BL interview. Payment security mechanism in e-bus tenders will make the model bankable: Tata Motor’s Girish Wagh

There are two perspectives. One is volume and the second is tonnage. In FY19, the highest-selling multi-axle vehicle was a 37-tonne truck. Today, the highest-selling multi-axle vehicle is a 48-tonne vehicle. For every three 48 tonnes sold, the tonnage is equivalent to four 37-tonne vehicles. The numbers may not reach the FY19 level in FY23, but the industry is doing well tonnage-wise. Also, in FY19, medium and heavy commercial vehicles were more than 3 lakh units.

This year, it has certainly not reached that level, but the growth is good on a very low base of last year. The salience of small commercial vehicles is increasing every year. From that perspective, tonnage does become important. The overall CV industry will also not reach FY19 numbers. We will have to see whether it will happen in the coming years. There will be a lull period after the elections. However, after almost 24-30 bad months, it is good to see that the industry has been picking up speed.

CNG vehicles are inherently more profitable because of the higher fuel efficiency and therefore offer a lower total cost of ownership even if the price of the fuel is the same. Shift to CNG did pick up significantly in both ICV (intermediate commercial vehicle) and small commercial vehicle segments. In ICV, the penetration was even more. Then came the geopolitical situation, and CNG prices went up.

Looking ahead, I think CNG penetration will be good in India . For the government, the agenda is emission reduction, energy security, and a  cut in import bills. Roughly half of CNG is locally produced. This black swan event led to sudden inflation in gas prices globally, but I think it will normalise. Today, customers have not shifted back completely to diesel. There is a bigger anxiety about what will happen if CNG prices keep going up.

Kirit Parikh Committee has made some recommendations to tame CNG price hikes. Meanwhile, OEMs have been attempting to address the range issues. We have also increased the range for CNG trucks. In September 2022, we launched a vehicle with a 1,000 km range. In small commercial vehicles, we came up with bifuel variants that can offer a range of 700 km. Once the price stabilises, the shift to CNG will gather pace.

Our strategy here is electrification, because it is clear that e-commerce players have net-zero targets. So, they are looking for electrification of their fleet. ACE electric (two years ago) is an example of how we have done co-development. First, we took inputs from e-commerce players and I personally visited some of their warehouses to gauge their requirements. Based on the feedback, the product was conceptualised and once the product was ready, we were running the product in their environment for seven months before we started deliveries.

What came out of that experience was that the electric vehicle cannot be sold as a vehicle alone. You have to create the ecosystem, which includes financing, service support, charging infrastructure and maintenance. The major anxieties that the customer will have while buying an electric vehicle are range, charging infrastructure, and residual or resale value. So, in our ACE electric, we have come up with a 5-year comprehensive fleet management solution under which we take care of everything. Ace Electric has an onboard slow charger and a fast charging unit. For slow overnight charging, you can plug it into a 15 amp domestic plug point and charge it throughout the night. It will take seven and a half hours for the full charge. In e-commerce, their vehicles don’t travel beyond 100 km a day.

During the seven-month trial period, we rarely faced an opportunity to use fast charging during the day. Apart from e-commerce, FMCG players and courier or parcel companies are also quite aggressive in the electrification of their fleets. Ace Electric is meeting the needs of both B2B and B2C segments and we only have to make modifications to make them suitable for different applications. We seem to be on the right track to take advantage of the demand situation in this segment.

We are fully committed to the Government’s intention to decarbonise the passenger transport segment. Hence, we participated in the first tender and won the bid. In a record period, we have developed the electric bus and will start deployment of these buses from next month. When the next tender came we had continuous discussions with government agencies, saying that the current model is not sustainable.

There is no permanent security mechanism. When you get into the own, maintain and operate model, it is going to be an OPEX model, not a CapEx model. The revenue recognition goal will happen on the basis of the number of kilometers. Today, the financial health of the STUs is not the best. In this environment, the existing model is not bankable. It means we can’t keep it on our balance sheet. Also, no financier is ready to come in.

So, this model has to be bankable. That’s the reason we said we will not participate unless the payment security mechanism is present. Once we have such a mechanism like in the solar space, there will be positive impact. The government is also taking note of our request and has started working on it. This mechanism will make the entire model bankable. That is a key point. After that, we will be present in every tender.