Peloton is ending in-house production of the exercise bikes that earned the connected fitness company a fanatical following, in the latest strategic rethink to follow the sharp turnaround in its financial fortunes.
The New York-based group said it would suspend operations at Tonic Fitness Technology, the Taiwanese manufacturing plant it acquired for about $45 million less than three years ago. Rexon Industrial, another Taiwanese company he has worked with for several years, will become Peloton’s main manufacturer of bikes and treadmills.
Barry McCarthy, former Netflix and Spotify executive platoon Hired as CEO in February, he described the move as a natural progression in a strategy of simplifying the company’s supply chain and focusing on software and content rather than hardware, where it has been trying to improve its profit margins. .
“We believe that this, along with other initiatives, will allow us to continue to reduce the cash load on the business and increase our flexibility,” he added.
In May, Peloton said it had finished its fiscal third quarter with just $879 million in unrestricted cash and cash equivalents, and McCarthy admitted cash outflows had left him “little capital” for a company of its size.
Since then it has increased $750 million in new debt from lenders like Blackstone and Apollo, as McCarthy tries to cut $800 million from annual costs by 2024. But its shares have fallen below $9 a share, lowering its equity valuation to $3 billion from a peak of nearly $ 50 billion by the end of 2020, when investors expected the surge in appetite for home exercise fueled by the pandemic to continue.
When Peloton took control of Tonic shortly after it went public in 2019, it pitched the acquisition as a way to gain more control over its supply chain at a time when co-founder John Foley was pursuing ambitious growth goals and telling his board that the company could one day be worth $1 billion.
In 2021, Foley broke ground on a $400 million manufacturing plant in Ohio, saying US production would accelerate its growth and “allow us to sleep better” amid concerns about the risk of a war over Taiwan. He has since left the site.
Andy Rendich, director of supply chain for Peloton, said in a statement that Rexon was “a proven partner to our global operations,” adding that its more than 100 Peloton employees in Taiwan “would continue to play a key role in our strategy.” of engineering and manufacturing. ”.
