2013 Two-Wheeler Special: Hero Electric to focus on R&D, powertrain

The MNRE subsidy, announced in November 2010, included financial incentive schemes (upto 20 percent on the ex-factory prices) for buyers of electric vehicles.

Autocar Pro News DeskBy Autocar Pro News Desk calendar 31 Jan 2013 Views icon4231 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
2013 Two-Wheeler Special: Hero Electric to focus on R&D, powertrain
Last month, prime minister Dr Manmohan Singh unveiled the National Electric Mobility Mission Plan 2020 (NEMMP). The Mission envisages an expenditure of Rs 23,000 crore to promote the use of electric and hybrid vehicles. Of this, the Centre plans to invest Rs 14,000 crore while the remainder is expected to be invested by electric vehicle (EV) manufacturers who will invest their share in the form of R&D capabilities, manufacturing practices and, most importantly, the setting up of a network of charging stations across cities in India. A pilot project is expected to kick off in New Delhi in April.

While this is good news for the EV industry, Sohinder Gill, CEO, global business, Hero Electric, who is also the director of Society of Manufacturers of Electric Vehicles, India (SMEV) strikes a word of caution. He says that “this will be good news only when the government includes the prepared draft in the upcoming Budget.”

In such a scenario, it would not be worth spending on expanding existing capacities. So Hero Electric, the largest player in this domain and a 100 percent subsidiary of the Hero Group, plans to invest its own funds in R&D activities, technology, design and improvement of powertrain efficiencies which form the backbone for growth in the future.

“That’s our focus in 2013,” he told Autocar Professional. “We have a production capacity of 220 EVs per day. The Optima is the largest-selling electric two-wheeler in the country selling around 12,000 units per year,” he added.

Governmental support vital for EV industry

The Union Budget will be announced at the end of this month and then the implementation of fund flows and approvals from the government in various areas (R&D, manufacturing, user sops, charging stations and locations) may well take another three months to materialise.

Hence, Gill believes that the possibility of EV- incentive-specific fund flow will not kickstart in April. He, however, points out two factors closely related to this development – falling footfalls at the EV retail showrooms and abrupt withdrawal of the subsidy offered by the Union Ministry of New and Renewable Energy (MNRE) last year.

The MNRE subsidy, announced in November 2010, included financial incentive schemes (upto 20 percent on the ex-factory prices) for buyers of electric vehicles. The cap on the incentive was Rs 4,000 on low-speed and Rs 5,000 on high-speed electric two-wheelers. The incentive was passed on upfront by OEMs to the customer and later claimed from the government.

“Due to the support from the government, the market for electric two-wheelers in 2011-12 witnessed a doubling of sales, at 85,000-90,000 units. However, in the wake of the national EV policy and withdrawal of the subsidy on 31 March 2012, four players and around 350 dealers shut shop,” he says.

For 2012-13, the market has now reduced to 40,000-42,000 units, says Gill. “We had in fact requested the government to release funds of roughly Rs 55 crore on an urgent basis for the survival of some players but that did not happen. Hence, on paper, there is no financial assistance and the talked about funds may not happen before June-July 2013,” says Gill.

According to Gill, customers visiting the showrooms say that they will come back once the benefits are passed on to them. “Delhi is the most progressive and EV-savvy state followed by Uttarakhand and Rajasthan for announcing zero VAT duties on EVs. West Bengal and four states in South India have a positive approach too. However, Maharashtra, Uttar Pradesh and Punjab seem to be completely non-receptive despite those being potential high-volume markets,” says Gill.



Who are the EV buyers in India?

So who are the buyers of electric two-wheelers? According to Gill, almost 75 percent buyers of electric two- wheelers are the first-time purchasers who buy them for economy.

“Their expectations from the projected battery use in these scooters are impractical. They overuse the batteries, do not maintain their vehicles, and subject them to heavy running. To add to that, we have some ill-informed EV manufacturers who claim unreasonable statistics to attract customers such as 10 paise per km, battery life of 2-3 years, which pre-defines a negative perception,” he clarifies.

On the other hand, says Gill, there is a new upcoming class of buyers (mainly students and elderly) who are aware of the capabilities of an electric two-wheeler and use them for light, short-distance running and regularly charge their batteries. This type of educated buyers currently forms 25 percent of end users.

“We have always propagated that the lead acid batteries (which cost less than 30 percent of an electric two-wheeler’s cost) can enable cost-recovery (of the full vehicle cost) in 6-7 months. The customers must always replace the battery within a year to ensure that their vehicle is running well. We provide incentives in the form of 20-40 percent discounts on new batteries and buyback of the old ones,” he says.

Lithium ion versus lead acid batteries

Gill believes that though improved versions of the lead acid batteries are developed which offer 10 to 20 percent extra life, the ultimate answer to a longer battery life and running time is the expensive, lithium ion battery. “The costs of the lithium ion batteries haven’t come down except for some Chinese options (where replacement is a big issue). A normal German or American lithium ion battery can offer a lifecycle of upto five years. Usage of lithium ion batteries in electric two-wheelers could get a solid push if banks and financial institutions start financing them. I also recommended to the government officials and industry colleagues on the NEMMP platform that they extend support to the local development of such batteries. Though the government is ready to partially fund the research projects on the same, private manufacturers have to take the bite of bearing the costs involved in producing these batteries."

"If major hybridisation of vehicles happens in India soon, then the government will increase its support to the industry, it may also rationalise the custom duties of the electrical components (currently four percent) alongside the mechanical components (currently 28 percent) to push the local production,” he reasons out.

Meanwhile, it is the industry which has to come up with ways to bring down the costs such as locally manufacturing the key components under feasible costs. For instance, Gill believes that the EV component suppliers in India are good on the mechanical side but lag behind China, Korea, and Taiwan on electronics and powertrain parts front, which is a key learning area.

Gill says institutional sales have picked up over the years. “With small institutional buyers, government and public sector buyers, IT campuses (Hyderabad, Bangalore) and CSR activities, sales under this head are expected to go up to 25 percent of total sales in the next two years as against less than seven to eight percent currently,” he adds.

Hero Electric currently has over 250 dealers across India and has, of late, begun receiving applications for dealerships.

AMIT PANDAY
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