How Much Does It Cost to Buy a Bicycle?
Five reasons to boost a new wave of bicycle price hikes
Do you intend to spend your year-end bonus on a new bike? The bad news is that, given the current trend, you may need to save even more money. The world is in an unusual state right now, which could mean that hard-earned private money may not even be enough to purchase a bike. Continue reading to find out how everything from a coup in Guinea to port congestion will affect the cost of a bike.
1.Labor costs in Taiwan continue to rise
Labor costs for bicycle manufacturing are expected to rise as Taiwan, China raises the minimum wage by 5.21%. Taiwan’s minimum wage has risen every year for the past six years, but this year’s increase is the largest in 15 years. The monthly minimum wage will increase from NT$24,000 to NT$25,250 (US$899.42), while the hourly rate will rise from NT$160 to NT$168 (US$5.98), with the changes taking effect from January 1, 2022. According to Taiwanese media reports, the policy is expected to benefit 2.1 million households.
It is most important to note that, if not all, workers in bike factories will not be paid the minimum wage, but there will be pressure to keep wages competitive as the minimum wage rises. We’re glad to hear that the workers who make our bikes are being paid more fairly, but this almost certainly means that the costs will be passed on to the end-users of the bikes. Of course, labor costs are only a small portion of the total cost of a bike, but the price must be reflected.
2.The cost of raw materials is still rising
As the cost of raw materials rises, so do the prices of bike-making materials, particularly aluminum. The chart below shows that aluminum prices have risen to their highest level in 13 years in the last 12 months – the last time aluminum prices were this high was during the 2008 financial crisis.
So, what’s the deal with it being so high? Prices are being slashed on both ends. On the supply side, unrest in Guinea, one of the world’s largest bauxite producers, as well as the shutdown of refineries in Jamaica and Brazil, have made the sourcing of bauxite more difficult. Furthermore, China, which accounts for 57% of global copper production, is slowing production growth due to strict environmental policies. Aluminum is also being used in electric vehicles and renewable energy, two rapidly growing industries, which is driving up prices even further.
Lithium battery raw material prices have risen by 200 percent which is an important component of electric bicycles. The cathode material, which includes lithium carbonate, lithium hydroxide, and others, is the most critical raw material for lithium batteries. The ex-factory price of battery-grade lithium carbonate and lithium hydroxide has more than doubled since 2020.
From a demand standpoint, global new energy vehicle sales from 2012 to 2021 are on an upward trend. While demand for power lithium batteries is growing rapidly, raw materials are in short supply. Because the world’s lithium, cobalt, and nickel resources are concentrated in Chile, Australia, Argentina, Bolivia, and other countries, and are monopolized by the mining group’s head. 2020, as a result of the COVID-19,
raw material enterprises failed to meet their expansion targets, resulting in a shortage of raw material imports, with supply remaining relatively tight. The current state of raw material procurement for lithium battery enterprises is “one good are hard to find.” Many raw material manufacturers have orders for the coming year.
Aluminum and battery prices aren’t the only ones that have suffered. During the “Amazon Effect,” cardboard prices increased 1,000% to a record high in 2021, and prices for steel, magnesium, and other materials are experiencing a similar surge. Consumers and retailers are putting pressure on bike brands to keep prices stable, but they can only afford so many price increases. We expect manufacturers to adjust their e-bike margins and cost prices if raw material prices continue to rise.
3.Freight costs have become “sky high”
We’ve discussed a lot about how the current rise in shipping costs is affecting the industry. Events ranging from the EverGiven shutdown to container shortages have resulted in record shipping prices, and major brands have publicly stated that this has had an impact on their bike prices. We’ve even heard that major brands are beginning to hire warehouses in the Far East to store inventory until freight space becomes available.
Fortunately, the cost of bulk shipping appears to be decreasing. According to Bloomberg, freight rates for a 40-foot container on the Shanghai-Los Angeles trade route fell nearly $1,000 last week to $11,173, a drop of 8.2% from the previous week and the largest one-week drop since March 2020. However, as the chart below from the Financial Times shows, current prices are still higher than previous levels.
However, we may not be out of the woods yet, and there is still a lot of uncertainty surrounding these figures. This could be due to a temporary drop in prices caused by lower productivity during China’s Golden Week, and there are fears that Black Friday/holiday demand before the end of the year will cause costs to rise again.
4.Lead times are still long
One of the hot topics in the bike industry this year is delivery time, and you won’t be surprised to learn that it’s still a problem. In a recent statement, Knolly CEO and Chief Engineer Noel Buckley (Noel Buckley) stated, “Most mainstream components in the bicycle industry currently have lead times over 600 days.” This is complicated further by the fact that many of our OEM suppliers and specialty manufacturers source raw materials for more than 350-400 days. Purchase orders must be placed 24 months in advance to all suppliers in today’s climate; Knolly’s procurement team is prepared to assist us in 2022 and 2023. We’ve already begun placing orders for 2024, which seems crazy, but that’s the game we’re all playing right now.”
If a company has to wait nearly two years for a product, it has a lot of cash piled up in inventory, which could be used to increase sales or price products more competitively. Some brands are also said to double or triple their purchases to ensure they have as much inventory as possible or to deal with suppliers who are unable to ship on time. If a company’s money is locked up in-stock purchases for an extended period, it will have to look elsewhere to fund R&D, marketing, and other areas. One method is to inflate its current stock price.
5.There’s a lot of pent-up demand
The reservations, the lines, the waiting… It’s self-explanatory. A lot of people aren’t getting what they want this year. Prices will continue to rise as long as people continue to buy.