Tech giant Ola Electric wants to disrupt the two-wheeler market by offering electric scooters for the price of a 125cc ICE-powered model. Its ambitious target is to get half of the 21 million two-wheeler buyers to move from ICE to electric in a few years as it builds the world’s largest two-wheeler factory in Tamil Nadu. To be fully operational by 2022, it will churn out 10 million units per annum.
If Ola succeeds in pulling this off, it should worry any existing two-wheeler company. But executives at Bajaj Auto
are unfazed. Last week, the company announced that it is setting up a 100 per cent subsidiary (the first in its 75-year history), which will tap the growth in the electric vehicle (EV) and hybrid market across two-, three- and even four-wheelers. “The subsidiary,” explains Bajaj Auto
Executive Director Rakesh Sharma, “has been set up to give undivided attention to the electric business, and be nimble to work with other stakeholders.”
At a strategic level, Bajaj is taking a different road to EV from Ola, the new kid on the block which wants to disrupt the market and grab volumes.
Says Sharma: “We are not looking at forcing the change from ICE electric at great expense but would like to travel along with it. Initially, our focus would be to stay ahead of the curve in technology and product development capability, including customer infighting.”
Bajaj also wants to build a long-term sustainable business, and not sell electric scooters below production cost riding merely on central and state government subsidies (about Rs 15,000 a kWh plus other state subsidies), which could change or be withdrawn any time, leaving a company vulnerable.
But analysts say with the success of Zomato’s IPO, despite substantial losses, Ola’s strategy, which is typical of a start-up — build volumes and get a lion’s share of the EV two-wheeler market, aggressively selling the disrupter story — will help in getting it a higher IPO valuation. That is, even if it does not make money or offer a timeframe for profitability.
It can also leverage the money raised from private equity players to fund the losses initially. But insiders at Ola say that the huge scale of manufacturing and the big volumes will help it in bringing down costs and price the electric scooters at par with ICE scooters.
Bajaj, however, is sticking to a simple three-pronged strategy in the e-scooter business. One, unlike other two-wheeler competitors, Bajaj does not sell ICE scooters (which is a 5- to 6.5-million units per annum market). So, any incremental sale in electric scooters would merely add to its overall market share. The company, which withdrew from manufacturing scooters a long while ago, was looking at a re-entry but with a different strategy. The technology changes to electric have given it the window of opportunity to do so.
And so, Ola’s battle will be more with companies
like Honda Motorcycles and Scooters, the largest player in the country in this space, and not with Bajaj (that battle is a while away when Ola launches its motorcycle, which will be a different game altogether). In price, it will be taking on Honda Activa, India’s best-selling scooter, say sources. A spokesperson for Honda Motorcycle and Scooters declined to comment on their moves.
Two, Bajaj has been facing a challenge in cracking the two-wheeler market in Southeast Asia, which has the third-largest global volumes after India and China. That is because 92 per cent of the market here is in step-through scooters, a segment in which Bajaj had no offering. And the motorcycle market is very small. In contrast, in India, motorcycles account for around 65-70 per cent of the overall two-wheeler sales. But electric scooters, e-cycles and electric micro mobility solutions give Bajaj an entry point and the opportunity to make a reasonable dent in this large market.
Thirdly, it also sees a market for its electric scooters in Europe, which has witnessed a huge growth, making it the second-largest market for these vehicles after the US. Bajaj can leverage its strength as it already has a substantial foothold in the market through its strategic stake in Pierer Mobility (earlier KTM Industries). The European market has been dominated by heavy bikes, but now cities across Europe like Barcelona, Madrid and Amsterdam are seeing a huge influx of e-scooters. Of course, it could face competition from Ola, which also has identified Europe as a big export market.
The key strength is that Bajaj can push the pedal any time. For instance, it has over Rs 16,000 crore of cash reserves (Ola is investing Rs 2,400 crore for its new plant); has a record of setting up plants like in Chakan, Maharashtra, in a very short time; and, as an insider says, has been using robots for over five to seven years (Ola talked about the large use of robots in its plants). And, of course, it has a large readymade distributor network, which, despite pushing sales online, Ola has to build from scratch.
Plus, it has a strong R&D setup, which straddles India and Europe. Pierer Mobility, for instance, is already working with Bajaj Auto
on e-scooters (based on the Chetak platform), mobikes and e-cycles, among others, in various brands that are well known in Europe and also in the US — KTM, Husqvarna and GasGas. And, it has also tied the knot with German battery group Varta to build battery platforms. Also, Bajaj has bought a stake in Bengaluru-based startup Yulu, a shared e-mobility service provider, to which it will supply electric two-wheelers.
Unlike Ola, Bajaj believes that the big inflexion point for a massive shift to electric would take another three to five years and that it will be staggered. It doesn’t see a dramatic shift overnight.
Executives in the company say there are, however, some key challenges. Due to huge demand, lithium-ion battery prices, which account for 40 per cent of the cost of a scooter, are again going up after falling for years. And, with pressure on raw materials, controlling upstream supply of raw materials is becoming key to the game. Two, the jury is still out on which battery technology will be the best — lithium-ion or emerging areas like hydrogen fuel cells, sodium-sulfur or zinc-air, amongst others. That could well determine the future course of investments.
Back home, Bajaj executives say it will take a while before customers get comfortable with a new product. So, there is a need for an ecosystem of entrepreneurs to emerge, like it did for ICE scooters — for instance, kirana shops doubling up as charging stations, easy availability of trained mechanics and so on.
Clearly, it is a battle of two distinct strategies. The question is: who has got the market dynamics down to a T? Or maybe both have, because of their different play.
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