Hero Electric eyeing 1.7-2.5x volume growth in 2023, says MD Naveen Munjal

Asserts that the company is robust not to depend on govt subsidies for survival and growth

Hero Electric's managing director, Naveen Munjal, said on Wednesday that the company's business model is robust enough not to depend on government subsidies for survival and growth. He added that the company is expecting unit sales growth of 1.7-2.5 times in 2023.

The Ministry of Heavy Industries (MHI) is considering whether to extend subsidies to electric two-wheeler makers under its Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME) II scheme beyond 2023-24. In 2022, Hero Electric sold 100,364 units, which is more than twice its sales in 2021, according to Vahan data.

On Wednesday, the firm launched three electric scooters, including the Optima CX5.0 (dual battery), Optima CX2.0 (single battery), and NYX (dual battery), the most expensive vehicles in its product portfolio with a price range of Rs 1-1.35 lakh.

However, Munjal said the company is not shifting focus to the premium category and is just enhancing its portfolio. He added that the firm will launch even higher-priced products in the future, but this does not necessarily mean that all future launches will be at the higher end only. "In the medium commuter segment, which is priced below Rs 1 lakh, we would continue to launch products," Munjal noted.

He said that the company is so confident of the vehicles it has built over the years that it is now increasing the warranty period to seven years from three. "The new products have a range of 85-120 km per charge. They can achieve top speed of 48-55 km per hour," he mentioned.

The MHI is currently investigating whether some electric two-wheeler makers, including Hero Electric, have violated FAME II norms that mandate a minimum of 50 per cent local sourcing. It has halted subsidies to certain companies pending investigation.

Munjal said he doesn't see any long-term impact from government scrutiny, and that regardless of whether or not the subsidies continue, the industry will emerge stronger. Between last September-December, the company sold some 8,500 units a month in India. But its volumes in January and February dropped to 6,399 and 5,861, respectively.

Munjal cited confusion about subsidies under the FAME II scheme and recalibration of the workforce and suppliers to prepare them for a new manufacturing unit in Ludhiana as the main factors behind the slow production during the past two months. "We have consciously decided to pull back for a while. There has been this confusion about subsidies and the FAME II scheme. There was no point for us in pushing harder and building more receivables. However, it does not change our long-term plans at all."

The new manufacturing facility in Ludhiana will become operational by mid-2023, with the capacity to produce 250,000 units a year. The firm's current facility in Ludhiana can produce about 100,000 units per annum. "It is not just due to the subsidy issue... We have to shift from the current plant to their new plant. We are re-skilling the workforce. That is what we are doing right now," he said. The company is currently not taking online bookings for its various models.

Munjal said businesses cannot be built on subsidies and have to stand on their own two feet. "We were there in the market well before these subsidies came into play. We are going to be in the market well after these subsidies are there or not there." Munjal said that in his previous recommendations to the government, he had clearly stated that subsidies should not remain in perpetuity and be temporary.

"Should the subsidies continue, it is a bonus. Should they not be there? We have a robust business model in place. So we have no issues from that perspective at all...We have built our business model to be robust enough not to be subsidy-dependent. If it remains, it is good. If it doesn't, we will still work," he said.

Asked about his sales estimates for 2023, he replied, "At a minimum base case scenario, we are looking at least 1.7-1.8 times the growth. In a more optimistic scenario, it will be 2.5 times the growth over the previous year."

According to Hero Electric's estimates, the conversion rate (people choosing an electric two-wheeler instead of an internal combustion engine-based two-wheeler) is expected to reach 30 percent by 2025 from the current rate of 6-6.5 percent. "In the next few years, we are going to see multi-fold growth in this sector," he added.