For Rakesh Sharma, it is more important to take one step at a time when it comes to making the transition to electric.
The Executive Director of Bajaj Auto makes it clear that even while the stage has been set to create an electric two-wheeler hub at the Akurdi plant near Pune, formerly home to geared scooters, there is really no point putting the cart before the horse.
“The urgency we have is more in terms of ensuring that we have the capabilities to be on top of the transition when it comes into the industry,” says Sharma. Today, the penetration of high speed two-wheelers in the EV space is barely 1-2 percent which literally means that the “frenzy surrounding the whole growth is disproportionate” to its size and penetration.
Consequently, it is not as if this minuscule component will “dramatically change” to 50 percent plus in the next 2-3 years. This is largely because the whole cost of the system — largely battery parts prices — has not reduced this year unlike what was seen during the last few years.
As Sharma explains, the trend may have eased off due to demand-supply issues, Covid interruptions etc and the factor to “drive penetration has got muted” at least for now. It now remains to be seen how long this will last.
Additionally, there are secondary factors at play too like the charging ecosystem for instance which will arguably be resolved once viability is in place. After all, there are enough entrepreneurs ready to participate in this ecosystem as was evident in the case of the lead acid 3-wheelers which came in from China. One could “charge these rickety offerings in any kirana store” or in any nook and corner of the country.
“The business case should essentially become viable for the customer and manufacturer,” reiterates Sharma. Sure, there is a lot of support coming in from the Centre in terms of subsidies but this will not last forever which means in reality there is really no business case for either 2/3-wheelers in the immediate future.
“Till that happens, adoption will not accelerate even while there will be a share of early adopters,” he adds. Mass conversion to electric will happen only when the price gap between their internal combustion engine (ICE) siblings reduces and that, in turn, will happen only with a fall in prices of battery parts.
“That will give you a runway of 2-3 years and after that there will be an S curve where the adoption will go from one to two percent and thereon to 4-5 percent before taking off,” elaborates Sharma. The implication is that there is a good transition period for companies like Bajaj Auto which are “fortunate to have an engine churning out cash, profits and volumes” while retaining a pool of competent professionals.
“We have to maintain this and, keeping that in mind, build long term capabilities. We should not get sidetracked by the frenzy and this battle is not going to be won in a year…this is a transition which will unfold over a period of time and our task is to build the capabilities,” says the ED.
This will include strengthening both the front and backend as part of the build up. In the case of the former, the more difficult part is to ensure the right brand value and give a different experience to the customer. As for the backend, the more challenging aspect is R&D while manufacturing is relatively simple in contrast.
“From our point of view, the top priority is to build the capabilities whether it is in manufacturing and R&D. It is obviously not visible to the public at large with all the action happening within the company. We need to have a dependable brand eventually and that is why we are prioritising certainty over speed,” says Sharma.
The simpler option would be to import a product (and there are many doing this especially in three-wheelers where a chassis has been slapped from somewhere and so on) but this can be damaging in the long run. “We can put out a bad product and correct it as we go along but we do not believe this is the right path because it will damage the brand,” explains Sharma.
Building a portfolio
On the contrary, Bajaj Auto would rather stabilise the product first and then focus on building a dependable brand. “It is important for the strategy and the company too. As we build the R&D and supply chain capabilities and get the brand right, the next step would be to expand our portfolio across segments and geographies in a step-by-step manner,” he continues.
All this will mean that the entire process of change could take a few years longer which is keeping in line with market realities and the company’s roadmap. “We do not want to rush for volumes because that will follow eventually. The top priority is to build capabilities and then make sure we secure dependability of the brand,” repeats Sharma for good measure.
When this is done, the strategy would then be to extend widely into emerging segments as well as deeply within India and other overseas markets. As he points out, segmentation enablers will also be different in the electric space with new terms like long range, low range and so on compared to the prevalent and more familiar references to commuter, sports etc.
“Build capability, build the brand and then build a portfolio which addresses different cases both in India and overseas… and then take it from there. We will pull out all the stops but it is not as if you will not see supply happening tomorrow,’ says Sharma. A lot of the R&D effort is now directed towards EVs but all this is happening “under the hood and within the company”.
In this backdrop, he adds, it is of little consequence if a section of people constantly wonder why the company is not selling higher numbers. “To them, I would say let the time come. Right now, the priority is about building capabilities, new platforms etc and this is what we are working on.”
The constant reference to capabilities is deliberate since electric is an all-new animal which requires different skill-sets. If the company were to prioritise certainty over speed, this means giving more importance to sales which really do not matter in the short-term. “If I start selling a little bit later, it is all right but it matters a lot if my R&D and supply chain get delayed,” says Sharma.
It is “very important” therefore to put those in place since they will eventually lead to an increase in sales. “Now if I decide to prioritise sales, I can very easily import kits and bump up my numbers in the next few months. What is the big deal about this? We are not doing that and would much rather prioritise capabilities and not sales,” he explains.
The numbers may not be showing now but, internally, “we are aware that this is a long, lean time but it coincides beautifully” with the transition. On the ICE side, Bajaj Auto is looking at 1-2 new platforms at best while all the other new projects will be on the electric side. However this will all come to fruition over a period of time when the market will have also gained momentum in electric mobility.
“What is very helpful is that we have already got a large organisation, the resources and a wheel that is moving,” says Sharma. Mobility has always been the core of the business too and, with electric, it only means a need to reorient the direction and focus on getting stronger internally.
He also drives home the point that Bajaj Auto spotted the trend very early which also puts in context why it was ready with its electric Chetak in early 2020. But then the world did not reckon with the pandemic that followed and the entire supply chain went into a tizzy.
During these trying times, the company was dependent on some parts and decided to reduce this (dependence) to get more control over the situation while working out a pragmatic costing solution too. This meant that the availability of the Chetak was pushed back by a few quarters. “We took the call of reducing dependency both from costs and reconfiguring the supply chain,” says Sharma.
The fact that Akurdi will now be the new hub for electric is a sentimental factor for a host of Bajaj Auto employees who were associated with this plant during the heady days of the geared scooter. It is also the best tribute one could pay to Rahul Bajaj who passed away recently and was personally passionate about the scooter as a form of mass mobility.
The first electric vehicle will start rolling out as early as June from Akurdi and Sharma says this is truly a special and poignant moment with people across the company feeling very proud and excited. “Akurdi has been the corporate office and R&D centre and is now the homecoming of Chetak . It has touched a chord with many people at Bajaj Auto.”
It will also mark the beginning of more things to come in the electric space. The objective is to expand the Chetak portfolio and not confine it to “just this product that you see” right now. “We want to expand it to appeal to very youthful buyers seeking premium solutions. Beyond commuting, we also want to look at the delivery segment,” says Sharma.
It is here that the company is taking a lot of feedback and inputs from Yulu which is into last mile mobility. Bajaj has invested in Yulu and vehicles will be supplied to the company from Akurdi.
“A lot of gig workers are using Yulu vehicles for delivery and we are getting good inputs via that channel on what would be a good solution for us there too,” he adds. Whether the brand will be Chetak for the delivery space has not been finalised yet but “we will have a solution there”.
Besides, work is also going on with KTM, the Austrian bike maker in which Bajaj Auto has a substantial stake and been a long term ally for 15 years, to look at other mobility forms beyond scooters. “We are getting some good inputs in shared R&D and thought processes too. All this will happen in Akurdi and I expect there will be a lot of excitement and a beehive of activity in a few months,” says Sharma.
In terms of production, Chakan 1 will focus on rolling out the Bajaj brand while Chakan 2 will be home to KTM, Triumph and Husqvarna. Akurdi will be the base for electric 2-wheelers and Pantangar in Uttarakhand will “continue the way it is” for now.
Supply chain challenges
The Waluj facility in Aurangabad will be home for the electric three-wheeler in the future as and when the transition happens. Beyond the powertrain, the chassis and components and the ecosystem are in Waluj which makes sense for the three-wheeler to continue its electric avatar in this region .
Sharma admits that the transition to electric will be challenging for the supply chain since the basket of components will change. However, good quality vendors are recognising the need, “as we are, to build skills and capabilities” for EVs.
According to him, they are seeing what is happening in the four-wheeler space and are gearing up for two-wheelers too which means “they will make a successful transition from largely ICE to EVs”. There will also be a new set of international vendors particularly on the battery components side.
“From our point of view, electric is a tremendous opportunity for Bajaj Auto,” says Sharma. The first cannibalisation will unfold across scooters because it is this form which lends more easily towards electric. Since the company has not been participating in this space for some years now in the ICE arena, the move to electric will open up a vast, new segment.
There are parts of the world, especially ASEAN, where motorcycles are less than 10 percent and this will be a great opportunity for Bajaj Auto which has dealerships, manufacturing, go-to markets but is still not able to participate optimally since it does not have a scooter to offer.
“When electric happens, it opens doors globally and with the right product and brand, it will be terrific for Bajaj scooters. Those markets will also buy electric scooters and the ability to participate with a full range will be helpful,” he adds.
For now, the Chetak is “picking up” though the company believes it is important to “carefully balance spreading the butter all across the toast”. Spread versus satisfaction is the key going forward and even while visibility is important, the customer needs to feel happy and content with the scooter. Going forward, Bajaj Auto hopes to have more metros/towns in its kitty which will hopefully see 30 covered in March and go up to 100 rapidly.
The not-so-good news, however, continues in rural India where two-wheeler manufacturers are seeing sales stagnate for a long while now. “I had been saying before Diwali that the signs were not good because retail during the festive season was weak without too much traction,” says Sharma.
However, people get "sidetracked or distracted" by billing data which is essentially about dealer despatches and driven by the stocking strategy of individual companies. Further, the buying segments for high end cars and SUVs vis-a-vis those buying two-wheelers are as different as chalk and cheese.
As he points out, a large chunk of two-wheeler customers earn much less than their counterparts who go in for fancy car brands. This class has been hit badly economically and weakened considerably during Covid. Even before the pandemic, there were clear signs that their purchasing power was under pressure.
“Their optimism levels have not been restored and these customers are worried that they will need funds for medical emergencies in the future. Weakening economic power and paranoia/pessimism has resulted in this situation,” says Sharma.
Price hikes following BS VI regulations as well as more expensive raw material have done little to boost sentiment and volumes have dropped in the process. “There is definitely an issue in this segment of the auto industry and it has been there for a while now,” he adds while cautioning that the chances of an U-turn happening are unlikely in the immediate future.
(This article appears in the March 1, 2022 edition of Autocar Professional)