Dheeraj Hinduja is quite sanguine about the prospects of bus and trucks maker Ashok Leyland’s foray into electric vehicles. “We are hoping to see our double-decker electric buses on the roads of Mumbai next month or so,” says Hinduja, Executive Chairman of Ashok Leyland & Switch Mobility, the electric vehicle arm of the Hinduja group.
Though Ashok Leyland Ltd’s (ALL) core business — manufacture and sale of diesel-fueled freight trucks and passenger buses — is inherently cyclical in nature, with the industry volumes strongly linked to the level of economic activity, industrial growth and infrastructure investments, the second largest player in the medium and heavy commercial vehicle market (M&HCV) in India, has some history of defying odds and rising to the occasion – be it regulatory, technological or market challenges/changes.
As public transportation is ripe for electrification, with a major focus being on the bus fleet in the country, Ashok Leyland responded to the disruption by quickly carving out a separate company, Switch Mobility, formed by combining the electric commercial vehicle operations of Leyland and the group’s UK bus firm, Optare. Now, Switch is one of the key players in the electric bus market in India.
“Switch Mobility is growing its sales pipeline quickly in India and delivering a competitive product range. Our objective is to develop Switch as a global electric vehicle company,” said Hinduja in a recent interaction. Now, the Hindujas are scouting for investors and an infusion of capital for Switch as it has envisaged capex/opex of about $350 million over the medium term, to be funded by a mix of debt and equity.
While its EV journey is powering along, ALL has been making tremendous progress in its traditional business in the post-Covid period.
Pandemic and more challenges
The CV market, the M&HCV segment in particular, has been recording strong growth over the past few quarters. This is a much-awaited recovery though the market is yet to reach its earlier peak. The pandemic crippled the demand situation further in the CV market, which was already reeling under the impact of axle load norms and other challenges.
Even as the recovery continued, Ashok Leyland had its own challenges. The company witnessed many top-level exits, which included the resignations of its MD and LCV and M&HCV heads. Dheeraj Hinduja took over the mantle as the Executive Chairman to steer the company after the resignation of Vipin Sondhi, the MD, in November 2021.
Despite top-level exits and the absence of a CEO, Ashok Leyland’s growth path was not impacted. As the CV market showed continuous improvements, the Hinduja flagship has been the major beneficiary of a revival in the M&HCV segment.
For example, the September 2022 quarter proved to be a record one for the company as it not only registered a whopping growth across trucks and buses but also improved its market share significantly. Its market share was 32.2 per cent in the M&HCV segment in Q2 of this fiscal. For the third quarter in a row, it maintained a market share of 30 per cent plus. The growth has been spurred by an expanded product range (like CNG variants), better acceptance of the AVTR range (modular truck platform) and revamping the dealership network.
In the year-ago quarter, the company’s market share was 22.2 per cent as it had a huge setback due to the absence of CNG models in the ICV (Intermediate commercial vehicle) segment, which saw a shift from diesel-powered trucks to CNG vehicles due to a steep increase in diesel price. With no CNG models in its portfolio, AL suffered and lost market share.
But it started rolling out new CNG models from March 2022 quarter and since then it has been gaining share. Meanwhile, the ICV market saw a reversal in trend due to an increase in the prices of CNG. Nevertheless, it plans to introduce more CNG models to be future-ready as it doesn’t want to get caught in a situation like the last year. While it has reported strong growth in buses too, growth in LCVs has been constrained by the continuing shortage of chips.
Growth all over
The company has seen growth in all regions, not just in its bread-and-butter southern region. “Also, the big news for us is the strong acceptance of our AVTR trucks. Customers are very happy and these trucks played a crucial role in getting us to this level,” stated Gopal Mahadevan, Director and CFO, ALL.
Despite intense competition after the entry of global players, ALL managed to protect its turf and remain a strong number two in the M&HCV market (after Tata Motors). Presently, the Indian M&HCV market is dominated by four players – Tata Motors, Ashok Leyland, VE Commercial Vehicles, and Daimler India Commercial Vehicles and the market is unlikely to see any new players in the near term.
“Existing players are well entrenched in the domestic CV market and are expected to remain so. The M&HCV segment is even more concentrated than the LCV segment. Sizeable investments are required to set up capacities, and break-even in operations takes significant time. Hence, no major new entrants are expected in the domestic CV market,” says Anuj Sethi, Senior Director, Crisil.
However, the landscape could change with an impending disruption by EVs and other alternative fuels.
“In the mid-long term, there will be a paradigm shift in traditional business models with the entry of mass mobility companies. Today CV manufacturers sell trucks/buses to fleet players or State governments. But big mass mobility companies will emerge. Consumers will hire the service rather than owning the the bus/truck asset. Long-term contracts of 10 years will be signed with these players which will create a win-win equation for both. This is already witnessed in the electric bus segment where State governments have a use and pay model,” says Puneet Gupta, Director, of S&P Global Mobility.
However, industry analysts are of the view that Ashok Leyland appears to be on a better wicket now with its twin focus – modernising the diesel truck portfolio with the latest technologies while making good progress in the EV segment.
Fresh expertise is in
Switch Mobility has Mahesh Babu, an EV segment veteran with several years of experience, as a CEO to guide the company and grow in the EV space, while Ashok Leyland recently roped in Ganesh Mani, who was Director - Manufacturing in Hyundai Motor India and has more than three decades of experience in manufacturing and strategy.
As it has become imperative for manufacturers in industries such as automotive and electronics to leverage Industry 4.0, companies need to scale up their technologies across sites and value chains, Mani’s experience will come in handy for transforming ALL and address the disruptions of today as well as in the future.
Meanwhile, for the first time, ALL has been operating without an MD or CEO for more than a year as the search for a suitable person is still on.
While it is not seen as a minus, a CEO with global exposure will be of great advantage and will help sustain the present growth momentum as technology is changing so fast and so much is happening around telematics, autonomous, and connected technologies. Also, ALL is spreading its wings to many geographies and has set out a vision to be one of the top ten CV makers in the world.
There is a general buzz in the market as to which news will come first – a new strategic investor for Switch Mobility or an MD & CEO for Ashok Leyland. Probably, we will have answers to both in 2023!