Macroeconomic pressure may slowdown two-wheeler demand but EV growth will continue to soar: Tarun Mehta, CEO Ather Energy

It’s been a charged-up performance. From fighting supply chain issues in 2021 to clocking over a four-fold jump in sales in 2022 at nearly 60,000 units which it expects to grow at least three to four times even as the competition heats up with Ola Electric, Okinawa Autotech, and Hero Electric, the Hero Motocorp-backed electric two-wheeler maker Ather Energy has come a long way. It is now charting plans to become India’s largest EV maker.

The firm is planning to take its capacity to nearly 15 lakh units per annum through its existing facilities in Hosur in Tamil Nadu from the current 4.2 lakh units, underscoring strong demand for electric two-wheelers in India. The firm is also looking to finalise setting up a new facility in the next few months.

Last week, Ather had its first Community Day event in Bengaluru that recorded a footfall of at least 1,000 EV enthusiasts and Ather users. The firm launched a slew of new features for its two products, the Ather Plus and the Ather 450X, including auto hold, and announced an upgrade to its operating system, Atherstack 5.0.

In an interview with Moneycontrol’s Chandra R Srikanth and Bhavya Dilipkumar, Ather’s co-founder Tarun Mehta said that the firm will be looking to raise a round or two in the next few years and gave a glimpse of the company’s vision and demand for 2023. Edited excerpts.

You are growing your production capacity by three times in the next one year. Has the EV market now become a scale game, thanks to competition, forcing you to join in? Because you used a more slow and more steady approach to build the business so far.

I think competition always drives clarity. So in our case, that was the strategy. We wanted to take the first few years because we were blessed to have started an era when there was no competition, we didn’t need to react to market changes and fast-track something that was not ready. I think we got lucky with that timing. And the growth of this space coincided with our growth story. Competition pushes us all to the quality market, it forces us it pushes us to sort of pick up speed on a few upgrades. But speed has not changed our core philosophy.

I've been very vocal about this at all interactions -- we will not do something that we’re not super comfortable about. Even for a simple feature like auto hold, we took nearly two years, that’s the level of perfection we are looking at.

Will you also be looking at expanding your battery pack manufacturing? And are there any supply glitches in lithium cells for batteries due to rising COVID cases globally? 

Yes, 15 lakh is the target for battery packs as well in the next year. We presently import cells from Japan, Korea, and other countries and so far we are not facing any issues on that front.

The macroeconomic pressures are causing a slowdown in demand for many industries. How are you placed?  

The macroeconomic condition may slow down the two-wheeler space, but the reality is overall, for electric scooters, growth is coming on account of taking sales away from manufacturers of conventional two-wheelers. This is a market of substitution, as opposed to a market of new opportunity creation. And for us, there is a lot of substitution scope here. The industry is selling 8-9 lakh two-wheelers; this alone solves growth massively. See internal combustion engine (ICE) is selling these scooters out of 3,000 stores, and we are nearly at around 70 stores and now around 90 stores. There’s still a lot of catching up. We are barely 3 percent of the penetration so far.

What will be your sales as of the end of CY22 and what is your projection for next year? 

So at the end of the previous calendar year, I think we were around 59,000 units and I think we'll all grow at least 3X to 4X. It is not going to be like 30-40 percent growth; rather it will be at least 200-300 percent growth. Demand is still higher than supply as of now and we are growing our stores at the same pace that we are increasing our supply in order to feed the demand.

And are you well capitalised to execute these plans? You're talking about a third plant, so how is it going to work for you? 

Improving unit economics makes a lot of this stuff easier for us. But yes, the business is not yet profitable. So we will be bridging these gaps via a capital raise, maybe in a year or two. So there will be a fundraise or two more to feed our growth. That’s all that is on the cards as of now.

You're also in an interesting situation where Hero is an investor and they are now a competitor. How do you square with that and will you be looking at getting other investors to perhaps to ease them out of the cap table eventually?

Hero has been a fantastic shareholder for us, very important partners. They were the ones who were able to see what Ather can do. And they were, frankly, one of our earliest investors. So there are no such plans, I think we are very happy with them on board. They continue to participate in almost all our fundraisers, we have to see that happens. And I think that the understanding it's been built up for over six years, that Ather wants to do a different thing, Hero, has its own path. Hero was able to see this opportunity early. And we do have some synergies, like the charging infrastructure. But yes, both of us understand our paths are independent. Just because your paths are the same does not make everybody a brutal competitor. So I think we are very happy with them as shareholders.

Why has Ather exited the Society of Manufacturers of Electric Vehicles (SMEV) and why are you not participating in the Auto Expo 2023? 

Society of Indian Automobile Manufacturers (SIAM) was just a better forum for us. SIAM is doing a lot of work towards the EV space as well. And it has a bigger understanding of the entire auto space and I think also has a better voice. Given increasing scale, it made a better space for us. And with regards to Auto Expo 2023, I'm not a big fan of expos in general. Frankly, I don't know what to get out of it. Like, we just end up showing our product to our suppliers and dealers, and they know about us. So today, I don't see the point. Customers don't need to come to the Auto Expo to see our vehicles, frankly.

What plans do you have for the B2B space, especially in the last-mile delivery segment? 

I think that's a big opportunity and it is already expanding very fast. But again, we can’t lose focus on the products we make now and I can't do everything at one. We don't know how to market to that segment. We don't know how to sell to that segment. We don’t know the right product for that segment, honestly. Everything has to be built new, from scratch, and hence we don’t want to get distracted by experimenting in that as well.

Any plans on an initial public offering (IPO) in the next few years?

See, profitability is key for us and we will only then look at an IPO. The market condition should also be right and we will have to turn profitable to think about that. Our sales numbers are great, demand is growing and we are very bullish on the segment we operate in.

Any expectations from the upcoming budget given that the FAME subsidy is expiring in 2024? 

I think the industry needs a couple of years to sort of stabilise without subsidy. It's not there yet. So maybe not this budget, but the next budget. I'm hoping that the subsidy continues for another couple of years. But I think equally we have a line of sight. I don't think the industry needs subsidies. I think it is needed for a couple of years more, maybe three years more. So I think that visibility would sort of give a lot of ability for companies to plan better. But beyond that, I think the government is doing all the right things.

Last year was tough for many startups. How are you looking at costs, burn, hiring and profitability at Ather? Is there any hiring freeze?

No. So we've been hiring not because of just random roles, we've been hiring because the product development is getting deeper and deeper. One thing we do to control expenses is we do fewer things. We won't do five things or ten things and get distracted. Fewer things allow us to get better control on cost structures. And Ather continues to grow today in terms of headcount also, whether manufacturing or design, and we also have the largest R&D setup in the country. But beyond that, just basic fiscal prudence is what we follow.  I don't want to fire three bullets out of which one might work as a product. We're better off taking four years and firing one bullet that has its solid chance of working. So it's a simple strategy to invest very deeply in whatever you do, but then just do fewer things!