We will take legal recourse

Interview/ Naveen Munjal, managing director, Hero Electric

Naveen Munjal Naveen Munjal

Has there been any rapprochement or any kind of informal understanding or talks that have happened on the Hero brand ownership issue?

Nothing of that sort. Like I said, we are very clear on the ownership of the brand. That is how the brand was divided in 2010, when we had a family restructuring. And there has been no change since then. So, we are very clear on our rights, we are very clear on our assignments and we are very clear on the ownership. The point is that if somebody comes in, we will have to take a legal recourse. We still stand on that. There is no further discussion on that. There is no change.

There is nothing that stops Hero MotoCorp from getting into making electric two-wheelers. The problem arises only if it uses the Hero brand name.

The family restructuring said there is no non-compete on product categories. Anybody can manufacture anything, there is no limitation on that. But it is on the usage of the brand, Hero. So, for ‘non-polluting, environment-friendly land vehicles’, as we defined it, the ownership of the brand is with our (wing of the) family.

It doesn’t say ‘electric’; just ‘environment friendly’.

It doesn’t exactly say ‘electric’, because you can’t determine technologies—today it is electric, tomorrow it may be hydrogen fuel cells. So, it’s ‘non-emission, environment-friendly vehicles’.

Could some kind of settlement be worked out? What’s your reading?

Honestly, I don’t have a reading. We’ve just been focused on this sector for the past 14 years or so. We have built a very, very strong brand for environment-friendly vehicles, and that’s what we will continue to do. There is no reading beyond that.

We are focused on getting our numbers through. We are at a very, very good position right now; we are already at our pre-second wave numbers, and that was our best ever quarter (Jan-March quarter of 2021)—we were shipping out 9,000 units a month. Next month, we are increasing our numbers. Our target is to reach one lakh this year. We are not getting distracted.

It could also turn into a joint venture.

Anything is possible. This is family at the end of the day. The point is not to fight at all. The settlement was done very respectfully. I would hope to maintain it that way. So, absolutely nothing is closed. No options are closed at this point.

Electric has been growing phenomenally well. You also just finished a round of funding.

Last couple of years have been very interesting. We got into this space in 2001. In 2004, we experimented with electric cycles, which didn’t work. Then, in 2007, the market began to take off.

I was of the firm belief that this business requires a firm push from our side. Because it’s a new business and we are disrupting a well established sector, this disruption involves 500 per cent attention from our side—just 100 per cent won’t do. That’s why I was clear we needed a completely different team. So, in 2007, we started putting together a team which would handle EVs. So, the objective was to first unlearn everything we knew, as everyone came from an automobile background, and then re-learn as an entrepreneur. That’s where the journey began.

We anticipated market to turn around very quickly. It did to an extent, but then it crashed—financial crisis happened, markets crashed, oil crash—a number of factors happened.

Since then, there has been a gradual change in the market, till 2015-16, thereafter it accelerated. In fact, the change I’ve seen in the last one year is dramatically faster than what we’ve seen in the entire last decade. This is a push from the governmental standpoint. A lot of the pieces of the puzzle are in place now. We had FAME II, a good push from the government, but it didn’t quite work the way we [and the government] anticipated. We felt course correction was required, and that’s been the case with our business as well.

And that’s exactly what’s happened in the last couple of months. FAME got enhanced, the policy change which went from Rs 10,000 Rs to 15,000, and policy cap from 20 per cent to 40 per cent, that impact [itself] is substantial, but the other ripple impact is much larger—within this, the batteries have gotten much cheaper. As a result, what we define as the ‘city speed’ category (45-55km speed) has become cheaper as they are now eligible for financing. It will become far more prevalent than it was before. Because of this one change, we will see multi-fold growth. Plus, it has been extended till 2024—that also certainly helps.

Then, of course, you have the state policies. Including the latest one from Rajasthan, there are about 16 plus states with an EV policy (offering sops to the EV sector). A lot of them were manufacturing-led, subsidising or giving some incentives for manufacturers. We told them, that’s important, but what’s even more important (is for the measures) to be demand-led. Once demand comes up in a state, you will start finding an ecosystem for manufacturing becoming far more prevalent. So now with all these factors coming into play, we’ve had a huge jump in the last year in terms of pricing, the total-cost-of-ownership (TCO) gap between electric and (conventional) combustion engine has widened in favour of electric considerably. The gap was wide enough already, now it has widened even further more. That is becoming very very critical for EV. Now this industry is going to see an explosion of growth, from this year on. This year is going to be a very, very critical year.

So, you can now have an affordable electric two-wheeler that is powerful enough?

The factors you are talking about, to an extent, were there many years back. When we had lead acid batteries, they had their own challenges. Last year, majority of the market (about 70 per cent) was a low-speed market, but I think the scale is going to tilt in favour of vehicles which qualify for the policies this year, which means a vehicle going at 45km an hour, with a range of 80km. The range was never was an issue, it was more of an anxiety issue. We offer vehicles ranging from 80 to 200km; we offer portable batteries across our product range, which you can take up to your apartment and charge. That said, range anxiety is a factor, so we do have a charging station network in specific cities and areas, about 1,600 of them so far (to be taken up to 20,000 soon). What we have found is that sales go up in those areas, but usage is minimal. So, this is only for topping up for 15-20 minutes. Clearly, we understand this infra is important.

Other thing we’re doing is with roadside mechanics. They didn’t understand EVs well, so we’ve been training them—6,000 so far, and we’ll raise it to 25,000 in two years time. Attrition is very high.

What is the indigenisation level in the industry—are we looking at R&D, or is it all still imported?

We have a very strong R&D. But what we are not doing is basic tinkering at the chemistry level. That is best left to the specialist companies, they have the wherewithal to do that, they understand this far better. What we’re able to do in a very practical sense is to get the vehicle on the roads, test the batteries on Indian conditions, the heat, water, the cold and the potholes and see they are the best we can get for our Indian conditions. That is what we’ve been doing. Clearly, we’re gonna collaborate with a number of companies on this, and we have been doing it. This is not something we’re gonna manufacture in-house. We may assemble the batteries at some point of time, but that is actually a much lower value-add than manufacturing them. Cells are not being manufactured in India at this point of time. There is a new PLI scheme for advanced cell chemistry (ACC) manufacturing, and I understand a few companies have applied for it. In the next couple of years, we would see battery manufacturing also coming into India. It’s a chicken and egg situation, you know. How big is the demand, and that is when you increase supply. Now, demand has started increasing, so it makes commercial sense for someone to set up a battery manufacturing plant. Till such time, the batteries and cells are going to be imported, assembled and packaged here and supplied to us by our partners. That’s one part.

The second is the evolution of the technology itself. We are now in the gen 4 of the battery itself. Cell chemistry is changing dramatically. Just like the performance of your computer or cellphone now is far better than one from a few years ago, the chemistry is also getting better. The batteries now last longer, the aH is higher and so on. There are projections that solid state batteries are going to come in, sodium batteries, aluminium batteries are going to come in. But it’s not something that is going to come in overnight. Any new technology take about 5 to 8 years to get established—manufacturing, testing, recyclability have to be found out, we have to find out how they perform under Indian conditions. We have batteries we are testing which will not come out until 2 to 3 years. That’s a constant process. As technology evolves, prices will continue go down to a certain level Now, 150 per kWh, there are projections it will go below 100. Then what’s going to happen is that battery density will improve, performance will improve. Investment that is going into this field, on a global level, is immense, whether it is EVs, IoT, autonomous driving, battery technology, charging infra. You’re going to see very, very different vehicles on the roads from what you see right now. They’re going to be far superior than what we have right now.

You said this year is going to be critical. So, what would be that point of inflection, when EV takes off? What is it that’s needed, and when?

A lot of those factors are already here. India is not necessarily the cheapest market, but it is a value sensitive market. We look at performance, price, durability. From that perspective, a great deal of factors are already in place. Now let me give you some of them, FAME on the basis of what money you are getting back. Financing is also going to fall in place. State policies, we’ve already got 15-plus states with an EV policy, what they’re doing, in many cases, is adding on benefits on top of the central policies. For the customer, it’s never been a better time than to buy an electric vehicle than now, and the next couple of years.

Let me give you some numbers—if you take the ICE pyramid, 85 per cent of the vehicles are commuter or entry level vehicles, up to a price point of Rs 90,000 for a BS6 vehicle. When you look at electric, in a state with no subsidy, the vehicle’s gonna be around Rs 60,000 for a city speed (50km speed/80km range). It’s already lower than an ICE vehicle. In states where there is a subsidy, that amount comes lower to Rs 50,000, depending on which state it is.

Now, look at TCO—if you are using a vehicle for 40 to 50km a day, you’re using average one litre of petrol, which is average Rs 100. For an EV, that’s about one-and-a-half units of power. That’s about 12 rupees! 12 x 100 rupees. If you look at a three-year period, that’s Rs 1 lakh versus Rs 12,000.

The triggers for explosion (in growth) is already there. Now, what we need is awareness. The other is, we should have long-term policies in place for conversion. Many countries have already set targets, by 2030 or 2040 we will have this much conversion to electric, to emission-free vehicles. In India, we still don’t have such goals in place. Let me give you an example: If we didn’t set a target for BS6, how many would have converted? It was a very tough change, needed a lot of investment. It doesn’t have to be tomorrow, but set a target in a few years.

The other is to have a dense charging infra in place. It can take care of the range anxiety.

On our website, a customer can find us by a dealer, charging point. Nobody’s really using our charging points, it is more of a marketing expense. It is just like charging your mobile or computer—the same thing’s going to happen here also.

We’ll reach a point where we may not need charging, we could make do with denser batteries.

FAME is on till 2024. Do you think by that time the cost of economics would work for the companies, that they would have have scaled up enough by that time to not need these incentives?

There could be a number of other steps as well. One is creating awareness. Second, import duties on batteries. Till such time we are pushing this industry through, let’s say for the next 2-3 years, everything should work in sync with each other, in terms of duty structure. And everything should be milestone-based—one million mark, this is what will happen. Two million, this will happen, like that. And localisation of even components not manufactured here, should happen. That establishes the industry very well. The other factor is a nudge, through B2B sector, to actually start delivering through EVs. A lot of B2B delivery is through old vehicles. So a nudge to the delivery sector to start delivering through EVs—that’s a saving for the rider, saving for the company and it’s beneficial to the environment. You’re not incurring any extra cost.

The issue is that in an aggregator model, the driver is responsible for the vehicle, so the regular delivery guy uses an old vehicle he buys at a nominal rate but high interest. For him, an EV’s cost price may be too high. But a nudge in that area—how is that leasing going to happen to that guy, that’s very important. Once that conversion happens, it’s going to be in hundreds of thousands, I believe that is going to happen soon. Those are some of the factors. Some of these blocks are already in place. So now, we got to create that conducive ecosystem in place for electric mobility to really take off.

What kind of product expansion are you looking at?

We as a family historically have been a two-wheeler focused one. We’ve dabbled in three-wheelers in the past, but that’s not something we’re gonna get into it again not in the near future. This market is big enough to keep us more than busy for the time being. The number that we are looking at is a bare minimum of a full million. That is something certainly doable. We are already scaling up our factories to 3 lakh a month, and soon to one million and beyond. We are also seeing how the market’s evolving, and accelerate. That million number may happen sooner rather than later, is what I am saying.