There are over 150 brands claiming to manufacture electric two-wheelers in India, with new ones continually entering the fray. Is this saturation, or is there still space for more? Gopal Jaidka, Director of Jaidka Power Systems (In Auto Sales Since 1920), discusses the matter with EFY’s Mukul Yudhveer Singh!
Q. Could you share your journey in the automobile industry?
A. Our group has been entrenched in the automobile sector since the 1920s, initially focusing on transport and finance. Over the years, we have been dealers for renowned brands like General Motors, Pontiac cars, Hindustan Motors, and later TVS Motors and Escorts. Leveraging our extensive industry experience, we entered the electric vehicle (EV) segment, starting with three-wheelers in 2017. Recognising the potential in the EV two-wheeler market, we launched Stella Moto about three and a half years ago.
Q. Do you believe there are too many electric two-wheeler brands in India? Is there room for more?
A. If you think the two-wheeler industry is crowded, you should have a look at the e-rickshaw sector. While the proliferation of electric two-wheeler brands might appear overwhelming, it underscores the burgeoning potential of the industry. Despite intense competition, the market remains in its nascent stage, with electric vehicles constituting only a fraction of overall sales. With approximately 300 million registered ICE (internal combustion engine) two-wheelers in India compared to just around 2 million electric two-wheelers, the market penetration is a mere 0.6%. This indicates significant room for growth and innovation. However, navigating this landscape requires strategic differentiation and a comprehensive understanding of diverse market segments. While not all of the 150 manufacturers will succeed, there is undoubtedly space for new entrants with the right strategy and market insight.
Q. Regarding the dominance of a few legacy OEMs in the Indian two-wheeler market, do you truly believe there’s room for new players to thrive?
A. The figure of 300 million likely represents around 17-18 years of production, with only a handful of manufacturers dominating the market. Historically, big brands like Ariel, BSA, and NSU dominated but eventually shut down due to various reasons. India transitioned from a licensed, protective regime to an open, liberalised economy initially shielded some manufacturers. However, in the EV segment, the entry barrier is lower, and the market dynamics have evolved. Even large Indian companies that previously overlooked the two-wheeler industry are now eyeing entry into the market.
Q. Would you advise new entrants to focus regionally or pursue broader market penetration from the outset?
A. Cost factors are crucial here. Raw material transportation (carriage inward) is typically cheaper than transporting finished products (carriage outward). For regional players, proximity to the market translates to cost savings. It is prudent for new entrants, especially those lacking significant funding, to commence as regional players. This approach facilitates focused operations, minimises risk, and allows for easier course corrections if necessary. Even well-funded larger players should contemplate commencing operations in a specific region before expanding. This enables market testing and mitigates the risk of widespread failure. Setting up assembly units across the country can be a viable strategy to reduce costs once the product gains traction in a specific region.
Q. Can you elaborate on this approach?
A. Historically, companies like Bajaj didn’t feel compelled to limit their geographical focus due to high demand, with consumers willing to wait years for a Bajaj Chetak. However, quality standards differed significantly at that time. Dealers often had to rectify product issues before sale. Today, with heightened quality expectations, test marketing and regional focus assume greater importance. TVS Motors, once ranked fourth in the market, bolstered their position in Bihar through intensified marketing efforts. Previously, manufacturers grappled with meeting demand, resulting in backorders. However, failure to provide exemplary after-sales service now spells trouble for manufacturers. The industry demands higher quality and service standards.
Q. What would be an ideal strategy for new entrants?
A. Test marketing and localised strategies are pivotal for the success of new entrants. By prioritising service capabilities and establishing brand presence in target regions, companies can foster trust and loyalty among consumers, laying a robust foundation for broader market penetration. Setting up assembly units across the country can be a cost-effective strategy once the product gains acceptance in a specific region. This approach not only mitigates risks associated with widespread expansion but also allows companies to tailor their offerings based on regional nuances, thereby enhancing their competitive edge.
Q. Many new entrants claim to manufacture most components in-house. Is this a viable strategy?
A. While in-house manufacturing affords greater control over quality and customisation, it demands significant investment and expertise. Conversely, forging strategic partnerships with established component suppliers grants access to proven technologies and economies of scale without the initial overheads. The optimal approach hinges on factors such as market demand, technological expertise, and long-term sustainability. For instance, if your requirement is 10,000 units per month, commencing in-house production for 50 units and outsourcing the rest could be prudent. This way, any technical issues are contained within a manageable scope.
Q. However, even component makers are venturing into EV OEMs. How do you perceive this trend?
A. Component manufacturers transitioning to vehicle manufacturing should not necessarily be viewed as a threat. Breaking into the market alongside established OEMs poses challenges, including product certification and compatibility issues. Once a component is integrated into a certified vehicle, switching to an alternative component entails costly and time-consuming recertification. OEMs often hesitate to experiment with new components due to past failures. Both component manufacturers and OEMs must exhibit resilience and scale up in response to demand to alleviate their burdens.
Q. Considering the role of subsidies in facilitating market entry, can new entrants thrive without relying solely on government incentives?
A. While subsidies provide an initial boost for market entry, long-term viability necessitates a holistic approach extending beyond government incentives. Establishing a robust finance infrastructure, fostering consumer confidence, and prioritising innovation are crucial elements of sustainable growth. Subsidies should complement, rather than substitute, comprehensive strategies centred on affordability, quality, and accessibility. By embracing a multifaceted approach, new entrants can establish themselves as formidable players in the evolving EV landscape.
Q. Should manufacturers disclose if a significant portion of their components are sourced from outside India?
A. If you are importing a significant portion of your components, there is likely a valid reason for it, such as better quality or a head start in technology from the country you’re importing from. It is essential to be forthcoming about this aspect. There’s no shame in acknowledging that manufacturers from other countries, like China, have extensive experience in producing and exporting units globally.
Q. Reflecting on recent industry trends (FAME Fiasco), do you believe manufacturers sometimes prioritise short-term gains over long-term sustainability?
A. It is difficult to pinpoint the exact reasons, but they were likely influenced by a combination of factors, including business pressures, investor expectations, and possibly a lack of early warning signals in the FAME II framework. It is unfortunate, but hindsight analysis is always easier. I believe relying on subsidies was not the best approach for expanding the industry. A robust finance infrastructure, possibly with government-backed guarantees, could be more effective in the long run. The government’s recent decision to subsidise hybrid vehicles is a positive step toward reducing tailpipe emissions, which should be the ultimate goal. Companies that adhere to best practices are more likely to succeed in the long run.
