Silently and elegantly, much like the product itself, e-bicycles have provided a strong boost to bicycle manufacturing in Bulgaria. Statistics show that production has soared from about 28,000 bicycles in 2017 to more than 128,000 in 2018, while exports grew by 250% to reach 207 million levs.
The explanation lies in the EU's anti-dumping measures on Chinese imports, in force since January last year, and the growing demand for e-bikes in Europe. There is one more detail, though. Bulgarian factories have been preparing for this moment for years, so when Brussels stopped the influx of Chinese e-bikes, they were ready to fill the market niche.
Thanks to their position as Europe's fifth largest producer of ordinary bikes (in 2016, according to the Confederation of the European Bicycle Industries - CONEBI), Bulgarian companies are recognized by the big brands which turn to them not just for the assembly of their classic models, but also for their latest generation of integrated motor bicycles.
Growth is forecast to continue, which means more added value for the economy and several hundred new jobs, most of them outside the capital Sofia.
However, there are several bumps on the road to further e-bike success. Bulgarian companies currently score big thanks to the deferred payment schemes offered by Chinese parts suppliers which is a form of cheap financing. But this could change quickly. There are already offers from Chinese investors to purchase factories in the sector. There are unpleasant questions concerning the quality of products and the difficulty of finding qualified employees who are a crucial resource in this type of enterprise.
Only five years ago, the manufacture of e-bikes was a boutique occupation in Bulgaria and some companies suffered losses, because they offered the product before the market was ready for it. These bicycles are presently in the focus of investors who are not too far from completely switching over to electric. The sharp rise in prices is probably the starkest illustration of this. If, about three years ago, prices were in the 100-150 euro range, now they may go as high as 700-750 euro.
Bulgaria's manufacturers mostly produce mass e-bike models, which sell for 1000 to 2000 euro in Europe. Orders are taken from between a year and 18 months in advance and come mainly from longstanding partners who provide the materials. They also offer their own e-bike brands. Exports go to countries like Belgium, the Netherlands and Germany where almost every third bike is electric.
Bicycles are chiefly built with Chinese front and rear hubs but there are Shimano and Bosch systems as well. The latter, however, are only assembled in quantities of up to a hundred, whereas bikes with Chinese systems are manufactured in thousands, according to professionals in the field. Nearly all parts are imported from China and, regretfully, this boom does not propel any side industries along. The added value opportunities for Bulgarian component makers are smaller details such as rims.
The key to the ability of local manufacturers to win e-bike contracts is their experience and longstanding contacts with Chinese parts suppliers. Thanks to that, they benefit from larger credit lines and deferred payment to the tune of 90 to 120 days. The Top 3 companies that contribute to this boom are Leader 96, Maxcom and Cross-Montana.
Growth in these companies is enormous and capacities are stretched to the limit. There is a six-fold increase in production in 2018 compared to 2017, with a further rise of 40% expected this year.
"We are working at 100% capacity," said Nikolay Videnov, sales director of Plovdiv-based Maxcom. "We built 26,000 e-bicycles in 2018 against 55,000 we have planned for 2019."
"The plan for 2020 is 100,000 and we are currently using 65% of our capacity," added Yordanka Mincheva, sales director of Leader 96.
Cross-Montana declined to comment on the industry's latest developments.
The boom is expected to continue, which is an incentive for additional investment in the sector. The greatest difficulty so far has not been liquidity or investment resource, but rather the lack of skilled labour, a must for e-bikes. The connections and the controllers must be properly networked, tuned and programmed. It is enough to misplace one sensor to make the bike static.
Bulgarian factories are not the only ones enjoying an uplift thanks to the curbs on Chinese e-bike dumping. All traditional manufacturers are taking advantage of the opportunity and this is keeping competition tough.
The latest data available from CONEBI is from 2016, when Europe produced a little over 1.6 million e-bikes, with Bulgaria's share at about 2% of the total, behind countries like Germany, the Netherlands, Hungary, France, the Czech Republic, Romania, Italy and others. The distribution of the market and whether Bulgaria will keep its strong position in it depends on not just pricing, which is a current competitive advantage, but chiefly on quality. By making deliveries to retailers like Decathlon and brands like Bianchi, Bulgarian factories have raised the bar but the fact that the e-bikes exported from Bulgaria have in-built Chinese motors could position them in the lower-price segment.
Fortunately, e-bikes are not a trend that is destined to blow over, but a proven transportation method, especially in the city, and that will continue to impel the global market. According to data from the specialized bicycle industry publication Bike Europe, EU countries - the main market for the Bulgarian product - purchase about 3.3 million e-bikes per year, with the number expected to rise to 3.6 million in 2020. About a million of them come from China, Taiwan and Vietnam since the increase of the import tariffs from 16.2 to 70.1% has not completely stemmed the influx from the East. It still remains strong, because China has a production overcapacity, which is subsidized and thus able to export at below-cost prices. At the same time, Brussels is trying to protect the industry on the old continent with the motive that it employs 40,000 people, 2000 of whom are in Bulgaria.
Local investors say that after the embargo, Chinese manufacturers have become more aggressive in their attempts to gain a foothold in Europe and have presented offers for the purchase of shares and even whole factories in the sector.
"It's in our mutual interest to work on projects that we can process together - they can supply the components and we can assemble," emphasizes Nikolay Videnov from Maxcom, while Yordanka Mancheva from Leader 96 clarifies that for Bulgarian producers, such partnerships are of little interest and fall under the regulations of the European Commission and national governments.
Stefan Bengtsson, Country Manager for SAAB in Bulgaria: We can share expertise
What was the major event in the field of your business sector in Bulgaria in the last quarter?
The major events in the defence sector in Bulgaria are obviously the ongoing negotiations for the acquisition of new fighter jets and the tender for 2 new multi-purpose modular patrol vessels (MMPVs) for the Navy. For the Swedish Chamber of Commerce, we have had several great events the last quarter, for instance, the discussion about the future of education with the deputy minister of education, Denitsa Sacheva.
What do you see as the next major development in the field of your company's business in the forthcoming quarter or further?
As we are in the defence industry, I can't go into specifics but I can say this: I see myself as half Bulgarian and I truly think that if SAAB gets the possibility to share and transfer its expertise and knowledge within innovation, it would be of great benefit for Bulgaria. For the Swedish Chamber of Commerce, we are now planning a Swedish week that will take place in the autumn in Sofia. It will showcase the best of Sweden, both in terms of business and culture.
*Stefan Bengtsson was born in Sweden and has been living in Bulgaria for the last 10 years. Currently, he is the country manager of Swedish defence group SAAB for Bulgaria, as well as a founding member and chairman of Swedish-Bulgarian Chamber of Commerce.