Hero Electric expects to turn profitable in FY19 as demand for electric bikes rises
Mumbai: Naveen Munjal-led Hero Electric India Pvt Ltd, one of the early movers in electric two-wheelers in India, expects to turn profitable next fiscal on the back of growing demand, particularly in markets outside big cities, a top company official said.
The New Delhi-based company had incurred heavy losses since its launch in 2010 in a market where electric vehicles had low acceptance because of high prices and concern over how far they could go on a single charge.
But with the government pushing for zero-emission technology and through its own efforts, Hero has seen sales of electric two-wheelers grow at a fast pace recently.
It sold 15,000 units in the first six months of the current fiscal—that’s equivalent of what it sold in all of last year. And some models have a waiting period of a month-and-a-half.
“All this while, we had been incurring heavy losses. We have reached a break-even point this year and hope to turn profitable next fiscal,” said Sohinder Gill, chief executive, global operations at the firm.
The maker of Photon, Optima, Maxi and Nyx e-bikes is now hoping to double its volume every year and reach the 100,000 mark by fiscal 2020 or 2021. Hero Electric’s “belly up strategy” of penetrating markets outside the main cities with its high-speed, lithium ion-powered scooters and motorcycles has paid off, said Gill.
Beside launching models that offer better “value for money”, Hero is also working on premium vehicles that will only account for 5% of company’s volumes but demonstrate its technical capabilities, he said. Its current models can travel up to 25km on a single charge.
As part of its expansion plan, Hero will set up two new factories—one each in southern and western India—over the next two years and pump in Rs200 crore in investment. Hero’s existing plant in Ludhiana, which produces 50,000-60,000 units in two production shifts per year, is expected to run out of capacity by 2019, leaving Hero to build a new facility. Hero also plans to add 20 to 30 dealerships every year to its existing network of 280 exclusive dealerships. This is in addition to the sub-dealers it will appoint around the main ones in a bid to have a presence in all Talukas. “The EVs need proximity to the market and distribution,” said Gill.
A total of 23,000 electric two-wheelers were sold in India in the fiscal year that ended on 31 March 2017—up from 18,000 a year ago—according to the Society of Manufacturer of Electric Vehicles (SMEV). It expects the current year to end with 36,000 units. The growth will be largely led by Hero Electric that accounts for six out of every 10 e-bikes sold in the country.
The National Democratic Alliance government has set an ambitious plan for a mass shift to electric vehicles (EVs) by 2030. Sending a clear signal that India is firmly moving toward electric vehicles, the goods and services tax (GST) council set a 12% tax rate for electric vehicles in May, compared with 28% plus cess for petrol and diesel cars and hybrid vehicles.
“India’s move to embrace an electric-vehicles-only future has been backed up by a supportive tax structure and policies, and a potentially large local market. However, the progress in the next five years will be critical to long-term success,” wrote Vinod Kumar, partner and Sriram Kaushik, principal at AT Kearney India in a Mint column on 25 August.
The growth in the e-two-wheeler segment will also be fuelled by the entry of new firms such as Tiger Global-backed Ather Energy that has plans to develop a range of smart electric two-wheelers. The firm’s first model will be ready for launch in 2018, the Business Standard reported on 11 September. With all the existing two-wheeler firms including market leader HeroMoto Corp Ltd, Bajaj Auto Ltd and TVS Motor Co. working on electric models, the segment is set to get a further boost. In October last year, HeroMoto announced it has invested Rs250 crore in Ather.
Gill said the entry of newer models will give the market much-needed scale and help bring down the cost of battery technology sooner than later.