Naveen Munjal: If a battery is ruined, a new one comes in and the vehicle is ready to go

At a time when emerging EV brands were busy talking about revolutionising mobility, Hero Electric quietly went on to occupy the lion’s share of the market in 2021. With its latest joint-partnership with Mahindra & Mahindra, the country’s largest electric two-wheeler manufacturer is gearing up to meet growing demand. In an interview with Moneycontrol, the brand’s managing director, Naveen Munjal, talks how the electric two-wheeler space is shaping up, market projections and why battery swapping is the way forward.

Below are edited excerpts from the interview:

What role will Mahindra’s supply chain expertise play in the new joint partnership?

We have more demand than we can cater to and the market is exploding. We have a substantial waiting list for vehicles. We’ve stopped our online bookings for a while now because we could not cater to the growing demand. Not only because of the chip shortage but also because of the batteries.

While we’re expanding our Ludhiana facility, we need more facilities. This is something that I’ve been saying for a long time. This business is going to involve a lot of collaborations and partnerships. This is one such strong partnership. They have a facility in central India which we could use to manufacture the Optima and then build up from there. Freight costs are saved. Mahindra has very strong manufacturing capabilities and supply chain. Besides that the partnership could also lead into product development and R&D. They have a very strong R&D and product development set-up which again we would love to tap into.

There’s also Peugeot Motorcycles which they’ve bought out earlier. We intend to tap into that infrastructure in terms of joint development of vehicles there, using sensibilities from the Indian market. Using our R&D capabilities for electrifying vehicles.

Could the development of EV powertrains for Peugeot also see Hero Electric venturing into the e-motorcycle space?

The exact product range, I cannot give you answers at this point of time. It’s just the start of the partnership. We will definitely explore how the market is evolving. Even here in India, as the market has been evolving over the past couple of years, we’ve stayed ahead of the curve. We knew the market would evolve from low to city speed vehicles so we introduced a city-going scooter accordingly.

We’ve decided to partner and synergise our strengths. Both are complementary to each other. As new product ranges come out we will keep on developing them.

Do you expect e-scooters to also eat into the commuter motorcycle segment?

I believe so, absolutely. At present, the percentage of motorcycle owners switching to electric is significantly low right now but that conversion is already happening. When a customer is buying an EV, there is a very detailed analysis into what he or she is riding, what their profile is, who in the family is going to use it. We want to understand why it is that people are switching to an e-scooter. In a lot of cases, it is the commuter segment. It is the person who’s already got an ICE engine and is switching to electric.

Our best selling scooter, the Optima, costs Rs 65000 with a city speed of 45 kph. Initial purchase price is lower than that of a 100cc ICE engine. Then we look at the cost of commuting. If a guy is commuting about 40-50 km per day, which is high usage, in an ICE engine we’re talking about 1 litre of petrol getting used every day. Which is roughly Rs106 per litre. With an electric that cost is going to be 1.5 units of power which is roughly Rs 12. Imagine a Rs 94 saving on a day-to-day basis. If you calculate that over a period of 3 years, you are talking about a lot of savings. And there’s the convenience angle as well. For a petrol vehicle you’ve got to go to a petrol station. In our case the batteries are portable. So no matter which part of the country you’re in, you have power at home.

With so many brands and several new start-ups trying to pump up volume, do you think there’s enough demand to warrant such projections?

How production shapes up in the next 8-9 years remains to be seen. So no matter what projections you make right now, those projections are going to change in the next 8-9 years. Nobody knows what the production capacity will be at that point of time. This is a constantly evolving situation. The market has the potential to be much larger than the current ICE industry. Because electric taps into the low-speed vehicle market which is not accessible to the ICE automotive sector right now. Even from a global standpoint, when you look at the biggest EV market like China, a majority of the vehicles are in the low-speed category. Smaller vehicles for last-mile commutes. You’ve got Europe, which is a very large market. A lot of vehicles like e-bicycles are used for leisure and commutes. And these are again in the category which are not licensed. India is a much smaller market right now, with the potential to be an extremely large market, much bigger than the current market. When we are comparing it to the current market we are comparing it to the higher speed vehicles, but there is also going to be a market for lower speed category also for people who don’t want to have a licence at all.

Hero Electric currently enjoys a 36% share in the Indian EV market. What do you attribute this customer preference to?

A great deal of it is to do with our history. What you’re looking at right now is a snapshot of our entire journey. I started introducing electric vehicles in India as far back as 2001. We went back to the drawing board and in 2003 again reintroduced electric mopeds at the time which, again, didn’t work. Then in 2007, we took the plunge completely, knowing fully well that this market is going to convert completely at some point, just didn’t know when that’s going to happen. So I started putting all my resources behind it. Formed a separate company, got in a separate team – a senior team – set-up a plant. We knew it was going to be very different and very challenging for this market to convert. In the last couple of years, the policies have become very conducive towards EV ownership.

There are a number of measures we’re taking where we would manage our IPs ourselves. If you look at the track record over the last couple of years when there are over 200 companies in the EV space, our market share remains.

Do you think there’s apprehension from the consumer side about how well lithium-ion batteries can perform in extreme heat and cold?

These vehicles are as robust. There is wear and tear that happens in an ICE engine, and that happens here as well. If the battery is ruined, a new one comes in and the vehicle is good to go. We provide a five year warranty on the vehicle and a three year warranty on the battery. We’ve got numerous examples where people have been using our vehicle for 12-13 odd-years and started off with a lead-acid battery and switched to a lithium-ion battery in the same vehicle. And the vehicle is running in the same manner, still saving them as much money. This is a misconception arising out of range anxiety, durability of the product, charge etc. When we call the same customer over the next few months, to understand their journey, they do not have these apprehensions at all. A large part of our customer base is a repeat customer base.

What do you see as the key factor in increasing market penetration over the next five years?

We’ve already got a strong dealer network which is already in place. We’ve got over 750 dealers and touch points across the country. This is large from a vehicle industry standpoint, it’s not very large from an ICE engine standpoint. But then the volumes are very different. The idea is to take it from 750 touchpoints to 1500 touch points over the next two years. We are already using a hybrid sales model – we’ve got dealers and touchpoints, we’ve got a strong online presence. Last year we went over the previous year, we went 15X in terms of our online sales.

How soon do you think we’ll switch to local battery cell manufacturing in India?

We at Hero Electric are not going to be manufacturing cells locally, so I cannot accurately guess, but I think in the next 18 months or so, we should see a lot of supply coming-in from Indian manufacturers themselves. With the PLI you’re going to get a lot of battery manufacturing done here. But that’s going to change. As the local content in the vehicles, as the supply chain becomes more and more robust, the volumes that companies will be able to handle are much better volumes. There’s a dramatic difference between in the last 18 months vs now. And there’s going to be a dramatic difference 18 months from now.

Why is Hero Electric not interested in local battery manufacturing, especially since rival brands like Ola Electric claim to be ramping up local manufacturing of batteries?

I’m a great believer in collaborations and partnerships. Batteries is one such product which we would rather leave to the specialists. We do not have the capabilities to develop batteries and battery chemistry. We are working on the automotive front and will continue to do that. An ICE company does not start working on engineering or mixing of fuel and additives. That’s best left to the oil companies. In this case we would rather leave it to companies whose core business is to develop batteries. Our business is to develop an outstanding product for the company. Battery technology is constantly evolving. We don’t have the capability to predict whether it’s going to be solid-state or something else. We’ve announced a partnership with LOG9 for rapid charging. And we’re going to continue doing that.

What do you make of the direct-to-consumer model that’s being propagated by rival EV brands?

Would you be a customer of a scooter you’ve only seen online? And I’ve asked people from different walks of life, people for whom affordability is not an issue at all. But cars and scooters are touch-and-feel products. You want to try them out, where you go online. It’s not only a brick-to-mortar vs only online. We believe in a hybrid model. Earlier there was this conflict of dealer vs online. But when the pandemic began, we were predominantly selling scooters online to our customers. And re-training our dealers on how to sell online. And that worked very well for us where we could merge the two together. While we sell online we have the option of routing it through the dealer, where the customer has the option of touching and experiencing the product. We want our dealer network to grow and make money. It may be a low-service vehicle but it’s not a no-service vehicle.

We are also re-training existing roadside mechanics to service e-scooters. Any e-scooter. We’ve already trained 7000 of them. The idea is to train 5000 within the next one and a half years. They’re the first line of defence. They’re very used to fixing things very quickly. It’s about re-skilling the work force and building an ecosystem.

How much of the existing ICE scooter market do you think the low-speed (under 25kph) EV sector will eat into?

Low-speed, which was a very large part of the market till June of last year, occupies a very small percentage now. But we believe that this market will also remain, but won’t be as price sensitive. People will buy it for their children, who don’t qualify for a licence or for older people. We’ve got numerous cases of old people who’ve given up their licence but want convenience.

Why is it that demand for e-motorcycles remains so low? Why haven’t legacy names tried to touch the e-motorcycle space?

There are some issues when it comes down to an e-motorcycle. There’s a form factor issue. In a scooter you can put the batteries low-down and keep the centre of gravity low. In a motorcycle, you have to put the batteries between your legs or the fuel tank, which means the centre of gravity goes up. As you make the vehicle more powerful, the weight increases.

When you look at a global level, the majority of the lower capacity two wheeler market is occupied by scooters. And high-performance vehicles are motorcycles. The form factor favours scooters when it comes to EVs. The growth in the scooter market for ICE is far greater than the motorcycle market. Scooter will be the prevalent form in the commuter segment and motorcycles are going to fall in the leisure segment.

How do you see smaller start-ups faring over the next few years?

Scale plays a very important role in the automotive industry. Unless you’re able to derive scale, it’s very difficult to sustain this business. If you’re sub-scale, then you better be dramatically different from anyone in the business. If you’re going to be in a niche market, then that niche market better be significant enough for the consumer. You have to choose where you have to position yourself. If you’re positioning yourself in the commuter segment, you need large scale manufacturing.

I don’t think there will be a winner-takes-all situation. But I also don’t think there will be 200-odd companies in this space. There will be a handful of companies which will play a very important role. The others will have to consolidate or perish and that’s just going to be the nature of the business.