Early shift to electric could make Royal Enfield a global market leader

Royal Enfield has been around since 1901 and claims to be the oldest motorcycle brand in continuous production (Photo: Reuters)
Royal Enfield has been around since 1901 and claims to be the oldest motorcycle brand in continuous production (Photo: Reuters)

Summary

  • With strong finances, favourable demographics and a beloved brand the company is poised to increase its global marketshare in the age of EVs, provided its nails the engineering and branding

Royal Enfield (RE) is investing 1,000 crore on a new facility to make electric motorcycles, indicating the iconic brand is preparing for a transition to battery-powered bikes.

RE, which is a division of Eicher Motors, has made big inroads in the global mid-range (250-750cc) touring/cruiser market. It has established a reputation for making good petrol bikes and it has smartly leveraged its century-old brand to grab global marketshare.

In FY23 RE’s exports crossed a lakh, with 1,00,055 bikes sold abroad. It is targeting a 10% marketshare in the global mid-range segment and is already close to achieving that in a market estimated at 1.1 million (11 lakh) units. RE operates with retail stores and a business model of completely knocked down kits assembled by local subsidiaries in four nations – Brazil, Argentina, Thailand and Colombia. Bike exports comprised about 14% ( 2,080 crore) of sales in FY23.

Overall sales volumes came in at 8,34,895 units in FY23, representing about 39% growth. In the mid-size segment (which comprises about 8% of India’s motorcycle market) it has a near 90% marketshare.

The company’s finances seem in good shape with parent Eicher (which also makes trucks and tractors in partnership with Volvo) reporting a 48% jump in net profit to 905.60 crore in Q4. Quarterly revenue for Eicher hit a record 3,804 crore, up 19.1%, while Ebitda margins climbed 23.3% to 934 crore.

The premium motorcycle segment has seen growing interest, which RE has skilfully exploited with a series of new model launches including those in the 650cc cruiser segment and the classic 350cc Bullet.

Royal Enfield has been around since 1901 and claims to be the oldest motorcycle brand in continuous production. A manufacturing plant was established in Madras (now Chennai) in 1955. Eicher bought Enfield India Limited in 1994 and renamed it Royal Enfield Motors Ltd. Apart from modernising and relaunching the Bullet, RE moved up the ladder with the Hunter Series and 650cc models. The company says it plans to launch one model a month on average for the next few years.

RE has over 500 people working on R&D in two facilities in the UK and Chennai. But electric motorcycles constitute a very different design segment with its own supply chain, and repair and maintenance services. The powertrain is built around a battery, which means different ride and balance factors. The components supply chain is also quite different.

In December 2022 Eicher bought a 10.35% stake in Spanish electric motorcycle manufacturer Stark Future SL with an initial equity investment of 50 million euros. Stark launched its innovative Varg motocross EV bike in 2021 to rave reviews. The bike’s functions and parameters can be monitored and customised with an Android smartphone.

For RE, this partnership is an early step in a transition to EV and gives it a collaborative foothold in R&D for electric motorcycles, as well as options for future technology sharing, licensing and manufacturing. It is likely that RE and Stark will use the same – or similar – EV platforms and architecture in future. For Stark, which is a small boutique, the partnership will help with industrialisation and scaling up.

RE’s turnaround (Enfield India was struggling with quality-control issues when Eicher bought it in 1994) has been based on simultaneous improvements across many variables. Eicher streamlined quality control and made a huge design push.

The current bike lineup includes variants of the Hunter 350, the Classic 350, the Meteor 350 cruiser, the 650 New Super Meteor 650, Interceptor 650 and Continental GT 650. RE also offers scramblers like the Himalayan Adventure tourer and the Scram 411 ADV Crossover – and, of course, the Bullet 350.

It also worked relentlessly on reinforcing the brand. The Bullet had always been the favoured bike for defence and police departments and had a great reputation among two-wheeler enthusiasts. Eicher built on that and created a line of branded accessories, apparel, biking gear and merchandising, which now generates 14% of RE’s revenue (around 2,000 crore).

RE has demographics on its side – 72% of its customers are aged 18 to 35. It has sponsored and developed an ecosystem of what it calls “pure motorcycling" to attract riding enthusiasts with events like “Ridermania", a three-day event held annually in Goa, and the Himalayan Odyssey, a challenging trip through some of the world’s scariest roads.

This approach has turned RE into the fourth-strongest global auto brand, according to the 2023 Global Auto report. It is the only two-wheeler brand in the top 10. The shift to EV is pretty much forced, given the evolution of personal mobility and the dynamics of emissions control legislation. By doing it relatively early, RE could further its quest to win global marketshare. If it gets the engineering and branding right It could well become a global market leader.

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