Here’s Why Hero Electric Will Invest INR 700 Cr Into EVs Amid Auto Slowdown

Looking past the current economic slowdown, Hero Electric has decided to continue its INR 700 Cr investment into the manufacturing and sale of its electric two-wheelers in India.

Hero Electric Managing director, Naveen Munjal, told ET that even though the sales of electric two-wheelers dropped in the first half of the financial year 2020, the market is expected to pick up pace in the upcoming years.

Hero Electric will be using the INR 700 Cr investment in developing new products, expanding dealer network and increasing the production capacity of its manufacturing units. The company, which only has one manufacturing unit in Ludhiana, is looking for more locations to set up another manufacturing unit that can produce 80-90K units of electric two-wheelers per annum.

The fuel this investment, Hero electric will be relying on internal accruals and external capital.

The Sales Of Hero Electric

Munjal added that Hero Electric also suffered due to the change in certification policies of electric-two wheelers under Faster Adoption and Manufacturing of Electric Vehicles (FAME 2) scheme. The company did notice a slow growth in this period.

However, the company is positive that it will grow in the upcoming months and, therefore, it decided to continue its investment efforts. Munjal added that the entry of rivals like Bajaj Autos in the emobility space is a positive sign that there is a potential to grow in this segment.

In addition, the entries reflect that the big players are converting or are planning to convert from internal combustion engine (ICE) to electric engines, however, the timeline cannot be specified, Munjal added.

Sales Of Electric Two-Wheelers

The sales of high-speed electric two-wheelers sank by 94% in the first half of the financial year 2020. Only three thousand e-scooters sold in the period, compared to 48,671 units in the first half of FY19. This fall can be attributed to the change in the FAME II recertification rules implemented in April 2019.

According to a report published in Inc42, the recertification held up production lines as the companies were expecting certain changes based on the process. On the other hand, the sale of low-speed electric vehicles, which do not fall under the ambit of FAME 2, remains constant with 49K sales in FY20.

The Society of Manufacturers of Electric Vehicles (SMEVs) also added that the FAME 2 policies have lowered the subsidies provided to high-speed electric two-wheelers, making them costlier. It added that the policies have pushed the customers into buying low-speed electric two-wheelers, which are anyway cheaper.

Hero electric MD Munjal also added that out of 52,000 (total) electric-two wheelers sold in the first half of FY20, Hero electric accounted for nearly half of them.