Introduction
The managing director of Bajaj Auto, Rajiv Bajaj, believes that the strength of the brand, cost competitiveness, and pricing power will enable the electric vehicle (EV) company to become profitable at a comparatively lower volume threshold. In January 2020, the two-wheeler maker joined the rapidly expanding market with an electric scooter, and in May of the same year, it released electric three-wheelers.
In an interview with Shally Seth Mohile, Bajaj also provided an update on a CNG motorcycle that is currently under development at the firm and is anticipated to be released by 2025, giving India the distinction of being the first country in the world to introduce a motorcycle powered by compressed natural gas. Revised passages:
The path to financial success for producers of electric two-wheelers is a lengthy one. In what way is Bajaj Auto preparing?
Bajaj Auto has effectively carried out two major transitions over the past 20 years: first, from a domestic player to a worldwide force, and then, from a scooter licensee to a motorcycle inventor.
We have proven our capacity to strike a balance between expansion and profitability, as well as stability and change, during these two endeavors.
With the same strategic emphasis and supply chain capabilities that have worked well for us the last two times, we have started Bajaj 3.0. Therefore, despite any difficulties that may arise, we have every reason to assume that we will eventually make the transition from internal combustion engines (ICE) to electric vehicles (EVs) effectively.
Even with Bajaj Auto’s abundance of cash, would you still think about obtaining outside finance for the electric two-wheeler business to prevent it from undermining the main operations?
Since we operate a low-capital-expenditure firm, our relationship with our suppliers is marked by a disproportionate amount of investment from them and innovation from us.
We have experienced the “chips and ships” chaos, the inflationary and currency crises, and the scaling up of our electric Chetak and, more recently, our three-wheelers over the last four years. Despite all of this, we have consistently delivered the 20% EBITDA (earnings before interest tax, depreciation, and amortization) that has become expected of us.
The aforementioned background and reality are reflected in our good cash position, which makes it challenging for us to defend the need for more outside assistance. In reality, doing so would probably jeopardize our EV entity’s terminal value in the face of front- and back-end whims, such as fluctuating policy and pricing instability, as well as changing technology and cost possibilities.
After that, as we move up the learning curve, we typically observe two things: first, the bar for products is constantly being raised by recurring innovations; second, the cost structure is getting better due to scale-driven design and marketing economies, as well as manufacturing and sourcing productivity. With seasoned manufacturers like Bajaj, you are seeing precisely this kind of behavior, which is why our EV portfolio’s margin profile becomes better every quarter.
What kind of monthly volume threshold will be necessary for electric two-wheelers to firmly establish the profitability path for the business?
More than anything else, two criteria determine how long it will take for an EV to become profitable.
First, price power based on brand position depth: our three-wheeler RE and scooter Chetak have strong brands in terms of awareness and aspiration.
Second, a competitive cost structure that makes use of the depth of its technological platform; once more, we have platforms in Chetak and RE that make our manufacturing and design investments profitable for both our two- and three-wheeler portfolios.
Bajaj should therefore reach EV profitability at a comparatively lower barrier in a competitive setting.
The demand for Bajaj’s electric three-wheelers has been positive, and sales are increasing. What possible obstacles might scaling up present?
Bajaj currently holds an 80% market share in ICE three-wheelers. That demonstrates the advantages of its distribution, quality, technology, and brand. This is a powerful beginning point for our electric three-wheeler journey, which grew to include over a dozen significant cities after its premiere in Agra in May of this year.
We are almost entirely leading these markets in EV three-wheelers due to customer recognition of the benefits our product offers, chiefly range, and dependability.
We hope that this tendency will continue as we work over the next year or two to gradually roll out our product throughout India. We anticipate that strong operating economics will more than offset any difficulties that early consumer reservations about switching from internal combustion engine (ICE) three-wheelers to electric vehicles may cause.
What’s the status of the CNG motorcycle? When will it probably be prepared for release?
We see CNG as a transformative fuel, yet it is mislabeled as a transitional one. It combines the greatest features of both worlds: the comfort of an internal combustion engine (ICE) due to the lack of concerns about safety, range, and charging; and the inspiration of an electric vehicle (EV) due to its positive environmental impact (it decreases emissions by 50–90%) and lower daily operating expenses for consumers.
CNG penetration in three-wheelers is currently 60%, demonstrating its overwhelming success.
To the best of our knowledge, however, there isn’t a CNG two-wheeler anywhere in the globe at this time, mostly due to packaging difficulties. For a two-wheeler that lacks the storage capacity of a car, bus, or three-wheeler, it’s an enormous cylinder.
We’re working hard to find a solution to this problem. By 2025, we hope to have given India the distinction of being the first to provide a product that benefits society and the environment. These two groups are in dire need of a long-term fix for unsustainable pollution.