business
Originally published August 17, 2018 at 10:51 am Updated August 17, 2018 at 11:51 am
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Rad Power Bikes co-founder Mike Radenbaugh with the company’s RadRover model. Its price will shoot up by $200 when U.S. tariffs are scheduled to kick in next Thursday. (Rad Power Bikes)


Rad Power Bikes, which designs bikes here but has them built in China, says it will soften the impending tariff’s impact by absorbing nearly half the cost itself. But it says the import tax makes no sense because there are no domestic manufacturers to protect.

By
Rami Grunbaum Seattle Times business editor

Rad Power Bikes has gone from a handful of employees to 75 as swiftly and smoothly as an electric bicycle climbing Capitol Hill, but the Seattle company and others in the growing e-bike sector now face the financial equivalent of tacks scattered on the roadway.
A new round of 25 percent tariffs imposed by the Trump administration on numerous imports from China is scheduled to take effect Thursday.

Rad, which designs its bikes here but has them built in China, says it will soften the financial pain for consumers by absorbing nearly half the blow itself. Its $1,499 bikes will cost buyers $200 more as of Aug. 23 — but the other $175 required to pay that 25 percent tariff will come out of Rad’s pocket.

It’s a significant hit all around, says co-founder Mike Radenbaugh. “Our margins decrease, our customers are more reluctant to purchase, and we have to spend more on marketing” to woo those customers.

What frustrates Radenbaugh and his fellow founder Ty Collins is that in their view, the tariff on their product is not protecting a significant U.S. manufacturing base or forestalling a Chinese advance to dominate some new sector of technology — the arguments generally given for the Trump administration’s widening tariff battle with China. “All the technology in electric bikes is mature technology already,” says Radenbaugh, so “there’s no connection to what they are trying to achieve.”

Radenbaugh and Collins, age 28 and 30 respectively, say their business model of selling directly to consumers without dealers or middlemen enables a good balance between quality and price.

“We’re bringing in a low-cost affordable form of transportation, approachable to the vast majority of people,” says Radenbaugh. “We’ve cracked the code with manufacturing overseas where there’s an efficient supply chain, and 100 percent localized customer service and technical support.”
The market has been receptive: Rad Power Bikes says that after sales grew 350 percent last year, it expects to top $50 million this year despite the scheduled tariff crimping the final months.

Radenbaugh won’t give specific numbers but says the company has sold “tens of thousands” of bikes and “greatly outsells” any U.S. competitor in a field that grew to 300,000 bikes last year. A bit of math suggests that $50 million in sales of $1,500 e-bikes would amount to more than 33,000 units.

But the tariffs will be “very impactful for 2019,” he says. And other e-bike sellers, with dealers who must also pass along their increased costs, could suffer even more, says Collins.

Not everyone in the industry is equally anxious, including Jim Turner, founder and president of Colorado-based Optibike. “I don’t think it’s going to impact us,” he says, because while his company’s bikes incorporate some imported parts, “we build and assemble them here.”


He acknowledges that he’s going after a different crowd with e-bikes that start at $3,995 and include an Elite series ranging upward from $11,990. “We’re more of a boutique, trying to build a high-performance bike rather than a mass-market bike,” Turner says.
Rad’s co-founders say building their more affordable bikes in the U.S. is not a viable option. “There’s never been any supply chain that’s domestically based for electric bikes, there’s no infrastructure, there’s no trained labor,” says Radenbaugh.

The EU last month proposed hefty tariffs of 22 to 84 percent on Chinese models that it says are being dumped — sold below cost — in the European market.

The difference? There are actually established e-bike manufacturers in Europe, building on the Continent’s tradition of manufacturing conventional bikes. And, as the electric vehicle website Electrek reports, “the European Commission visited a number of large electric bicycle manufacturers in China” to study subsidies and business practices as part of a lengthy, industry-specific process.

But there’s no such manufacturers to protect in the U.S., says Radenbaugh, and the e-bike industry has simply been caught in a widening trade war where retaliatory measures are sweeping in everything from American soybeans and lobsters to Chinese industrial lubricating oils.

This past week reports surfaced that new talks are planned between midlevel U.S. and Chinese trade officials, for the first time since June.
Meanwhile, PeopleForBikes.org, an industry lobbying group that’s also supported by REI, is collecting signatures on a petition asking for e-bikes to be removed from the upcoming round of U.S. tariffs.

But Radenbaugh, who says the U.S. Trade Representative gave perfunctory treatment to earlier input from the e-bike industry, is not optimistic that any of those efforts will change the outlook anytime soon.
“It’s just hyper-unlikely because of the political climate,” he says.
 
Though Rad probably doesn't have a 40 to 50% gross margin either.

Their margins are 55% or more and this is not a speculation.
They spend a lot of money on online advertising, you visit their page once and they'll track you when you're reading CNN, NBC or BBC news. They'll follow you for months. They advertise on EBR (both here and Pete's), a whole bunch of other websites. A very average product but marketed brilliantly.
 
Seems disingenuous to claim they are eating $175 by raising their prices only $200. $375 would be the tariff on $1500. I'm pretty sure they don't sell them for the same price it costs to make them. A 25% tariff on an $800 value at customs would, surprise-surprise, equal $200.

Not that I like the tariff affecting my pet product but I suspect they will be fairly short-term. I read one article where some companies were claiming the $250 import on their $1000 bikes (their delivery price) would result in a $250 tariff (correct) but a $750 increase in prices on the showroom floor. I have to hope that their math skills are better than what they appear in this article. this same article mentioned that tariffs on Chinese bikes into Europe could be as high as 189%. One company said that much of the industry was already in the process of making arrangements to move at least some of their manufacturing from China because of the European tariffs. Other were looking at buying less completely assembled bikes from China as the value they would have to claim at customs would be lower. Then they would complete assembly in the US.
 
It'd be a real shame if companies use this tariff to increase their margins or profits. They should pass the tariff price along. and increase the price of the bike by that much. Am I missing something here? If the tariff increases their handling costs, it would make sense to pass along that to the consumer also.
 
Rad are pitching the price increases as a one off permanent price increase. High end ebikes like a $7k Riese & Muller are already in used car territory and their prices won’t change, the entire budget market will be affected however.
 
Rad are pitching the price increases as a one off permanent price increase. High end ebikes like a $7k Riese & Muller are already in used car territory and their prices won’t change, the entire budget market will be affected however.

That's actually brand new motorcycle territory. Heck, even the Zero Motorcycles electric Zero FX costs $8,500 with a much larger 3600WH battery and it weighs 250lbs.
 
That's actually brand new motorcycle territory. Heck, even the Zero Motorcycles electric Zero FX costs $8,500 with a much larger 3600WH battery and it weighs 250lbs.
Try riding the Zero on a shared gravel rail trail! Each has a much different use. There is no license plate or insurance needed either.
 
Try riding the Zero on a shared gravel rail trail! Each has a much different use. There is no license plate or insurance needed either.

Really, just discussing markup. I'm not trying to compare the two in regards to what you should buy.

Zero motorcycles only builds about 2,000 motorcycles annually, so it's not like they have the economies of scale in their favor. It's just showing how much Riese and Mueller marks up their bikes. The zero is made from 250lbs of materials, with other things such as lights which all add to cost. It's also made/assembled in the USA.
 
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