The ongoing industry crisis arising out of the Covid-19-driven lockdowns, other strategic and geo-political factors are compelling some leading Indian automotive companies to write off investments in their ailing foreign subsidiaries, particularly in the electric vehicle (EV) space.
Bharat Forge plugs out of Tevva Motors, re-aligns Tork
Pune-based Bharat Forge is the latest automotive company to do so. The world's second-largest forging manufacturer has written off Rs 89 crore towards impairment of its investments in UK-based Tevva Motors. "Like several other start-ups, Tevva too has been severely affected due to COVID crisis. While Tevva's technology platform is evolving, its financing, and the commercial outlook remains uncertain now. Consequently, as a matter of prudence, the company has provided Rs 89 crore in standalone financial results," the company said in a regulatory filing.
The Baba Kalyani-promoted Bharat Forge had two key reasons for taking the call. Tevva was at an advanced stage of receiving a grant from the UK government for the development of EV technologies. Secondly, a large US-based company had shown serious interest in commercialising Tevva's technologies. However, Covid19 impacted both these plans. While the talks with American investors could not fructify, there is still no clarity over technology grants from the UK government.
In June 2018, Bharat Forge had taken a strategic stake in Tevva Motors, a provider of electric powertrain solutions in the commercial vehicles segment for 10 million pounds sterling (about Rs 90.30 crore). The technology has its application on 7- or 14-tonne buses/trucks for use in city transport, e-commerce or school buses, amongst others. The deal provided Bharat Forge the rights to commercial usage of technologies developed by Tevva Motors within India.
Does the association hold any value now for Bharat Forge? Amit Kalyani, deputy MD of Bharat Forge, certainly believes so. Tevva's licensed technologies will be localised for Indian customers, says Kalyani. Further, in the fast-moving business environment, Tevva's acquisition helped Bharat Forge save crucial time. "We have saved 3-4 years of time by leveraging Tevva's technologies," he remarked during a recent conference call with analysts.
Bharat Forge has put all its other international subsidiaries too under the scanner. A cost rationalisation process is already underway with assistance from consulting agencies.
These developments will clearly have an impact on Bharat Forge's long-term plans to transform itself into a technology solution provider across sectors. The manufacturer of automotive chassis and engine components such as crankshafts, front axle beams, connecting rods, steering knuckles had been making strategic acquisitions since the past few years in Europe. Through these acquisitions, the company developed dual-shore manufacturing capacities for many production facilities, for its customers in India and abroad.
Bharat Forge's acquisition strategies have been in line with the trend wherein some automakers have, over the past five-odd years, made strategic investments globally as well as locally to plug into the vehicle electrification megatrend and also stay relevant.
Apparently, a change in strategies is also on cards for Bharat Forge's local subsidiaries. For example, Tork Motors in which Bharat Forge holds around 49 percent, will now realign itself more towards supplying drivelines to three-wheeler OEMs. "That's going to be our first line of business," added Kalyani. Tork Motors started supplying electric powertrains to three-wheeler OEMs last year with help from Bharat Forge.
Tork Motors, a start-up set up by Kapil Shelke in 2009 as India's first electric motorcycle company, has thus far received funding of US$ 4.7 million (Rs 34.78 crore). The EV start-up has since then seen investments from Ola founders Bhavish Aggarwal and Ankit Bhati, and also Ratan Tata, chairman emeritus at Tata Sons, amongst others. Kapil Shelke, founder and CEO of Tork Motors, did not respond to a query sent by Autocar Professional.
Ashok Leyland takes Rs 100 crore hit on Optare
CV maker Ashok Leyland has set aside around Rs 100 crore as impairment loss in the value of its equity investment in Optare Plc. The UK-based EV maker is seeing tough times and has two key challenges. Talking to investors Gopal Mahadevan, whole- time director and CFO at Ashok Leyland, said: "One is because even before Covid-19, we had Brexit. It (Optare) is based out of London and we had seen the demand coming off in that as well," Mahadevan told analysts. The impact of Covid19 later only ended up deteriorating the situation.
But not all is lost for Optare because it has recently bagged some impressive orders including the latest one for the supply of 37 Metrodecker electric buses from the London bus operator. Earlier, Optare won a supply order for 100 buses to Dubai. It also completed its biggest ever export order for supply of 114 buses to Tranzit Group, one of New Zealand's largest public transport operators.
Considering Optare's future growth prospects, Ashok Leyland plans to stay invested in the company. "What we are trying to do is to actually change the product profile of this company. We have put in some of the best people from Leyland inside the company," Mahadevan added. Also, there could be some good news for Indian travellers as Ashok Leyland could be looking to bringing Optare buses to India as and when the roads are ready for ultra-low buses.
Mahindra & Mahindra unplugs Genze
The biggest of impairment charges came from Mumbai-headquartered Mahindra & Mahindra (M&M) which made a provision of around Rs 2,780 crore to part ways with a couple of its international subsidiaries.
According to M&M Group CFO Anish Shah, almost 80 percent of the write-down during FY2020 has been on account of its South Korean subsidiary SsangYong and US-based electric two-wheeler start-up GenZe. It can be recalled that GenZe started as an incubator-funded business by M&M in 2012, developing IoT-connected electric scooters and bicycles in California. The start-up later in early 2019 was inducted into Mahindra Automotive North America (MANA).
"M&M is currently aggressively looking to completely exit from SsangYong and has decided to shut down GenZe," Dr Pawan Goenka, MD, M&M said during a virtual press conference. M&M, over a period of the last five years invested in numerous international subsidiaries by way of mergers and acquisitions. However, returns from these international operations have not been to the satisfaction of the management since the past couple of years.
Nonetheless, Mahindra remains bullish on the overall EV business and its electric mobility arm – Mahindra Electric.
TVS and Bajaj Auto maintain EV investments
However, unlike the firms mentioned above, there are others who have continued with their line of investments in EV start-ups. TVS Motor Co, for example, increased its stake in Ultraviolette Automotive to 25.76 percent as of March 2020, up from the 15 percent it first acquired in 2017. Likewise, Bajaj Auto invested around $8 million (Rs 57 crore) in Yulu Bikes, a Bangalore-based electric bike-sharing platform.
These two OEMs are also recent entrants into the electric two-wheeler space in India with their own electric scooters.
Lead illustration courtesy Bosch