Peloton Interactive Inc shares rallied up to 6.8 percent on Tuesday after announcing plans to cease in-house production and rely solely on partners for production, marking one of the exercise equipment company’s most dramatic steps yet to simplify its operations and reduce costs.
The move is an about-face from Peloton’s strategy over the past three years, when it split manufacturing between its own facilities and partners. The company built a portion of its standard Bike models and the higher-end Bike+ using facilities it acquired in 2019 as part of buying Tonic Fitness Technology Inc (期美科技). It also relied on Taiwan-based manufacturing partner Rexon Industrial Corp (力山工業) to build stationary bicycles and its Tread treadmill.
However, the firm would cease operating its Tonic facilities, and move all of its bike and treadmill production to Rexon, chief supply chain officer Andrew Rendich said.
Photo: Bloomberg
“We are going back to nothing but partnered manufacturing,” he said. “It allows us to ramp up and ramp down based on capacity and demand.”
The news sent the stock on its biggest intraday gain since Tuesday last week.
Peloton was up 3.7 percent to close at US$9.25 in New York trading on Tuesday, while Rexon rose 9.93 percent to end at NT$31.55 in Taipei trading yesterday.
Peloton is making the change after several months of turmoil. In February, cofounder John Foley was replaced as chief executive officer by veteran media executive Barry McCarthy, and the company cut nearly 3,000 employees — including many members of its executive team. Rendich was appointed to his role in March.
As gyms and economies started to reopen last year, Peloton’s growth sputtered. The company had incorrectly predicted that its business would weather the reopenings, and it was left with a glut of equipment.
As part of the new arrangement, Peloton is expanding its partnership with Rexon while also maintaining other outside partners and adding new ones.
The company plans to keep working with Quanta Computer Inc (廣達電腦) to manufacture touch screens, a key piece of its equipment.
It is also adding Pegatron Corp (和碩) to build its upcoming rowing machine.
Rendich said that new products are on track for release this year.
The company declined to say how much shutting down its operations would cost, but said that it would cut about 570 employees in Taiwan who work at the Tonic facilities.
It would retain 100 existing staffers in Taiwan to work with its outside partners, it said.
Rendich said that having dual supply chains — one internal and one external — required more resources to do well, and that simplification is necessary to drive down costs and improve product quality.
He said he has been managing two separate operations teams that would now combine into one.
“One of the best simplifications we can do is go to partner manufacturing and getting out of the business of owned manufacturing,” Rendich said. “This allows us to do it even better than we have in the past.”
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