Hero Electric defers commissioning of Rajasthan plant to end of 2024

Electric two-wheeler OEM cites delay in land allotment but remains confident about its ability to cater to current India market demand with existing installed capacity.

By Mayank Dhingra calendar 16 Mar 2023 Views icon6527 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp

Electric two-wheeler maker Hero Electric which, in September 2022, had signed an MoU with the Rajasthan government to set up a mega EV manufacturing plant in the state's Salarpur industrial region and commence production by end-CY2023, has now revealed that it will be deferring the commissioning of this new facility by around 12 months.

Hero Electric, which is yet to receive the 170-acre land parcel planned to house the greenfield, 2-million capacity electric two-wheeler plant from the Rajasthan government, says the delay will not impact its production volumes. This confidence stems from its existing installed capacity which is sufficient to manufacture projected volume of 100,000 units in CY2023. For CY2024, the EV OEM has targeted domestic market sales in the range of 170,000 to 220,000 units.

At present, Hero Electric manufactures its electric scooters at its 100,000-units-per-annum capacity plant in Ludhiana, Punjab, where it is also in the process of moving operations to an upcoming 250,000-unit-capacity plant over the next three to four months. Hero Electric also has a shared manufacturing arrangement with Mahindra & Mahindra, wherein it is leveraging the latter's 250,000-unit-capacity two-wheeler plant in Pithampur, Indore to roll out the Optima and NYX – two of the most popular products in its 14 e-scooter portfolio.

"We are well placed to cater to the current demand with our existing installed capacity and, therefore, we do not need to expand capacities immediately. The delay in land allotment, due to the area's infrastructure development work still being underway, suits our capacity utilisation and investment cycle as well. We will now only commission the Salarpur plant by end-CY2024," Naveen Munjal, managing director, Hero Electric, told Autocar Professional.

Naveen Munjal: "The delay in land allotment, due to the area's infrastructure development work still being underway, suits our capacity utilisation and investment cycle as well."

However, even when the new plant likely goes on stream by the end of next year, Hero Electric will not commission the entire planned capacity in one go. Instead, it plans to commission individual lines in phases and hit the peak 2-million capacity over the next few years, in line with demand for EVs across India.

The setting up of the Rajasthan plant calls for infusion of Rs 1,200 crore for which the company plans to leverage a mix of internal accruals, debt and equity from investors. The greenfield facility is envisaged as an EV-manufacturing hub, with 50 acres of the 170-acre site earmarked to house a captive supplier parc.

Hero Electric's recently opened showroom in Durgapur. The EV OEM is strategically expanding its network in Tier 2 and 3 cities in India. 

Bullish on e-two-wheeler demand

The company remains optimistic about growth in the electric two-wheeler segment in the country. In CY2022, electric two-wheeler sales in India were pegged at 615,365 units, registering notable 305% year-on-year growth (CY2021: 151,685 units). Among various players, Hero Electric registered its best-ever annual performance by selling 100,123 units and growing its overall customer base to over 600,000 individuals who are looking for a city-speed (45-60kph), commuter e-two-wheeler, a category which is its forte.

"The city-speed e-two-wheeler band itself has increased from being earlier placed at 45kph, to e-two-wheelers capable of reaching speeds up to 60kph. While we are developing more premium, lifestyle products, the commuter segment is the one where the chunk of the electric two-wheeler market lies, and we want to primarily operate in that space. The Tier 2 and Tier 3 cities are our mainstay markets, instead of the metros," affirms Munjal.

Hero Electric is maintaining its CY2023 volume target at the same level as last year, and plans to sell around 100,000 units. This, as per the company, is because of a considerable amount of revamp is underway at the back end. "There is a lot of work that we are doing in terms of supply chain, and manufacturing as well as technological enhancements in the products. Although we are maintaining flat growth for the ongoing calendar year, the value of our products is going to significantly increase, therefore resulting in higher revenues," says Munjal.

While 90% of its business comes from end-consumer retail through its 850-strong dealer network, Hero Electric is also witnessing good demand from the B2B segment, with some of its e-scooter models suiting the application requirements of e-commerce, and last-mile delivery service providers.

Hero Electric claims to be witnessing good demand from the B2B segment, with some of its e-scooters suiting the application requirements of e-commerce and last-mile delivery service providers.

Targeting higher degree of localisation

On March 15, the company unveiled three new variations of the city-speed category Optima and NYX electric scooters, which now offer more connectivity features, higher range as well as performance. While they are essentially the same products on the outside, Hero Electric says these are now completely changed from the inside with 100 percent gross localisation. 

After Hero Electric recently came under the government scanner and was accused of allegedly availing of subsidies under the FAME scheme despite having lesser local content in its e-scooters, the company has heightened its focus on localisation. The EV OEM has in over the past couple of months inked partnerships for sourcing of components from local vendors, including the likes of Dhoot Transmission (wiring harness), Nidec (e-motors), Battrix (battery packs) and Exicom (BMS). 

"We are confident of our technology, and these are completely localised products being offered at far better price points than competition. The new models take partial subsidy into account which is already being passed on to the customer, and even without considering the FAME subsidy, they still hit the sweet spot in terms of the buyer's affordability in this segment," says Munjal. 

While the EV industry is abuzz with talk about the likelihood of withdrawal of the FAME subsidy by the government in FY2024, Hero Electric says that subsidy-dependent business is not something that it subscribes to, and that all its products are designed in a way that they remain affordable and offer the total-cost-of-ownership (TCO) advantage to customers even without subsidies. "Therefore, our volume targets are a little conservative," points out Munjal.

While Hero Electric expects a blip in demand for electric two-wheelers in India, if, and when, the FAME subsidy is pulled out, it expects the market to quickly recover, particularly from a mid- to long-term perspective as EVs will continue to offer better TCO (total cost of ownership) compared to petrol-powered two-wheelers. 

"Moreover, as we go along, EV financing will become more prevalent, and resale value of these vehicles will be taken into better consideration. These factors will drive EV growth in the coming future even without taking subsidies into the equation," remarks Munjal on an optimistic note. 

"While EV demand is going to be robust in FY2024, the growth of the electric two-wheeler industry in India is not going to be linear. At the micro-level, it will plateau after reaching a certain volume, allow the supply chain to catch up, and resume its growth again. While this estimate is considering the FAME subsidy is not there, should the subsidy return, we will continue to see substantial growth in the overall electric-two-wheeler segment," says Munjal. That’s a trend a number of other EV players continue to be bullish on.

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