Almost Every Electric Scooter in the World Comes From This Chinese Company
(Bloomberg) -- Scooter-sharing company Lime recently relayed a troubling message to its users: a portion of its fleet was at risk of bursting into flames.
The startup recalled about 2,000 vehicles, less than one percent of its scooters, following its Oct. 30 warning message. The situation brought to mind scenes from three years ago of those skateboard-style conveyances known as hoverboards catching fire and promptly falling out of use. Would spontaneous combustion sink the scooter next?
Lime placed the blame on a manufacturing defect at one of its suppliers, Beijing-based Ninebot Inc. But the company isn’t just any scooter assembler. Ninebot has quietly become the single-biggest source of scooters deployed in U.S. cities. The little-known manufacturer is an essential provider for just about everyone trying to ride the rise of “micro-mobility,” a movement that aims to transform urban transportation through the proliferation of cheap alternatives to cars and mass transit.
The scooter trend began last year with the launch of Bird Rides Inc. in Santa Monica, Calif., setting off a venture capital-fueled boom in micro-mobility. Investors soon poured in hundreds of millions of dollars, giving Lime and Bird valuations north of a billion dollars, while Uber Technologies Inc., Lyft Inc. and major carmakers rushed to launch scooter services of their own. All of this brought more business to Ninebot. Uber now sees Bird and Lime as potential acquisition targets, in part to address the difficulty in getting enough scooters to put on the road, according to reports in the Information and Financial Times.
“We’re working with all the capable players that you can imagine,” Ninebot Chief Executive Officer Gao Lufeng said in an interview. Ninebot’s scooter sales grew sixfold this year, he said, and the company estimates that four out of five electric scooters now in use worldwide come from one of its three factories, although Gao declined to reveal the total number of scooters it ships. The six-year-old firm is now valued over $1.5 billion, according to a person familiar with its finances, and is plotting a public offering.
In this surprise year of the scooter, Ninebot was one of the only assemblers with the expertise to turn them out in large numbers. But, as the aftermath of the Lime recall shows, there are risks from being the biggest maker of scooters. The Chinese manufacturer’s business partners appear ambivalent about helping it entrench itself any further.
Visitors to Ninebot’s headquarters, which is tucked in a tech park in northwestern Beijing, are greeted with a display that resembles a strange museum from the future. Lined up on a white linoleum pedestal is roller skate-hoverboard hybrid dubbed the Drift W1, a one-wheeled orb with retractable foot stands and a go-kart that travels 15 miles per hour. There’s something called the miniPro that looks like a Segway sawed off mid-thigh. A video screen at the office shows a group of svelte models dancing, somehow, perched atop miniPros.
The Segway itself is also part of Ninebot’s product lineup. Back in 2015, Ninebot acquired the once-buzzy maker of self-balancing, two-wheeled vehicles. The Segway was to the early 2000s what hoverboards were to 2015 and scooters are to today: a new form of urban transportation inspiring ridicule, even as enthusiasts insist it will transform cities. The Segway revolution never materialized, and the odd-looking people-movers are now mostly remembered as novelty devices or, worse, a dumb fad.
Ninebot never stopped making Segways, along with other assorted vehicles for short trips such as electric unicycles and a series of L-shaped kick-scooters with electric engines. At first, the scooters didn’t seem earth-shattering or even like the most promising product in Ninebot’s lineup. They were basically adult-sized versions of a kid’s toy. But lucrative business often comes from the unlikeliest places.
Gao’s office is on the second floor, just up the stairs from rows of young people typing away at computers. Ninebot has about 3,000 employees, including those on the assembly line, and plans to add up to 400 more next year, mostly in research and design. Some staffers commute to the office on Ninebot devices or use them to zip around the sprawling campus. Gao, who doesn’t scoot to the office, is soft-spoken and wears thick-rimmed glasses and a casual black jacket with a small, white company logo.
Next to a polished desk there’s an award from Xiaomi Corp., the phone maker that, together with the investment arm of its founder, Lei Jun, owns about 20 percent of Ninebot. Unlike other young Chinese entrepreneurs, Gao, 39, never studied in the U.S. or worked for a Chinese tech kingmaker. He started the precursor to Ninebot in 2012 and now he runs, by most estimates, the world’s largest short-distance vehicle manufacturer. Gao slices the short-trip transit market of the future into five different segments, ranging from scooters to air travel. “We aim to make our footprint in all these tiers,” he said.
Yet there are serious questions about whether hundreds of thousands of people will be scooting to work a year from now. Detractors see the scooter craze as a passing fad that brings unwarranted risks. Accidents have led to a handful of fatalities as well as a wave of concussions, chipped teeth and broken bones. A lawsuit filed in California in October blamed the injuries on negligent operators and manufacturers, including both Lime and Ninebot.
Lime’s recall supports the case that the scooters are dangerous toys, although Gao insisted the blame shouldn’t lie at his feet. Three days after Lime’s statement, Ninebot issued its own account that faulted Lime and warned scooter riders to take an operator’s safety record into account. “We prefer more professional companies to provide maintenance services, but it seems Lime wanted to have its own team doing so,” Gao said in a later phone interview.
Gao was referring to Lime’s “juicers,” the term for independent contractors the company pays a fee to retrieve depleted scooters off the streets for charging. These contractors, Gao said, caused the problem by using chargers that weren’t compatible with Ninebot scooters. “Of all the consumers we have,” he said, “Lime is the only one with this issue.”
Even before the announcement, Lime and Ninebot severed ties. Gao brushed off the dispute, noting that Lime accounted for less than 10 percent of his shipments. It wasn’t his first conflict with a U.S.-based partner.
The Solowheel is an electric unicycle, and an inventor in the U.S. named Shane Chen wanted someone to believe in its potential.
In spring 2014, a year before the deal to buy Segway, Chen said that Ninebot invited him to Beijing to discuss the Solowheel and eventually offered a partnership. The Beijing native was initially interested and remembers Ninebot boasting that it would topple Segway in the market. When Chen asked for more time, he said Ninebot got pushy and then told him he was unnecessary.
By August, Ninebot had released its own one-wheeled scooter, the Ninebot One. “They were a little bit like bullies,” Chen said.
Chen filed patent lawsuits in the U.S. and China over the Solowheel, and he claimed Ninebot lifted his design for electrified skates. Chen said the U.S. case is still pending and that Ninebot is appealing a verdict in China in Chen’s favor. Gao called the accusations about the skates “groundless,” and a Ninebot spokesman responded to several questions about the dispute with identical wording: “We do not recommend putting this information in the news story.”
Ninebot has been accused of turning out designs with pronounced similarities to those made by rivals. Before buying Segway, Gao spent years squaring off against the American company. Segway sued Ninebot and other Chinese manufacturers repeatedly, claiming they had ripped off designs. At one point, Segway tried to block Ninebot from selling in the U.S. Then, in April 2015, Gao called a press conference, supposedly to discuss new investors. Toward the end, a message flashed behind Gao in Chinese: “Ninebot Buys Segway.”
Ninebot reportedly paid over $75 million for the company, which had cycled through multiple owners and tragic turns. A prior owner, James Heselden, plunged to his death off a cliff riding a Segway. From Beijing, the deal was a marker of a shift in the epicenter of personalized transportation tech.
“Today, it’s not just copycat China,” Neil Shen, a Ninebot investor with Sequoia Capital, boasted at the event. “China will expand through its own innovations and through acquisitions.”
The idea of shared transit had already captured the imagination of the tech industry at the time Ninebot closed its deal for Segway. Uber and Didi, the Chinese ride-hailing giant, had become major forces pointing to a future that didn’t necessarily depend on individually owned cars. But Gao had no special insight that the same economic model would work for scooters. “We didn’t expect the sharing business would have such hyper-growth,” he said.
A former Ninebot executive said the company was tinkering with around 10 different vehicle forms before the scooter boom. One, the Segway-inspired miniPro, didn’t have handlebars at first and so riders didn’t have a graceful way to get off. The addition of handles still left Ninebot unsure exactly how people would use it. At one point the company considered pitching BMW on a plan to put them inside car trunks.
After Gao met Bird CEO Travis VanderZanden earlier this year, Ninebot’s scooters started showing up Los Angeles, Austin and other cities. More clients lined up, including traditional automakers. Ninebot sells vehicles to Spin, a scooter company recently purchased by Ford, and Gao said that he is supplying both Lyft and Uber.
The rush of competitors into the unproven scooter-sharing market has meant that operators are pressuring suppliers to make scooters that last longer, hold up in the rain and come with features that set rival scooter services apart from one another. If almost everyone looking to launch a scooter-sharing service has turned to Ninebot, the operators have come to see that reliance on a common manufacturer is a vulnerability. It’s tricky for any company to claim to have a superior vehicle when everyone’s buying them from the same place.
Right now, Lime juggles multiple suppliers, relying on one to fill an order while another makes a new batch of scooters. Before cutting ties with Ninebot, Lime only used Gao’s firm to “fill in some gaps,” said Joe Kraus, Lime’s chief operating officer. “It is hard to get enough scooters.”
Thomas Yao, a partner at IMO Ventures, which has invested in Lime, sees the scooter market still grappling with supply shortages. But those shortages might ease as Ninebot faces new competition. Yao said there are now four other “quality” scooter suppliers in China but he declined to name them. Ninebot still has the best product design capabilities, he said, and an edge when it comes to building scooters that can ride long distances or suffer foul weather.
Inmotion Technologies Co., a competitor based in Shenzhen, in southern China, said its scooter output has grown five-fold over the last year. It pumps out some 120,000 units a month between two factories, said Inmotion CEO Charles Cai. A small room in its 18th-floor offices displays its line of motorized vehicles. They look a lot like Ninebot’s products—and Inmotion even cut a deal with Shane Chen to build his Solowheel unicycles.
As a smaller supplier, Cai said he's more willing to tailor scooters to customer demands and add features like an LED light along the scooter’s front. His scooters are made to withstand a meter of water, a useful feature for a product with a tendency to end up abandoned in public waterways. Cai said he has signed recent deals with Movo and Yellow, scooter operators in Europe and Brazil, and that he will work with Bird and Lime next year.
More suppliers mean lower prices, but manufacturing diversification hasn’t worked perfectly for Lime. In November, the company had to put out another recall after of scooters built by a Chinese firm called Okai started breaking in half. In a statement, Okai said that Lime's claims about its scooters were “arbitrary and groundless.”
Ninebot cast problems like this as the fault of lesser-equipped imitators. “That's the situation in China,” Gao said. “When others see this can be a profitable business, they want to hustle in.” But he’s hardly betting Ninebot’s future of the sustained popularity of the scooter. He’s working on a larger electric vehicle—though he wouldn’t describe it—and something that takes off in the air. Ninebot is also developing a self-driving delivery robot for Meituan Dianping, the Chinese e-commerce firm.
Maybe one of these new vehicles will be tomorrow’s vehicle of the future. Or maybe not. Reminders of how quickly this business can turn literally surround Gao. There’s a familiar sight in Chinese cities: rows of bicycles from Ofo and Mobike, sharing apps that have taken a sharp fall in good fortune. Just outside Ninebot’s offices on a recent weekday, several of these bikes lay flat on the ground, unused.
©2018 Bloomberg L.P.