Companies

Ather Energy posts first-ever positive gross margin in March

Sangeetha Chengappa Bengaluru | Updated on April 13, 2021

Tarun Mehta, co-founder and CEO

Higher volume two-wheelers will have to sell at sub–₹1 lakh price point: CEO

Electric vehicle manufacturer Ather Energy achieved positive gross margins for the first time in March. It is targeting 20 per cent gross margins in 18 months, at which point, it would have achieved EBITDA profitability. In an interview with BusinessLine, Tarun Mehta, co-founder and CEO, elaborated on how the start-up achieved this milestone, its pan India expansion plans and how it views competition from Ola Electric in the next 12-24 months.

What went into achieving positive gross margins?

When we launched the first generation Ather 450, two-and-a-half years ago, we were trying something new on the product, tech, experience centre, infrastructure and even on the distribution side. The idea was to start on a small scale and see how it does without worrying about blowing up sales. We focused on learning for the first two years. That’s why, despite healthy demand, we opened only Bengaluru and Chennai. For us, the first generation Ather 450 was a higher cost product, because everything was new. We were losing money at a gross margin level and were at negative unit economics. When we moved to the second generation — Ather 450X, we made a lot of changes in our vehicle internally. While, from the consumer perspective, the performance went up, charging speed went up, connectivity got better, acceleration got better; internally we were able to improve our supply chain dramatically. Most of our supply chain vendors boosted their capacities 5-10 times, we moved to a new plant in Hosur and in the midst of all this, we fixed our unit economics and broke into positive gross margins for the first time in March. Gross margin is a function of three things — the material cost of the vehicle, manufacturing cost and distribution/logistics cost. The material cost is a function of engineering and design. If it is engineered right, you will spend lesser to produce that vehicle. We have reduced material cost by 40 per cent from the first generation.

What were the key metrics achieved during Q4 of FY21?

The January-March quarter was great. Our sales started spiking dramatically and we saw 2.5 times growth QoQ. From November to March, sales grew five times. Our test ride bookings, which point to customer interest pan India, went up 6 times. We are present in 27 cities of which deliveries have begun in 11 cities and will be extended to the rest by the next quarter. We have 8 experience centres in Bengaluru, Chennai, Mumbai, Pune, Hyderabad, Ahmedabad, Jaipur and Kochi. We ramped up fast charging stations from 79 to 129 in Q4. These stations give you 80 per cent charge in 45 minutes that provides for a 70 km ride. We are adding 30 fast charging stations every month. As we do more and more work, our material cost will continue to fall. Assembly cost, logistics and distribution costs are largely a function of scale — as scale kicks in, our assembly costs will keep falling. Put both these together and the unit economics breaks into positive. It is an incredible win for the Indian EV ecosystem, if Ather is able to generate strong and sustainable gross margins. If we cannot do it after 7 years of effort, how the heck will anybody else do it? Most start-ups don’t have positive unit economics. If they have to generate $100 of business, they end up spending more than that to generate that revenue. But the fact is, until you achieve positive unit economics, selling more vehicles is just a loss-making proposition.

What were the key challenges along the way?

First, our supply chain is used to operating at a very different volume and even the most experienced suppliers can’t produce anything new. They just need a lot of time. On one hand, in India we have the cheapest supply chain for 2-wheelers compared to anywhere in the world, it even beats China. Despite being able to produce 20 million of these things per annum, the minute you introduce anything new — our aluminium frame was new, our battery architecture and every component in it was new, electronics was new, wiring was new — they are still struggling to get it right the first time. A lot of depth, effort and investment is required to stabilise all of this — that’s what we have been working on. Second, we are still not at full plant capacity of 1.1 lakh units. To hit full capacity, the primary challenges would be bumping up our suppliers, because none of the suppliers can still supply at the plant capacity. I expect 90 per cent utilisation sometime next year. Third, deliveries in cities where we are not present yet is an issue which we are trying to iron out. Our primary focus is now in growing distribution to meet a lot of demand from new cities where we haven’t opened up for sale yet or have an experience centre.

How will you compete with Ola Electric which plans to come up with 2 million electric scooters ?

I think, if a company wants to sell 2 million units in India, which is the right aspiration to have in the long term, it has to sell in the sub ₹1 lakh mass market price point. Is it commercially viable to burn money and sell at that price point at such an early stage? That is anybody’s own strategic call. We believe we will be ready for a product in the ₹1 lakh price segment down the line, but not today. Maybe its the engineer in me that does not want to do it because, unless our architectures are stable and proven over a couple of years, I would not want to sell lakhs of those vehicles, because any issue there will tend to blow up in the entire market and destroy a lot of sentiment. We will see limited competition in the market in the next 12 months. Ather plays in the premium segment with Ather 450 (₹1.39 lakh) and Ather 450X (₹1.59 lakh), many others are in the mass market. However, in 24 months I definitely expect legacy OEMs like Bajaj and TVS to also step in with some good distribution. While I don’t foresee any radical changes in volumes, the market will see more options in 3-4 months time at various price points.

Published on April 13, 2021

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