Hero Sales Slump May Have Been Worse If FAME-II Subsidy Was In Place
Hero's motorcycle sales fell but scooter sales rose in June on a low base and widening price differential with electric scooters.
![<div class="paragraphs"><p>Hero MotoCorp's Xtreme 160. (Photo: Twitter/@HeroMotoCorp)</p></div>](https://media.assettype.com/bloombergquint%2F2023-07%2F50b71904-bb2c-47cb-98f1-f4af59264af6%2FXtreme_160.jpeg?rect=0%2C25%2C1596%2C898&auto=format%2Ccompress&w=200)
The dip in monthly sales of India's largest two-wheeler maker may have been worse if the subsidy on electric two-wheelers was still in place, according to experts.
Sales of Hero MotoCorp Ltd. dropped 10% year-on-year to 4,36,993 units in June, according to an exchange filing on July 1. While motorcycle sales fell 12.63% to 4,04,474 units, scooter sales rose 38% to 32,519—primarily on a low base and partly due to buyers opting for fossil-fuelled scooters over battery-operated alternatives, said Mitul Shah, head of research (institutional equity) at Reliance Securities Ltd.
"The price differential between ICE (internal combustion engine) scooters and electric two-wheelers has widened after the removal of the FAME-II subsidy," Shah told BQ Prime, during an interaction on Monday. "So, a portion of buyers must have shifted to ICE as they wouldn't wait for EV [prices to come down organically]."
The removal of subsidies under the second phase of Faster Adoption and Manufacturing of Hybrid and Electric Vehicles reduced electric two-wheeler sales by nearly 60% in June from a record high in May this year, Autocar Professional reported, citing VAHAN data. Electric two-wheelers now enjoy a subsidy of Rs 10,000/kWh as against Rs 15,000/kWh earlier. The cap on incentives has been set at 15% of the ex-factory price, as opposed to 40% earlier.
That, however, doesn’t explain the dip in Hero MotoCorp’s motorcycle sales. The culprit here is the patchy recovery in India’s rural economy, according to Shah. "About 50% of Hero MotoCorp's domestic volumes come from the rural market, where untimely rainfall and heatwaves are affecting farm output."
That has a bearing on Hero's motorcycle sales. Once normal rainfall starts and agricultural output rises, the rural economy will revive, which will support Hero's entry-level portfolio, he said.
In an exchange filing on July 1, Hero MotoCorp said: "The onset of monsoon in most parts of the country and overall economic indicators bode well for a growth in demand, and industry volumes are expected to pick up leading into the upcoming festive season."
Hero MotoCorp didn't respond to queries sent by BQ Prime.
The Harley Factor
![<div class="paragraphs"><p>(Photo: Company website)</p></div>](https://media.assettype.com/bloombergquint%2F2023-07%2Fdeebfc9a-982c-4155-a131-fb7eeaa5caa9%2FX440_Tank.png?auto=format%2Ccompress)
(Photo: Company website)
Hero MotoCorp Ltd. and Harley-Davidson Inc. unveiled their first co-developed premium motorcycle on Monday, in a march towards premiumisation of India’s largest two-wheeler maker that derives much of its earnings from sale of entry-level commuters.
But the journey from the Splendor to the Harley-Davidson X440 may have come a little too late as the motorcycle enters a crowded arena dominated by Eicher Motors Ltd.’s Royal Enfield and populated by Bajaj Auto Ltd.-made KTM and Triumph 400 cc motorcycles.
Still, the single-cylinder X440—priced at Rs 2.29-2.69 lakh—will find more takers than the now defunct H-D Street 500 and 750 that failed to grab a share of the fast-growing 250-750 cc middleweight motorcycle market.
“The volume impact and financial impact [of the X440] will be minimal on Hero MotoCorp’s books,” Shah said. “The bike, however, will help Hero garner brand equity and position itself as a global brand, riding the coattails of Harley.”