Electric Bikes: An Idea Whose Time Has Motored In?

Taiwan's Giant is betting big on the new bicycles for China and the West

For Tony Lo, taking his work home or on vacation is a perk of the job. As president of Taiwan's Giant Manufacturing Co., the world's biggest bicycle maker, Lo enjoys testing each of the dozen-or-so models Giant introduces annually by giving them a rigorous workout in the highlands south of Taipei. Now, Lo -- like the rest of the bike industry -- is starting to run out of puff. Global demand for bicycles has plateaued at 110 million annually, and Giant's profit growth has stalled in the face of a flood of cheap models from Chinese manufacturers. Last year, earnings edged up just 0.7%, to $36.5 million on sales of $698 million. Worse, many kids -- especially Americans -- have ditched their bikes for video games, and if they need a lift, they get one from mom in the minivan.

So lately, Lo has been tooling around on electric two-wheelers, which he believes will help Giant regain its form. These range from the $300 iLes -- a 40-kilo scooter for the Chinese market designed to take on gas-powered models -- to a $2,200 bike called the Revive Spirit, aimed at Americans and Europeans. The 30-kilo Revive uses a superefficient lithium-ion battery and zips along at up to 25 kilometers per hour over a 32-km range.

Giant has high hopes for the electrics. The company expects to sell 250,000 of them this year -- up 67% from 2004 -- and wants to reach sales of 1 million annually by 2010. In September, Giant opened a factory in Chengdu, China, to produce 200,000 electric models a year. Another plant in the Chinese coastal city of Kunshan can make 150,000 annually. Christopher Smith, a Goldman, Sachs & Co. (GS ) analyst in Hong Kong, predicts electrics will be the "real growth engine" for Giant, which "has struggled to find a new driver after the mountain-bike rage."

A PUSH FROM BEIJING

Giant has been marketing electric bikes since 1999 but stumbled its first time around the track. It sold fewer than 15,000 of its $1,300 LA free models. The first LA frees were hobbled by an unreliable battery and a scrawny motor that sometimes gave out on hills. "In the early days, the technology wasn't mature," Lo acknowledges.

These days, electrics appear ready to roll. One big factor is surging demand in China, where cars remain too pricey for most people. Next year, mainlanders will spend $1.5 billion on 9 million electric scooters and bikes, up from $1.1 billion in 2004, Goldman estimates. The Chinese government is helping. Sixty Chinese cities, including Beijing, Guangzhou, and Shanghai, have restricted gasoline-powered motorcycles on their streets in order to reduce air pollution. And in the U.S. and other affluent markets, new technologies such as nickel-hydride batteries allow bikes to travel 45 km on one charge, and can cut recharge time in half, to three hours.

Giant isn't alone in targeting electrics. Yamaha Motor Co. is gearing up to sell e-bike technology to the scores of Chinese upstarts, such as Tiandi Group and Jinhua Luyuan Electric Vehicle Co., that are charging into the business. And Meridia Industry Co., Taiwan's No. 2 bike maker, in March launched a $300 model aimed at the mainland market.

Still, Lo has some advantages. For one, Giant is the biggest maker of e-bikes in the world. And the company has a distribution network of 2,800 dealers across China. It also has 150 engineers focusing on electric two-wheelers. If the age of e-bikes has indeed arrived, Giant may be off to the races again.

By Matt Kovac in Tachia, Taiwan

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