China’s Phoenix takes Ofo to court for £8 million manufacturing bill and breach of contract

Dockless bike share firm Ofo is being sued by the manufacturer of 1.8 million of its bicycles. In a court case filed yesterday bike maker Shanghai Phoenix Bicycles claims it is owed £7.9 million in manufacturing fees and is also suing for a breach of contract after a promised order of three million bicycles failed to materialise this year. 

Ofo was founded in 2014 by five members of the Peking University cycling club and has expanded rapidly around the world. In 2017, the Beijing-based firm had deployed over ten million bicycles in 250 cities and 20 countries. Cash injections from Chinese tech firms Xiaomi and Didi Chuxing saw the company valued at up to $2 billion last year, with the firm later bankrolled by the cash-rich Alibaba, China’s Amazon.

However, Ofo has been pulling out of smaller UK cities – such as Norwich – and has removed its bikes from some countries altogether, including India.

Rumours have been rife in the bike share world that Ofo has been suffering cash-flow problems because of its global expansion.

UK staff have recently been made redundant. In March, China Money Network reported that Ofo had mortgaged four million of its bikes to Alibaba as collateral for a loan of $280 million.

According to the Chinese government’s National Enterprise Credit Information Publicity System, Ofo (HK) Limited is the shareholder of Shanghai Aofo Hesheng Internet Technology, whose executive director is Ofo’s CEO Dai Wei. Shanghai Aofo Hesheng borrowed $79 million from Shanghai Yunxin Entrepreneurship Investment Co on February 5th and $200.7 million from Zhejiang Tmall Technology Co on 12th February  – the firms are Alibaba affiliates.

On 31st August, Phoenix Bicycles, a subsidiary of Shanghai Phoenix Enterprise Group, sued Ofo via its holding company Dongxia Datong (Beijing) Management Consulting Co, seeking £7.9 million. Phoenix Bicycles entered into a five-million-bike manufacturing contract with Ofo in 2017, but Ofo later reduced the order by three million, with Phoenix claiming in the First Intermediate People’s Court that this was a breach in the terms of the contract.

Phoenix Bicycles was formerly a state-owned concern but was privatised in 2014. Originally founded as Tongchang Chehang the company can trace it roots to 1897. According to the company website it has annual revenues of $60 million.

Ofo’s money woes are set to worsen, believe bike-share commentators. Cycling UK’s Dave Holladay, who has been involved with the bike-share scene for 23 years, said: "A few [of Ofo’s] UK relationships – local agents, UK employees – might have similar tales to tell."