Assignment Taken

Detailed overview of the Financial target, Product Mix & Expansion Plan for Next 5 Years

Case Understanding

Renewable energy has great potential in the automobile industry of India whereas the penetration of Electric Vehicles(EVs) in India is still low.Currently,the registered vehicles in the automobiles sector is 230 million and the market is a fast growing market. The Government target of achieving 30% on road EVs is based mainly on the aim to introduced electrification of 2-wheeler,3 wheeler and commercial vehicles.Fleet of passenger vehicles are placed at a lesser priority zone compared to these and they come a step behind. Now,as a team of budding entrepreneurs this is a golden opportunity to join the EV bandwagon and reap profits in the upcoming years as this is indeed the “future of Auto industry” going ahead. With a maximum possible fund of 1.6 cr (40 lac corpus fund+60 lac loan),the team needs to reach break even in minimum possible time and start generating profits. The team comprises a major chunk of Engineers(2 Mechanical,1 Electrical,1 Computer Science Grad),remaining 50% members are 2 fresh management graduates and 2 graduates with prior work experience in Marketing domain.

BCS Solution Summary

For launching the E-Vehicles in the market successfully, from the primary and secondary research reports, it is recommended to launch the different E-Vehicles phase wise. As per planning, • Year 1 involves rolling out 2 Wheeler vehicles and 3 Wheeler vehicles • Investing into 4 wheelers can be checked for a while since right now adequate infrastructure in the form of charging stations are not available.Currently, Tata Group have made huge investments to build infrastructure as in electric car charging stations which is expected to be up and running within the next 3-5 years and build a good infrastructure in metro cities like Mumbai,Hyderabad,Delhi etc • Fully EVs are yet not suitable for Indian markets due to high population and traffic

Solution

Solution

   Venturing into EV Markets

1. Post 2015,EV sales has been doubled and  Battery Electric Vehicles(BEVs) accounted for more than 66% of the global EV sales
2. BEV & PHEVs combined accounted for a sale of one million units in 2017
3. By 2022,the sales are expected to reach a tipping point when the total cost of ownership becomes at par with the internal combustion engines
   
   

Key Triggers

1. Dismal State of Auto Sector of India: Indian auto sector is still in its infancy & the market share of EVs in India is quite low compared to other countries
2. Number of registered vehicles: Current number of registered vehicles in India is 230 m & it is constantly growing at a steady rate
3. Less knowledge of renewable resources: Overdependence on fossil fuels currently
4. Realistic target: Government target of reaching a 30% adoption of electric vehicles by 2030 with an enhanced focus on BEV,PHEV & electric scooters & bicycles
5. Active participation in reducing carbon footprints: Reduction of carbon footprints and lesser pollution
6. Global competitors: North America have already seen remarkable progress in the EV sector owing to the huge investments of motor giants Tesla & Ford

 

Product Mix

While  working on the product mix, first let us break the EVs up into separate segments on the basis of the following parameters:

1.Type

On the basis of type,EVs can be further subdivided into

• Battery Electric Vehicles(BEV)
• Plug-in Hybrid Electric Vehicles(PHEV)
• Hybrid EVs(HEVs)

2.Vehicle Class

On the basis of class,EVs can be further subdivided into

• Mid Priced
• Luxury

3.Vehicle Type

On the basis of Vehicle, EVs can be further subdivided into one & off Road EVs like

• Electric bicycles
• Electric scooters
• Electric motorcycles

For an initial planning, the proposed  product mix  will be majorly comprising of two wheelers and three wheelers as of now which are given below:

Two Wheelers

1. Eco SKUTI Lite(lower range scooter)
2. Scoocity R100 (mid range scooter)
3. Galaxity R150 (mid range bike)
4. Bolt S160 (sportsbike)

Three Wheelers

1. Erick R250(E-rickshaw)
2. BlueBull 1T(loader mini Tempo)
3. Knect R200 (E-Cart)

The detailed product mix can be somewhat like tabulated below ,assuming the expansion of product lines over a period of 5 years.

Proposed Product  Mix (5 Year Plan)
FY	2 Wheelers	3 Wheelers	Commercial Vehicles	Passenger Vehicles	Hybrid EV	Total
2020	140	60	0	0	0	200
2021	280	120	0	0	20	420
2022	400	180	40	20	40	680
2023	460	207	46	23	46	782
2024	575	259	58	29	58	978
2025	748	336	75	37	75	1271

 

N.B. The key assumptions in this case are a 50% increase in capacity for the 2nd Year  and a subsequent rise of 15%,25% and 30% percent as newer models and variants gets added to the product line.

 

Another Plan B can be if we go on for a mix of  factory expansion and contract manufacturing.

Key assumptions in this are:

1. The number of factories over the years increase from 1 in 2020 to 8 by 2025
2. Subsequent rise of 15%,30% and 30% percent respectively YoY as newer models and variants gets added to the product line.

		Plan B (Factory expansion+ Contract Manufacturing)
Proposed Product Mix(5 Year Plan)
FY	2 Wheelers	3 Wheelers	Commerical Vehicles	Passenger Vehicles	Hybrid EV	Total
2020	140	60	0	0	0	200
2021	280	140	0	0	40	460
2022	600	720	160	80	160	1720
2023	720	864	192	96	192	2064
2024	936	1123	250	125	250	2683
2025	1217	1460	324	162	324	3488

Financial targets

1. The financial targets for the 5-6 year period is keeping in mind that the sales varies roughly in between 70-80% of the self manufactured and those done by contract manufacturing combined
2. Also, the commercial and passenger vehicles fleet are not in production until the second year since adequate infrastructure is not yet available in India
3. The prices are kept competitive keeping in mind the similar ranged products of giant auto maunfacturers viz Tata Motors,Hyundai etc.

   Revenues in '000s
   FY	2020	2021	2022	2023	2024	2025
   2 Wheelers	4690	7504	11596	13335.4	16669.25	21670.03
   3 Wheelers	3900	6240	9360	10764	13455	17491.5
   Commercial Vehicles	0	0	16000	18400	23000	29900
   Passenger Vehicles	0	0	14400	16560	20700	26910
   Hybrid EV	0	3200	19200	22080	27600	35880
   Total	7302	16944	70556	81139.4	101424.3	131851.5

 

Expansion Plan for the next 5 years

The expansion plan can be phased out over the time period of the upcoming 5 years. Initially, adequate number of charging stations are not available to launch commercial or passenger fleet.

1. For Year 1,the target is to launch the two wheeler and three wheeler vehicles across three major metro cities viz. Mumbai, Bangalore and Delhi.
2. Initially, as a bootstrapped firm, we can approach for Series A,B or C type funding. Going by the initial 2 years turnover, Series A funding seems to be most feasible. We can raise capital from Venture Capital Firms like Sequoia Capital, Softbank etc-thereby improving our capital base to venture into newer markets with expanded product line.
3. Post receiving the Series A funding, starting to invest more on factories and increasing our reach to other metro cities viz. Hyderabad, Kolkata and Pune.
4. Inking a pact with commercial fleet provider, Lithium Urban Technologies once the firm starts producing commercial vehicles to address mobility solutions across passenger and freight segment
5. Partnering with tech giants viz Wipro & Accenture for Value Added Services including fleet management and collaborating with Tata Power to install electric charging stations in their campuses.
6. Post 2022,VELO is expected to  supply commercial vehicles for the e-mobility carriers like Ola,Uber,Merucabs etc.
7. As the organization reaches close to the 5 year mark,further capital infusion via Series B funding from investors like Warburg Pincus(if at all possible) will boost further expansion plans greatly.

 

Conclusion

The current market isn’t feasible to launch 4 wheelers in the Indian market, so the best option is to start with 2 wheelers and 3 wheelers. In the first two years,the launch follows a conservative approach- launching 2 wheelers and 3 wheelers in Year 1 followed up by launch of Hybrid EVs in Year 2. With Tatas and other big houses coming forward in setting up electric charging stations, the remaining product line can be expanded in the following years. By 2025,the firm expects an overall growth of approximately 1700% in terms of revenue. The company is expecting to break even by the end of 4th Year. The major breakthrough, however, depends on 2022(Year 3) when we are expected to launch both commercial and passenger fleet. This is also the deadline when the Government have decided to make 30% of the total on road EV fleets ,with special priority on maximising the target of electrification of two wheeler and three wheeler vehicles.

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