Bajaj Auto Sees A First Mover Disadvantage Among Electric Scooters — BQ Insight

Bajaj Auto Ltd. has taken a calibrated approach towards electric two-wheelers, unlike startups that have stolen a march over the incumbents in the Indian space, riding a wave of easy money, according to Executive Director Rakesh Sharma.

"To some extent, this might be a first mover's disadvantage," Sharma told BQ Prime's Niraj Shah. "This is exactly what happened in Africa, where the Chinese opened the market with cheap motorcycles. The customers got a taste of motorcycling, and then the good-quality companies moved in."

Today, India's Bajaj Auto and TVS Motor Co. dominate the African market, pushing out—by some estimates—nearly 160 Chinese automakers. The sturdy Bajaj Boxer 150, which was a flop in India, is among the best-selling motorcycles on that continent.

Similarly, a clutch of EV startups, led by Ola Electric and Ather Energy, have grabbed market share with multiple offerings in the nascent but fast-evolving electric two-wheeler space in India. In comparison, the incumbents such as Bajaj Auto, TVS, and Hero MotoCorp Ltd.—which ironically is an early investor in Ather Energy—have been slow in rolling out their products. In fact, the biggest scooter maker—Honda Motorcycles and Scooters India Ltd.—has yet to enter the market, though plans to launch an electric Activa are afoot.

On the surface, that appears to be due to the access EV startups have to private equity funds. In May, Ola Electric raised $300 million at a valuation of $6 billion, despite the company's trial by fire in the year gone by. The Bhavish Aggarwal-led company, which is planning an initial public offering, has raised nearly $1 billion so far. Ather Energy reportedly has a $250 million fundraising campaign at a valuation of nearly $1.3 billion.

Bajaj Auto's Sharma, however, disagrees.

"The issue is not easy money. Let me tell you that there is enough easy money for even the incumbents," he said. "The issue is the cost and at what rate the customer will accept it. We’re calibrating for that. It is not that if we had access to easy money, the industry would change. That you switch off the tap and the industry will recede."

"We don't have private equity dollars to throw, and even if we did, we would be very circumspect about the ecosystem—our vendors and dealers have to be successful too. We are only as strong as them."

Subsidising isn't a solution either, Sharma said. A subsidy may accelerate adoption but make decision-making highly skewed. Once subsidy goes away, demand falls, he said. The withdrawal symptoms, in fact, are starting to show.

Retail sales of electric two-wheelers crossed the one lakh mark for the first time in May, largely in anticipation of a reduction in FAME-II subsidies that came into effect on June 1. Dispatches rose 57% over the previous month to 104,755 units, according to the government's VAHAN website. "The removal of the subsidy will separate the wheat from the chaff. Companies with strong fundamentals—be it new or old—will see their rise," Sharma said.

Still, Bajaj Auto needs to be far more aggressive with its EV strategy because, while risk is temporary, loss in market share is permanent, according to Nirav Sheth, chief executive (institutional equities) at Emkay Global Financial Services.

In India's auto industry, a segment leader has never abdicated the throne—be it commercial vehicles (Tata Motors), tractors (Mahindra & Mahindra), passenger cars (Maruti Suzuki), commuter motorcycles (Hero MotoCorp), automatic scooters (Honda), middleweight motorcycles (Royal Enfield) and sports bikes (Bajaj Auto).

In that aspect, Ola Electric could very well hold on to its EV crown, forever.

"It is an entrepreneur's job to take the risk or ask the ecosystem to take the risk. Like how Ola is doing with its fundraising," Sheth said. "Incumbents need to be far more aggressive, at the risk of losses. I think that's the nature of the beast."

That fact isn't lost on Sharma, a veteran of 16 years at Bajaj Auto.

"Electrification won't be a Kodak moment for us; we will not be caught napping at the wheel while the industry changes," he said.

Electrification is here to stay, with or without subsidies and tax breaks, he said. The selling cost, at present, is volatile due to a demand-supply imbalance, but there is a fundamental shift in the minds of consumers—from the affluent rider to the daily commuter.

The biggest hurdle, however, is bridging the cost gap between a fossil-fuelled scooter and a battery-operated one. Demand for lithium-ion cells has skyrocketed, and supply is scarce. That battery chemistry may itself become obsolete in the near future—sodium-ion batteries are three to four years away from commercialisation.

"There is some holding back from the big players as new battery chemistry and alternative tech are emerging," Sharma said. "So, no one wants to invest a large sum of money in a technology that may quickly become obsolete."

What Bajaj Auto is doing right now is investing in the research and development of electric vehicles while building manufacturing capacity, a supply chain, and an exclusive dealer network.

"Bajaj Auto sees electrification as an opportunity to advance our global position", especially when the company derives half of its business from overseas markets. "This is us preparing for the marathon. Electrification is not a sprint but a marathon."