Lithuania moves to forefront of European bicycle production

The announcement by Pon Holding to construct a new e-bike and bicycle factory in Lithuania started a string of reactions in this small Eastern European country. With this new dynamic, the country has put itself on the map as the next bicycle production hub in Europe.

It is not that long ago that the bicycle industry in Lithuania was known for one single company. Founded in the Soviet days, Baltik Vairas only put itself on the forefront in the international bicycle industry after the take-over by Danish investor Niels Peter Preztmann and the Lithuanian capital fund LIT Capital in 2013. The next step came when Pon Holdings decided to outsource a part of its production to Baltik Vairas. During the years of close cooperation between Pon and Baltik Vairas, the Dutch manufacturer must have seen the potential of the country as their next production base.

Besides these two companies, also the Chinese investor Steve Zhu of Nantong Dingyu Vehicle Industry CO. LTD decided to open a production base in Lithuania as it is conveniently located between his bicycle frame factory nearby Shanghai, China and its main markets in Europe. The assembly plant was opened after the implementation of the anti-dumping duties on China-made e-bikes by the European Union in 2019.

Stepping up manufacturing

At the country’s investment promotion agency, Invest Lithuania, the Pon announcement was one of the main reasons to study the international bicycle industry and see what Lithuania has to offer for foreign direct investors (FDI) from this industry. Invest Lithuania also confirmed that they aim to step up bicycle manufacturing in addition to the automotive industry which is already strongly present in this Baltic state. Two well-known names in the automotive industry, Continental and Hella, are regarded as important FDI. For them, just like Pon, the strong presence of a manufacturing industry and logistic services have been important reasons to choose Lithuania as a production base.

The market penetration of bicycles in the country is rather low. From a total population of 2.9 million people, a total of 113,000 bicycles and e-bikes were sold in 2021. But also in Lithuania the market situation is changing, at least the government is changing its cycling policy. “From a cycling point of view, there is a lot to do. To start, we have first analysed what we have on cycling infrastructure and other cycling promotion activities,” Agne Vaiciukeviciute, Lithuania’s Vice-Minister of Transport and Communication told Bike Europe. “We need to invest in both infrastructure but also in a change in habits. To reach our goals we are taking best practices from other EU countries combined with local requirements. Of course, the municipalities are in the lead when it comes to building infrastructure, but as a national government we want to allocate resources to make a more cycling friendly policy possible. The city of Vilnius is doing pretty well, with an ambitious plan to develop hundreds of kilometres of cycling ways.”

Attractive hub for Taiwanese manufacturers

The Nordics and Germany have always been important investors in Lithuania. However the country is also moving towards the US and Asia for FDI. With that also comes Taiwan and its bicycle component industry into Lithuania’s scope. “This small Baltic state has many advantages over others as an investment base for the Taiwanese,” explains long-time Taiwanese investor in Lithuania Waylen Yeh to Bike Europe. In 2020 he founded Fortress Factoring, a financial service provider between Taiwan and Central and Eastern Europe, and to solve the challenges faced by companies such as credit guarantee, factoring finance and collection.

“The government knows what they want and they act,” said Waylen Yeh. “In 2017 they wanted to incubate Fintech and were keen to help, for example with all kinds of regulations. It is one of the reasons why Lithuania is easily accessible: both Lithuanian and English are legal languages which is pretty convenient when doing business as a foreigner. Also, the level of English literacy is high compared with other countries in the region.”

Free economic zones

“As part of the European Union there are no barriers to Europe’s main economies for FDI’s in Lithuania. I regard it as a good gateway to Europe,” concludes Waylon Yeh. Today Lithuania is one of the biggest receivers of FDI, particularly in the Fintech business. To promote these investments, the national government has implemented a full package of legal incentives, including a 10-year 0% rate on corporate profit tax and 20 years 0% tax on dividends and real estate. The country also operates 7 Free Economic Zones (FEZ) with additional incentives for FDI, like real estate and access to additional funding for R&D. Pon selected one of the FEZ zones as their new production location.