India's booming electric two-wheeler market saw the first of many consolidations over the weekend. The world's largest two-wheeler maker Hero MotoCorp paid $56 million to acquire additional equity in electric scooter maker Ather Energy.
Hero MotoCorp holds 34.8% equity in the Bangalore-based electric bike maker that holds third spot on the list of electric scooter sales with 12.13% of the market share in 2021. The proposed deal paves the way for the acquirer to take on India's electric scooter market leader Hero Electric, which holds a near 35% marketshare.
For the uninitiated, Hero Electric is not a part of Hero MotoCorp. In fact, the former had taken the latter to court over a copyright issue. The petitioners claimed that the right to use Hero for an EV range rested with them and Hero MotorCorp could not use it for its first electric bike scheduled for launch in March 2022.
The consolidation game in India's e-scooter market
Hero MotoCorp made the announcement after a board meeting on January 14 that the new investment of Rs.420 crore ($56 million) in Ather Energy would be made in one or more tranches. Hero's first investment in Ather Energy came in 2016, while Hero Electric has been manufacturing electric two-wheelers since 2007.
Prior to the proposed investment, Hero's shareholding in Ather Energy was 34.8% on a fully diluted basis, the company said in a press release, which did not mention how much additional equity this fund infusion would bring. It said, the exact shareholding will be determined once the capital raise round by Ather Energy is completed.
Indications are that the latest fund raiser is an effort by Hero MotoCorp to flex its EV muscles within two branches of the same Munjal family of Delhi. On record though it says the funds would be used to create an electric charging infrastructure as well as associated technologies.
The two companies could stand to gain by having their manufacturing units not so far from each other. While Ather Energy makes its bikes in Hosur (Tamil Nadu), the Hero MotoCorp center is located at Chittor in Andhra Pradesh - a distance of about 110 miles (180 kms) by road.
Who will take the Hero crown in India's EV battle?
Let's look at the battle-lines that two sections of the Munjal family (named after their late patriarch Om Prakash Munjal and his brother Brijmohan Lall) have drawn up in the court.
Vijay and Naveen Munjal, who own Hero Electric, took their cousin Pawan Munjal of Hero MotorCorp to court over the right to use Hero for the latter's upcoming electric scooter. The issue pertains to a 10-year-old family settlement whereby the usage of the brand name Hero was reportedly assigned to the electric vehicles segment.
However, Hero MotoCorp claims there is nothing in the family agreement that stops them from launching their own electric bikes. They claim the agreement only stops them from using the conjunctive term "Hero Electric" for their products and that it neither restricts them from selling electric scooters or using their trademarks.
The agreement, reached ten years ago, allowed the individual families of the two brothers to continue their respective businesses at the time. The Pawan Munjal-led Hero MotoGroup had joined hands with Honda to launch India's first low-cost, high-mileage 100-cc bikes back in the 1980s.
However, the agreement actually allows family groups to compete with each other in order to spur future growth. Hero Electric has been in the EV space for 14 years and launched more than 15 scooter models thus far. The first signs of trouble emerged when Hero MotoCorp invested in EV maker Ather Energy in 2016.
An earlier court dispute had seen the judge suggest an out-of-court settlement as a solution. However, now both parties appear to be clear that they would rather wait for a judge to determine their fate instead of talking it over. Which is why we believe that the latest decision from Hero MotoCorp to pump in a further $56 million into Ather Energy could fuel the raging battle between the two branches of what has come to be known as India's first family of Bicycles.
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