The profitability of the commercial vehicle industry needs to rise drastically to make more money that can be invested in transition to vehicles powered by cleaner fuels, according to Shenu Agarwal of Ashok Leyland Ltd.
"These margins are not sustainable ... they need to rise to double digits, if not mid-teens," Agarwal, managing director and chief executive officer at Ashok Leyland, told BQ Prime. There is a realisation within the industry that profitability needs to increase as industry looks to invest in cleaner fuel vehicles to achieve their emission reduction targets, he said.
Ashok Leyland ended FY23 with an Ebitda margin of 8.1%, as compared with 7.4% for industry leader Tata Motors Ltd.'s commercial vehicle business.
Given the lesser number of players in the commercial vehicle industry, it is surprising that the profitability levels are so low, Agarwal said.
He was appointed last year to lead the company to its target of becoming one of the top 10 players in the commercial vehicle space globally.
The flagship company of the Hinduja Group aims to launch multiple products based on its new electric-Light Commercial Vehicle platform, re-enter the European electric bus market and support its electric vehicle arm.
The Chennai-based company, which recently completed 75 years of operations, is present in the EV market through its subsidiary, Switch Mobility.
On the occasion of the company's 75th anniversary, Switch Mobility announced its foray into the electric light commercial vehicle market with its IeV electric-LCV platform, which is built with a capex of Rs 100 crore. While the company has launched IeV3 and IeV4 based on the platform, it plans to introduce multiple products over the next five years in the below 7.5-tonne category.
Dheeraj Hinduja, executive chairman of Ashok Leyland, has already said that the company is in talks with a lot of investors but hasn't closed any deals due to differing opinions on Switch Mobility's valuations.
Ashok Leyland will invest around Rs 1,200 crore in Switch Mobility and Rs 300 crore in OHM Global Mobility, which is the company's business for the electric mobility-as-a-service segment.
While the hunt for investors will continue, both Hinduja Group and Ashok Leyland can invest in Switch Mobility, the management said.
In the most recent example of its ambitions in the electric vehicle space, the commercial vehicle manufacturer announced that it will invest up to Rs 1,000 crore to set up a greenfield plant for electric buses in Uttar Pradesh.
"Ashok Leyland’s mission to achieve Net Zero by year 2048 is one of the triggers to set up this plant in Uttar Pradesh," Agarwal had said in the statement.
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