At least six bike rental companies in China has shuttered during the last five months. After Bluegogo and Coolqi, the latest to close shop was Xiaoming (小鸣) which followed a similar scenario. Staff is claiming that the company’s controller Deng Yonghao has misappropriated funds and is nowhere to be seen. The company’s CEO Kai Lushi has already left and workers are waiting for wages since September. Reports state 99% of them have been laid off.

The bike rental industry is facing a bitterly cold winter and users are worried what will happen to their deposits. Estimates published in August put total deposits for rental bikes at RMB 10 billion, according to data from the China Internet Network Information Center. There is now a higher number of complaints connected to bike rental deposits than e-commerce disputes. Although the first national guidelines were issued in August there are no clear requirements regulating deposit returns, Xinhua has reported.

Former CEO of Coolqi Gao Weiwei has suggested that the price of their bikes (RMB 650) will be enough to cover the cost of user deposits (RMB 298)

“In the worst scenario, we will allow debtors to ride our bikes home,” said Gao.

Startup database IT Juzi has analyzed the reasons behind the online bike rental industry’s demise.

The timeline of China's bike rental industry demise. From left to right: 3VBike, Wukong Bike Dingding Bike, Xiaomiao, Bluegogo, Coolqi (Image Credit: IT Juzi)

The timeline of China’s bike rental industry demise. From left to right: 3VBike, Wukong Bike Dingding Bike, Xiaoming, Bluegogo, Coolqi (Image Credit: IT Juzi)

1. Capital investment cool down

Compared to the first half of this year when the average number of financing deals per month was 3.7, the third quarter has brought a significant decline putting the average number of deals at 1.3 a month, IT Juzi’s data shows.

Father of Bluegogo’s founder Li Gang has admitted during a meeting with suppliers and investors on Thursday that the failure to sustain its capital chain was the reason behind the bankruptcy. Coolqi likely has the same problem.

2. Uncertain profit model

Bike rental companies are still using venture capital to finance their operation while they set up their brand. However, data shows that rent is only enough to cover maintenance costs. Even with huge deposit funds, it is still difficult to cover all the costs.

3. Intense competition

Mobike and ofo occupy nearly 95% market share of the bicycle rental industry, other companies have to carve up the remaining 5%.

4. The market is close to saturation

According to incomplete statistics, as of now, a total of 14 cities across the country have stopped adding new rental bicycles. Expansion is a difficult task for latecomers.

5. Missed merger opportunities

Once the market is saturated the capital flow will stop. IT Juzi says that companies should help each other through mergers to avoid losing their opportunity.