Tensions began brewing between them since Hero Motocorp began preparing for the launch of its first set of two-wheelers under the electric vehicle segment under Hero brand name
prima facie case of hero electric looks strong …
"Hero family sources privy to the developments told CNBC-TV18 in July 2021 that the family pact of 2010 neither places any restrictions on Hero MotoCorp from selling electric vehicles nor does it prevent it from using its trademarks.
Also, all Hero MotoCorp products have a different brand name (such as Splendor, Passion, XPulse & Xtreme, etc), and similarly, the EVs will also have a distinct name and identity. The family agreement only restricts Hero MotoCorp from using the conjunctive term “Hero Electric” for its products, sources close to the development said.
Further, the family agreement of 2010 made a fair division, which allowed the individual families to continue to do the business they were doing at that time. It also specifically allows for family groups to compete, so as not to prevent future growth of their respective businesses, sources in the know told CNBC-TV18."
I don’t know to what extent you can trust source-based news from this media house.
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are EV’s even practical…with this kind of massive raise in lithium price ? did the all the new kids on the auto block think about the costs overruns this can cause ? from my understanding 50% of vehicle cost is battery which is made with this stuff called lithium…
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This is a nice video that captures the environmental/ethical issues with Li-Ion batteries…
The impending demand is going to result in price uptrend (like what you have captured in the graph)… And, it is impossible to get green Lithium/Cobalt. Most of Lithium reserves are present in eco-sensitive/water-deficient areas and controlled by 4 countries.
Solid-state batteries (or) Green Hydrogen are alternatives which would eventually solve this conundrum…
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Interestingly they did not mention the valuation or the percentage increase in shareholding. However this looks like an astute investment by hero motors
This is just an enabling provision to invest 420 crore in Ather. So whenever Ather does a fund raise from PE investors, Hero will invest max of 420 crore - so the percentage increase will dependent on the valuation discovered at that time. It is a win-win - if valuation increase is not much, they will get higher share of the company, on the other hand if the valuation increase is high, their earlier 36% share too will see that much increase though they may get lesser incremental share now
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Came across this video of Samir Arora views on the EV/ Auto sector. Samir shares a very interesting though contrarian point of view. Watch 19.07 onwards.
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What he doesn’t take into account is
a) Car increasingly becoming more service oriented, you buy an apple phone (hardware) once but pay monthly for Apple Cloud (service)
That same scenario is playing out in Cars
b) there will be more cars (as opp. to what he says) ZooX and Waymo are examples of new demand for cars which didn’t exist 10 years ago
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I had mentioned this only recently. They need to invest into fincorp and grow its products. Hero Fincorp has potential to become a Bajaj Finance. Yes, it’s an unrelated business to hero moto. But, why not?
This will also cement their grip on the Hero Brand.
Thankfully, the relationship between the two Munjal figureheads at Hero MotoCorp and Hero FinCorp is very good. Both see this as a strategic partnership they can take forward. But Hero FinCorp will not be a Bajaj Finance because FinCorp is not doing retail financing like Bajaj is, they are concentrating on higher value loans. Bajaj Finance can be used to buy a 1000 Rs. t-shirt. FinCorp seems to want to get more and more into corporate finance and housing finance.
FinCorp also needs some massive process improvements. There is a tendency to take the business coming from Hero dealerships as granted due to the relationship.
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Just my 2 cents -
Disruptive change is very different from incremental change. In former, the incumbency factor makes it very hard for existing companies to innovate because that generally requires some self destructive ability (Ie you must be willing to cannibalize your own brands… Think Fuji film…)
Secondly, capabilities that are required to succeed tend to change and thus it may be difficult for incumbents to stay on top… Eg a direct sales channel (Think best buy)
I think hero will have a survival battle… Not to say they can’t succeed but nobody should underestimate their challenges
Disclosure - invested at around 2800
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Hi,
I would tend to agree with you.
We have seen eClerx from IT/KPO sector going through similar situation, and struggling to maintain its margins after arrival of Robotic Process Automation, Chatbots, AI/ML and other such technologies. Companies are not always dependent on eClerx for KPO related work which they do at lower costs, since their Clients can now automate some work at their end using some other vendors. Though eClerx is now innovating and has improved its margins after April 2020, but still they probably are facing more competition now in KPO and other domains than earlier.
Similarly, in Auto sector, it seems that, Hero Motocorp is facing similar challenges. It may have to think differently now on wards to attract younger generations to their existing fossil fuel based 2-wheelers, apart from investing in EV based 2-wheelers. Higher input costs and high fuel costs could stay for longer time, and we may see slow growth going forward, due to loss of market share, inflation, lower purchase power from rural population and younger generation preferring other brands or options.
Disc : Invested.
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I think people are overestimating the disruption from EV - especially in non-Metro cities and rural areas. There was big talk about disruption to shopping during Pandemic, that customers will buy two-wheelers online, touchless, etc. What we are at right now is 99% of customers still prefer to physically see and select their vehicle.
Challenges will definitely be there, whether Hero overcomes those or not no idea. But the EV disruption in India is oversold.
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I’m currently in my hometown Tirunelveli, a Tier 2 town in Tamil Nadu. I see more number of EV scooters on the road here. The EV scooter density here is more than in Bangalore, where I reside.
Tamil Nadu is electricity surplus to the point that the first 100 units of electricity (billed once in 2 months) for domestic usage is free.
Ownership cost of petrol scooters are really high. A new basic petrol scooter costs more than INR 80,000 on road. Petrol costs INR 100+ per litre. Compared to that, EV scooter ownership cost will be quite low. This I see playing out well in TN.
A little dated (6 months old) article says EVs number double in TN in 8 months.
“Official data shows there are 14,366 electric vehicles (EVs) in use in TN, 95% of them two-wheelers. There were around 6,300 EVs at the start of the year. State and central governments too offered tax exemptions and perks for EV purchases, which brought down the prices of e-vehicles, said experts. Tamil Nadu in November 2020 scrapped road tax for EVs during registration. The Centre earlier this year revised guidelines for the FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India) scheme, increasing subsidies from 15%-25% to 40%. The subsidy for two-wheelers was particularly made higher, reducing the upfront purchasing price of e-bikes across the country, said Abhinav Soman, programme associate at Council for Energy, Environment and Water (CEEW), a policy research institute.”
In a price sensitive non-metro and rural areas, almost 1/3rd low price on new vehicle and a negligible running costs compared to petrol scooter will accelerate the EV adoption at a faster rate here too.
Source:
Disc:
Invested in Hero Motocorp.
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Because of the extremely low ceiling, the percentage increases in EV adoption looks outstanding. But it is still very very minor number compared to the overall 2W market. None of these EV players are making any money right now at these volumes and the volumes required to make money are a long way away.
First of all, 60%+ of the market in India is motorcycles. As of now, there is no proper electric motorcycle on offer nor have we seen any demand for it. In Scooters, EV penetration right now is around 3% and this will increase as TVS, Honda, HMCL come out with their own electric scooters. Keep in mind, the customers are still going to these dealerships for electric scooter enquiry and then diverting to other players as the OEMs don’t have any options right now. And talking about our own experiences, across 2 dealerships we have almost 500 EV enquiries right now which customer has not bought anything because the scooters they like are too expensive.
I don’t know whether HMCL will succeed or not in this space, and if they don’t it will be a challenging future for them. Though, I do believe in the end one of the established market players will also be the leader in EV scooter space. It will be a slow churn though, the EV market is not going to be 50% in 5 years, it will be 15%.
Here is an ET article on India’s EV bubble:
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EV wars are way overrated atleast until the next couple years. There is a reason why Hero Bajaj, TVS and Honda are still launching ICE models. Also, I would rather buyout Ather completely at a small current premium than a higher premium in the future. Another acquisition like Revolt motorcycles( for eg) wouldn’t hurt.
Problem is, Hero moto is a laggard in lifestyle motorcycles. Even a niche maker like Mahindra owned classic legends will be launching a 650cc soon.
The inability of Hero to launch anything 250cc+ has hit the brand hard and made it irrelevant. The fast eroding marketshare is a testament. To understand the importance of a premium bike, look at the footfalls jawa yezdi showrooms are getting with new launch.
Unfortunately, with overcrowding in premium segment, Hero needs to overdo a premium motorcycle to stay relevant. And fast. The clock is ticking.
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@devarshi84 I agree with your thoughts about the presence(or the absence) of Hero Motorcorp in the premium segment. But I had a few thoughts on this which I feel could be a good addition to this discussion and on which I welcome further points.
- The deal with Harley Davidson and Hero Motorcorp seems to be aimed at targeting the premium segment in the ICE category.
- In the EV category I feel Ather is the one player which produces vehicles which provide the customer a premium feel compared to the other EV two wheelers in the market. I think the aspiration of Ather is to be the EV two wheeler brand akin to what the Apple brand is in the electronics segment i.e. a premium brand selling to focussed customers with quality and long products, great customer service and commanding better margins than the entry and mid level segments.
With these two points I am of the view that Hero Motorcorp might be aiming at capturing the premium segments in both the ICE and EV two wheeler categories.
Having said that, I do think that the EV two wheeler business will have an uphill battle for some more years until it becomes a profitable business and currently the play will be to garner market share only. The point of interest of Hero Motorcorp shareholders here will be increasing revenues for Ather resulting in a re-rating of Ather which will then cascade into a re-rating for Hero Motorcorp resulting in an increased valuation.
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As long as the batteries are Lithium powered which is controlled by China (estimates vary 60% to 90% Lithium mines held by China), EV adoption world over will be slow and expensive.
Lithium is no clean mineral. Extracting it is not environmental friendly. What Reliance industries has done is commendable, investing in Sodium technology.
All said, EV ownership and operating costs are quite less compared to ICE engines.
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