Reverse

Peloton will stop making its own equipment, as the former pandemic darling pivots its focus from spin bikes to subs

Wednesday, July 13, 2022 by Snacks
Uphill sweat sesh (Ezra Shaw/Getty Images)

Uphill sweat sesh (Ezra Shaw/Getty Images)

Hour-long Backstreet Boys ride... all uphill. Peloton has been on the struggle bus this year. In January it paused production of its pricey fitness equipment as unsold spin bikes and treadmills piled up. Now the money-losing company will outsource all its manufacturing:

  • Spinning out: Peloton's Taiwanese partner, Rexon Industrial, will become the primary manufacturer of its bikes and treads, to save Peloton money on expensive US production. In February, Peloton scrapped plans for a $400M Ohio factory.
  • Reverse, reverse: Mid-pandemic, Peloton spent hundreds of millions to build up in-house US manufacturing. The goal: avoid overseas-shipping snags. The assumption: pandemic-fueled demand would stay high for years (spoiler: it didn't).

Waited so long for the P-ton... that your shipping address is outdated. Peloton’s sales boomed in 2020 as its $2.2K spin bikes rode off shelves. Then things took a turn for the worse: equipment sales have plunged 40% from a year ago, and Peloton notched its biggest quarterly loss as a public company in May. Wild stat: the value of unsold equipment has surged to $1.4B, up from just $19M two years ago. Peloton was worth $50B at its height, but its market cap has plunged to $3B.

THE TAKEAWAY

Pricey hardware is hard to bear… Owning several steps of production works for behemoths like Apple, Amazon, and Tesla, whose scale makes relying on third-party manufacturers untenable. But for strugglers like Peloton, making hardware in house can be financially unsustainable. That’s why Peloton’s new CEO is pivoting it to be a subscription-focused company (not an equipment maker). Peloton has slashed hardware prices while hiking monthly subs from $39 to $44.

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