Bajaj Auto : EVs unlikely to be profitable at unit level, even after PLI

Bajaj Auto

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Bajaj Auto says the price reduction to make the EV more affordable is outrunning the cost reduction

Bajaj Auto : The EV two-wheeler is still long away from being profitable at unit level even with the Production Linked Incentive Scheme (PLI), said Dinesh Thapar, Chief Financial Officer of Bajaj Auto.

“Will PLI, in the case of electric two-wheeler, lead to unit level profitability? The answer is no. We are still some distance away,” Thapar said in the conference call after the company posted its Q4 results. Bajaj Auto

Thapar said with cost rationalization and alternate sourcing, the company is bridging the gap. But added that they haven’t completely filled the gap, even for EV three wheeler. Bajaj Auto

“There will be leverage benefits that will help the unit economics as volumes grow up. But the most fundamental piece is the price” said Thapar. Bajaj Auto

The company explains that pricing has played a role in the unit economics not being profitable. The price reduction to make the EV more affordable is outrunning the cost reduction.

Thapar pointed out that pricing has come off over last four quarters and it is essentially front running the cost reduction, which will play out over a period of time. Bajaj Auto

He said the unit profitability will get better assuming the price point stays where it is and when cost reduction benefits play over time.

In its Q4 results, Bajaj Auto reported an 18 percent jump in its net profit to Rs 2,011.43 crore. The pune based auto maker’s revenue went up to Rs 11,249.8 crore for the January-March quarter this year, up by 30 percent from Rs 8,660 crore during the same period last year. Bajaj Auto

Bajaj Auto is facing a challenge in their electric vehicle (EV) strategy. Here’s a breakdown of the issue:

  • Goal: Make EVs more affordable to increase sales and adoption.
  • Action: Bajaj Auto has reduced the prices of their EVs.
  • Problem: The cost of producing the EVs hasn’t decreased as quickly as the price cuts. This means they are selling EVs at a loss. Bajaj Auto

There are a couple of reasons why this cost reduction might be lagging:

  • Battery Costs: Battery prices are a major factor in EV cost, and while they’ve generally been coming down, there have been recent fluctuations.
  • Non-Battery Components: Other parts of the EV, like electronics and advanced safety features, might be getting more sophisticated and expensive.
  • Problem: The cost of producing the EVs hasn’t decreased as quickly as the price cuts. This means they are selling EVs at a loss. Bajaj Auto

This situation could impact Bajaj Auto in a few ways:

  • Profitability: Selling EVs at a loss could hurt their overall profit margins.
  • EV Production: They might have to slow down EV production or limit price cuts to focus on profitability.

It’s important to note that this is a common challenge in the EV industry right now. Many manufacturers are struggling to make EVs profitable at current costs. Bajaj Auto

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