Hero Ready To Use Its Cash Balance To Take On Ola's E-two-wheeler Foray

India’s largest two-wheeler company will launch its first electric vehicle by March 2022 and it is likely to be a scooter. An electric scooter will help to expand the scooter portfolio for the company in which it is lagging behind its rivals in market share.

Hero products will be out by March 2022. It will be a full national launch.

“We expect EV to come out of the IC-engine based scooter category and that actually plays to our strength, given how under-indexed as the scooter market share is concerned. This will become incremental. Any evolution on EV in the scooter side will be accretive to the Hero topline,” Niranjan Gupta, Chief financial officer at Hero Motocorp said.

CEO Pawan Munjal recently showcased a pre-production prototype of the upcoming electric scooter at the company’s 10th-anniversary celebration.

The company is also ready to face cash burn in order to fight cash-rich start-ups which are entering the EV space and will not shy away from stimulating the market if it demands, executives said.

The entry of SoftBank-backed Ola into the e-scooter segment is all set to charge up the overall market and existing incumbent players have to match the aggressive pricing of Ola’s upcoming scooter.

However, the company is wary of expanding too fast in the EV business and may stick to top-tier cities in the initial years. It would rather take a measured approach for charging infrastructure to develop across the country.

“The pace of expansion will also depend on the infrastructure readiness of the country. You grow too fast, then suddenly you may be caught without adequate infrastructure,” Gupta said, adding that over a medium-term, 50 percent of the company’s new capex will be dedicated to EV. Hero normally has an annual capex plan of around Rs 70-1000 crore.

Ola, which opened for bookings last month and has netted as many as 100,000 bookings on the very first day, is expected to price its electric scooter in the range of Rs 85,000-Rs 1.1 lakh. The price range is one that accounts for 70 per cent of conventional, internal combustion engine (ICE) scooter sales in the country.

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“We all know EV category will not be profitable from Day 1 and it will require a lot of cash. Hero will be placed in a better situation simply because of the size of the procurement, manufacturing, and distribution which a new player will have to replicate,” Gupta said. Hero Motocrop as of 31 March has a cash balance of Rs 169.22 crore which it can use to fight new age startups which are attempting to disrupt the traditional two-wheeler segment with its new vehicle.

“There is a cash-generating machine from the IC business. We see EV to be incremental to our top line,” Gupta said, indicating the company’s healthy cash balance.

The company, however, feels that it is much better placed than a new player like Ola, due to its strong distribution strength and existing distribution and R&D facilities.

“Hero has got a strong distribution strength of 6,000-7000 touchpoints. A large base will come from existing customers and the reach and this will bring an upside to the company. It will take years for a new start-up to build what an established OEM already has,” Gupta said.

The Gurgaon-based company has taken a three-pronged approach to fight the EV battle- the company’s investment in Ather Energy, in which it holds a majority stake, its own research development, and an internal start-up that has developed an electric three-wheeler.

“Ather has expanded to multiple cities and there are multiple forms of synergy possible with the company. Hero has participated in all of Ather’s capital raising rounds as electrification is a cash burn story,” Gupta said.

The company has also formed a strategic partnership with Taiwanese battery company Gogoro Inc. The partnership will help Hero establish a network of lithium-ion battery-swapping stations in India for two-wheelers and the two companies will also jointly develop electric vehicles.

Taking advantage of Gogoro’s expertise, the company intends to give its customer an option of both battery swapping and fast charging facility. Gupta said that the company believes that for EV to flourish, customers will need both fast charging and swapping options. Because swapping mimics refueling which the customer is used to.