Hero Electric, Mahindra Group team up to manufacture electric vehicles

Electric two-wheeler maker will use latter's production facility to raise capacity

Hero Electric, India’s largest electric two-wheeler maker, has struck up a five-year strategic partnership with the Mahindra Group, marking the first such deal between an electric vehicle (EV) maker and a traditional internal combustion engine company.

The move comes at a time when EV sales in India have touched a record high.

The partnership will help Hero Electric, which has a close to 36 per cent share in the EV two-wheeler market, to more than double capacity to 1 million units by 2022 and will result in extra revenue for M&M at a time when auto sales have slowed.

According to an exchange filing, the company estimates the value of the transaction to be in the range of Rs 140-150 crore over the contract period.

The joint efforts will also help in developing a platform approach to enable electrification of Mahindra’s Peugeot Motorcycles portfolio. It is expected to bring value through optimisation of costs, timelines, and shared knowledge, the company said.

Naveen Munjal of Hero Electric said Mahindra, a pioneer in the EV space, was a natural fit as a partner as it plans to increase production capacity to 5 million units in the next five years to meet growing demand for EVs in the country.

“The purpose of this arrangement is to use each other’s synergies and strength to electrify mobility in India. So, they have a large capacity which we will use and jointly we have a strong research and development team, which can be used to develop new products. This will give Here Electric a strong foothold in Central India,” Munjal said in an interview with Business Standard, adding that the company has already started testing products at Mahindra’s Pitampura plant.

Munjal said the partnership may expand by collaborating in other areas. “If there is synergy in other places, we will be open to looking at different areas,” he said when asked if the company will look to tap Mahindra’s extensive dealership network to sell its vehicles.

However, unlike M&M’s previous partnerships, this will not be a joint venture and will not involve equity partnerships or producing co-branded products. “This is not a JV. This is a strategic partnership for manufacturing and will progressively involve platform-based product development and creating synergy for the businesses and there is no equity involvement,” said Rajesh Jejurikar, executive director, auto and farm equipment at M&M.

Munjal said he expects a quantum jump in the demand for electric two-wheelers, which will also be driven by business-to-business segments like e-commerce delivery and aggregators. “We are firm believers that the EV market in India is going to explode. The growth in coming years is going to be faster than what we have ever seen in the automotive sector,” he said.

He said the initial purchase price and service for electric two-wheelers have become cheaper than IC engine vehicles, while in terms of running cost, it has a higher advantage due to steep fuel prices. “The running cost is many times lower than an IC engine vehicle. So, I don’t see any reason for the market to not grow. I am absolutely bullish about it,” he added.

Besides the contract manufacturing partnership with M&M, Hero Electric will also increase the production capacity at its existing plant in Ludhiana and then look to set up new factories.

“Those expansion plans are still on track. We are going to increase production at the Ludhiana plant and build new facilities too,” Munjal said.