Why does Ather Energy continue to incur losses for Hero MotoCorp and what is the way forward?

In FY24, the loss of electric two-wheeler manufacturer Ather Energy swelled by 22% year-on-year to ₹1,509.70 crore, as against ₹864.50 crore in the same period last year, Hero MotoCorp said in its annual general report. Hero MotoCorp owns a 40.39% stake in the Bengaluru-based EV manufacturer.

Notably, this is the second consecutive year, where Ather Energy has incurred losses. In FY23, the company's losses stood at ₹864.5 crore as against ₹344.1 crore in the FY22. The company is yet to file its financial results with the Registrar of Companies (RoC). Hero MotoCorp has also reportedly picked up an additional 2.2% stake in the company after Flipkart cofounder Sachin Bansal sold his 7.5% stake in Ather Energy. The remaining stake has been bought out by Zerodha cofounder Nikhil Kamath, according to Economic Times.

According to analysts, a price parity between EVs and ICE (internal combustion engine) as well as the cost of lithium-ion batteries being very high, has led to the losses. "It's not that they are making losses, every two-wheeler company is making losses. Because what you are referring to is one segment that is extremely dependent on the battery and the battery cost is high. So, interestingly the capital cost has to be very high in the business and capital funds," says Deven Choksey, MD, DR Choksey FinServ Pvt Ltd.

Ather Energy currently offers three products-- family scooter Rizta, Ather 450X Electric Scooter, Ather 450S, and Ather 450 Apex. Ather Energy, along with Hero MotoCorp, also has Ather Charging Grids across various touchpoints throughout the country. In the first six months of CY2024, the company clocked 56,421 in sales, grabbing a 10.6% market share. In contrast to this, its competitor Ola Electric led the segment with 38.7% market share, as per VAHAN.

According to Choksey, the company will take sometime to turn profitable. Choksey observes that ICE products are priced very competitively against EVs. "So the customers is not going to be very comfortable paying the cost of electric vehicles, which is higher comparatively. And at the same time, there is an element of replacement of battery cost. So battery has a limited life and after a period you have to replace the battery. So the capital cost, where the cost of the battery is very high," says Choksey, adding that as long as battery and capital costs remain high, EV manufacturers will continue to struggle with pricing power.

This is the reason many EV companies are operating at a loss, according to Choksey, as they can't transfer the full battery cost to consumers due to competitive pricing pressures.

 Notably, as the company's losses widened, it might have an impact on the company's market share. According to Choksey, Hero MotoCorp will have to look into its balance sheets as Ather Energy's losses would be a sore point for the company.

In terms of sales, Choksey opines that cannabalisation is unlikely to happen as both companies cater to different markets with different distribution and different set of customers.