EZGO Sees Future Growth Amid Long-Term Demand For Electric Bicycles In China

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Key takeaways:

• The second Nasdaq-listed Chinese electric bicycle manufacturer EZGO reports the 2021 fiscal year annual report with a refocus on business structure.
• EZGO’s sales of electric bicycles soar by the rush of old unqualified models iteration and Chinese people’s long-term transportation demand.
• The development of charging stations welcome a good opportunity as the Chinese authority bans “home inhouse charging” for electric bicycle; EZGO makes the sector a strategic business.

On January 27, 2021, EZGO Technologies Ltd EZGO released its annual report of the fiscal year 2021 ending September 30, 2021, reporting total revenue of $23.4 million, up to 53.65% growth from $15.2 million over the same period in 2020, and net asset of $32.5 million, an increase of 147.52% year-over-year from $13.1 million in 2020. 

As early as May 2014, EZGO began producing lithium batteries in cooperation with Hengmao Power Battery Company and became one of the earliest Chinese private enterprises to do so. The increasing competition in lithium battery manufacturing and the emerging opportunity of electric bicycles drove EZGO to shift its core business concentrating on the manufacture and sales of electric two-wheeled bicycles, with a sideline business offering charging station services.

Sales soared as business reshuffled

EZGO’s transformation came with big changes in its revenue structure. The sales from subsidiary brands Dilang and Cenbird brought the company an impressive profit. In the company’s 2021 annual report, a total number of 98,104 electric two- and three-wheeled bicycles have been sold, an 85.2% increase over last year.

According to EZGO’s last three annual reports, the sustainable growth in earnings revealed a surge in sales of electric bicycles, with its sales revenue ratio in total revenue increased from 7.59% in FY2019 to 77.84% in FY2021, becoming the mainstay of the company’s earnings mix. In 2021, the electric bicycle manufacturer posted sales of $18.2 million, a 63.3% year-on-year increase. In addition, its battery cell trade stays as strong as 2020.

To a large extent, the considerable sales revenue of electric bicycles has driven EZGO’s total revenue of FY 2021 to $23.4 million, up 53.65% year-on-year, 16x more than that of FY 2019. The company once expressed its aspiration to be a prestigious company in the industry within the coming five years (2021-2025), integrating the manufacture, sales, and services of electric bicycles, and managed to sell no less than 500,000 units by the end of 2025.

Source: 2021 Annual Report

In 2019, EZGO smelled the new market opportunity as the Chinese authority released the Safety Technical Specification for Electric Bicycle that served as the new national standard on the electric two-wheeled vehicle. The new regulation, which came into force on April 15 of the same year, detailed requirements for electric bicycles — the pedal-riding category, that every single electric bicycle should be maximum in weight of 55kg and speed of 25km/h; voltage flows through these bikes should keep well below 48v with a limited engine power capacity under 400W. Electric bicycles that do not meet the new standards are banned for sale and would not be allowed in the market.

As an important tool for daily commuting and short trip, the use of two-wheeled electric bicycles can help reduce carbon emissions and build an ecologically better environment. As a result, the demand for electric bikes will exist permanently. As of the end of 2020, data unveiled that there were around 300 million holdings of electric bicycles in Mainland China, and the size is projected to proliferate at an annual rate of 10%.

However, nearly 90% of the existing electric bicycles fail to meet the new national criteria, meaning roughly 250 million of them will no longer be allowed to ride on the road going forward. In the foreseeable future, people will rush to change their unqualified bikes, in other words, a good development chance to come to prominence is waiting ahead for those up-and-coming electric bicycle developers such as EZGO.

Increment of sales and R&D expenses to boost business expansion

At the current stage, the electric bicycle industry is moving towards more top-notch technology, which means to be more money required to be put into R&D, especially for innovative enterprises that lead the trend like EZGO. In FY 2021, EZGO’s operating expenses were $4.26 million, a significant increase to FY 2020. 

The company explained that, apart from the initial public offering (IPO) costs in the early last year, expenses from sales and R&D also increased throughout the year, mainly due to the rapid expansion in sales and more sales staff hired. R&D expenses were mainly used in the transportation support platform development, the designs for the new models under EZGO and its sub-brands Dilang and Cenbird.

More specifically, the company poured approximately $34,220 in R&D of FY 2021 to satisfy the new national guideline and spent $56,647 on the building of an IoT (Internet of Thing) rental platform (including battery ID chip, intelligent exchangeable cabinets, and operation and sales system), as well as allocated $85,359 to deploy smart charging station.

Source: 2021 Annual Report

In terms of operating capital, EZGO completed an IPO and directional issue in FY 2021, further improving the company's operating capital and cash position. As of September 30, 2021, the company’s total operating capital was $18.2 million, with cash and cash equivalents of $4.7 million, supporting the company's daily operations and R&D.

Source: 2021 Annual Report

In addition to confirming its leading position in bicycle manufacture and sales, EZGO also regarded the operation of the smart charging station as a strategic business. The charging station brand of Hengdian developed by the company is accordant with the highest level of electric spark-proof and fireproof standards in China. What’s more, those charging stations have intelligent data collection and smart control features and can be monitored remotely to examine the charging status and voltage range.

The smart charging station becomes a blue ocean deriving from the course of electric bicycles. In the future, charging stations may not only supply energy to electric bicycles but also act as a terminal for distributing internet information. Then, these charging stations will become an entry to attract more customers’ data traffic, to expose a new channel for electric bicycle sales and other related business. More importantly, the policy of banning electric bicycles on “home inhouse charging” has promised the industry a breakout.

By and large, there are more than expected spotlights during EZGO’s FY 2021. After the successful transformation, its overall business growth is largely bolstered by the big gain from sales of its electric bicycles. Given that the Chinese people are rushing to upgrade their bikes and have long-lasting demand for going out, EZGO believes it is on its way to broadening its empire. Looking forward, with the expansion of overseas markets and the prospect of the charging station business, the growth of EZGO could be one to watch out for.

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