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Two-wheelers Drive Back to the Future, the Electric Way

Kinetic and LML’s Entry into the Electric Two-Wheeler Market: Implications for Investors

Source and Citation: News article published by Economic Times on January 23, 2024

Analysis for Layman

Electric two-wheeler sales in India witnessed a 36% growth in 2023, reaching 859,000 units, according to industry data. Encouraged by this demand trend, iconic brands from the 1970s like Kinetic and LML are making a comeback in the market with new electric models.

Kinetic is launching the e-Luna, an electric step-through scooter aimed at semi-urban and rural buyers. LML is introducing the electric scooter Star, targeting the mass premium segment. Both companies aim to differentiate themselves by leveraging their strong brand recall, combining nostalgia with e-mobility.

However, the electric two-wheeler space in India is already occupied by formidable players like Ola, Ather, Hero, and TVS, who currently command a 90% market share. Consequently, pricing, performance, and after-sales support become crucial factors for Kinetic and LML to compete with the established networks of larger rivals. Relying solely on their legacy is likely to be inadequate in this competitive landscape.

Two-wheelers Drive Back to the Future, the Electric Way

Impact on Retail Investors

For investors, the ideal strategy involves:

  • Avoiding over-enthusiasm regarding quick adoption of electric vehicles based on short-term policy benefits.
  • Assessing realistic segmentation potential based on affordability, use cases, and evolving technology (e.g., battery swapping vs. fast charging).
  • Favoring existing industry leaders over new aspirants unless the latter have proven management with a clear roadmap for sustainable differentiation.

While niche opportunities may exist, such as retro e-scooters or rural mobility, the capital-intensive nature of the industry requires a prudent evaluation methodology, even as India’s inevitable transition to e-mobility unfolds.

Impact on Industries

This development impacts various industries:

  • Auto OEMs: More players are eyeing dedicated electric models, benefiting incumbents like Tata Motors and Hero MotoCorp through knowledge transfer.
  • Battery Manufacturers: Achieving higher scale is critical for viability, benefiting companies like Amara Raja and Exide, though import risks remain.
  • Charging Infrastructure: Growth visibility improves, but hyper-competitive intensity is a concern.
  • Renewable Energy: Additional avenues are being created for the consumption of green power capacities coming online.

While wider adoption across two-wheeler segments is inevitable in the long term, short-term uncertainty persists regarding the optimal pathways for this transition.

Long Term Benefits & Negatives

Positives:

  • Mainstreaming of environmentally friendly transportation options.
  • Additional revenue potential for automobile ancillary ecosystems, such as tires and paints.
  • A potential boost for “Make in India” if supply chain localization materializes to substitute imports.

Negatives:

  • Commoditization may occur if differentiating factors like performance become less significant over time.
  • Continued reliance on metropolitan areas for entry-level segments may limit rural reach.
  • High disposable incomes are pivotal amidst inflationary pressures to sustain demand momentum.

While the first-mover advantage may fade, the consistency of policy support through fiscal and non-fiscal incentives will be crucial for segment adoption at the mass market level over the long run.

Short Term Benefits & Negatives

In the near term, there are both positives and negatives:

Positives:

  • Increasing model variety provides more choices for customers.
  • Improved sales visibility and better asset utilization for dealers.

Negatives:

  • Sub-optimal localization puts pressure on return metrics for players.
  • Raw material cost pressures, such as those related to aluminum and semiconductors, weigh on margins.

Electrification is inevitable over the long term, but the right strategic blueprint encompassing product offerings, pricing strategies, and distribution channels needs to be calibrated considering dynamic technology and competitive trends in the interim.

Potential Gainers and Losers from Kinetic and LML Electric Scooters’ Entry

Indian Companies that will gain:

  • Kinetic Green Energy Ltd (KINETICGREEN): The revival of the iconic Luna brand in an electric format carries strong nostalgia and brand recognition. This could bolster consumer interest and potentially lead to higher market share within the “Bharat” segment, boosting their overall electric two-wheeler sales.
  • LML Electric: Reintroducing the LML Star could tap into existing brand loyalty and nostalgia, particularly in the premium scooter segment. Strong features and competitive pricing could help them grab market share from established players like Ather and Ola Electric.
  • Battery Manufacturers: Increased demand for electric two-wheelers will benefit leading battery manufacturers like Exide Industries Ltd (EXIDEIND) and Amara Raja Batteries Ltd (AMARAJABAT), as they are major suppliers to the industry.
  • Charging Infrastructure Providers: Growing adoption of electric vehicles will further push the need for charging infrastructure expansion. Companies like Tata Power Company Ltd (TATAPOWER) and ChargePoint India Pvt Ltd stand to benefit from increased investments in charging solutions.

Indian Companies that might lose:

  • Existing Electric Scooter Leaders: Ola Electric, TVS Motor Company Ltd (TVSMOTOR), and Bajaj Auto Ltd (BAJAJAUTO) currently control a major share of the market. Entry of established brands like LML and Kinetic could intensify competition, impacting their market share and profit margins.
  • Traditional Scooter Manufacturers: Companies like Hero MotoCorp Ltd (HEROMOTOCO) and Honda Motorcycle & Scooter India Pvt. Ltd. (HMSI) rely heavily on petrol scooters. Increased shift towards electric two-wheelers could affect their sales in the long run if they don’t adapt quickly.

Global Companies that might gain:

  • Global Electric Scooter Manufacturers: International players like Yamaha Motor Co. Ltd. (7282.JP) and Suzuki Motor Corporation (7283.JP) are planning to enter the Indian electric two-wheeler market. Increased competition could drive innovation and potentially benefit consumers with more options and competitive pricing.
  • Global Battery Technology Providers: Advancements in battery technology are crucial for long-range and faster charging electric vehicles. International companies like Panasonic Corporation (6752.JP) and Samsung Electronics Co. Ltd. (005930.KS) could see increased partnerships and demand for their battery technologies.

Global Companies that might lose:

  • Global Traditional Scooter Manufacturers: Similar to their Indian counterparts, companies like Piaggio & C. S.p.A. (PIA.MI) and SYM Motors Co. Ltd. (2209.TW) could face pressure on their global scooter sales if the electric two-wheeler market continues to grow rapidly.

Market Sentiment:

This news is likely to be viewed positively by Kinetic Green, LML Electric, battery manufacturers, and charging infrastructure providers, potentially boosting their stock prices. Existing electric scooter leaders and traditional scooter manufacturers might face some headwinds. Global electric scooter manufacturers and battery technology providers could find new opportunities in the growing Indian market, while global traditional scooter manufacturers might be concerned about the long-term shift towards electric mobility.

Disclaimer: This information is for educational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.

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