Wrong turn? After decades making ICE parts, they decided to make EVs. It hasn’t gone well

Down south, the Murugappa Group’s Tube Investments of India Ltd had entered the electric vehicle (EV) segment back in 2008 with a scooter brand, but exited quickly in the face of poor demand. Eyeing the electric three-wheeler segment, the Chennai-headquartered finance-to-fertilizers conglomerate entered the market again in 2022 through TI Clean Mobility Pvt. Ltd. The subsidiary started selling its vehicles under the brand name Montra, and within two years managed to raise over ₹2,500 crore.

Also in 2022, the nearly three-decade-old automotive seat and interior maker Pinnacle Industries Ltd entered the electric bus and three-wheeler market through EKA Mobility. The Pune-based company, which has mainly worked as a supplier to commercial vehicle makers and manufacturers of some specialty vehicles, tried to cash in on the electrification wave through a partnership with Dutch conglomerate VDL Group.

Things haven’t quite gone quite as well for Greaves Cotton, Tube Investments of India and Pinnacle Industries since they crossed over into making EVs. While EV sales have skyrocketed between 2020 and 2024—from less than 100,000 to close to two million—the three companies have been bleeding, with combined losses of close to ₹1,600 crore since they began this journey.

Sales of Greaves Electric Mobility Pvt. Ltd, the electric mobility business of Greaves Cotton, have more than halved in FY24. Greaves Cotton’s share price, meanwhile, has trailed the benchmark—the shares have risen 52% since it entered the electric market in October 2018, well below the 121% surge in the Nifty Auto index (as of 17 April).

Tube Investments of India’s share price has declined by 4% since its advent in the EV market, whereas the Nifty Auto has surged by nearly 63%.

The EV gold rush, which started before the covid-19 pandemic, saw many companies, old and new, take their chances. The participation of this auto ancillary cohort was, however, rather surprising. The auto components industry is worth ₹6.14 trillion and all three companies have made plenty of money there. Indeed, companies in the sector have never sought to compete with their customers before.

So, what changed?

Fear of losing out

The component makers actually got into the EV space to cash in on a rising trend, especially since their internal combustion engine (ICE) customers were either absent or not present in a big way in the market before the pandemic, Shruti Saboo, director at India Ratings and Research, said. “But the reality of the market is changing now."

The auto component manufacturers were also worried about their future. ICE vehicles require hundreds of components, much more than EVs. A 2024 International Forum for Environment, Sustainability and Technology study pointed out that EVs could have 45-84% fewer parts than an average ICE vehicle. In an electric future, ICE suppliers could find themselves with much less business if they stayed put doing the old.

“As the EV transition picks up in the country, component players will have some uncertainty and fear as supply chains will shift from the traditional ICE models," said Amit Kaushik, managing director at Urban Science, an auto analytics firm.

 

Third, EV-making is a tad less complex than ICE from a hardware point of view. It is easier to assemble an EV because it has far fewer components. Easier assembly, in turn, implies less investment in complex engineering processes.

“Compared to ICE vehicles, where partnerships are needed for the powertrain (the capability to generate power and transmit it to the wheels), EVs can be offered to customers after assembling fewer components. There is, of course, a need to make the components work together with the technology of the vehicle, but that is relatively easier as compared to an ICE vehicle," said Jaideep Wadhwa, managing director at Sterling Gtake E-Mobility, a component manufacturer.

A tough ride

As the EV market started to grow after the pandemic, Greaves Electric Mobility started to witness good growth. The brand’s two-wheeler sales crossed 100,000 units in financial year 2023 (FY23), while revenue surged 115% to ₹1,125 crore, as per its draft red herring prospectus.

The going was good until it wasn’t. Revenue nearly halved in FY24 while losses increased from ₹19 crore to ₹691 crore. In total, the company’s losses from FY22 till the first half of FY25 were close to ₹900 crore, as per the prospectus.

Greaves Electric made up just over one-fifth of Greaves Cotton’s revenue in FY24. The sales volume of its flagship two-wheelers more than halved to less than 50,000 during the year. The company also makes three-wheelers, including electric models, and sales in that segment provided some relief by growing to over 13,000 from nearly 7,000 in the year-ago period.

 

But, in FY24, the company’s electric scooter production plummeted within a year to just a tenth of its total installed capacity as demand fell. It has three plants in Uttar Pradesh, Telangana and Tamil Nadu.

Losses have also piled up in the EV businesses of other component makers. Pinnacle’s EKA Mobility, whose order book stands at over 3,500 units, also continues to face challenges on the financial front. On a revenue of ₹53.1 crore, it recorded a loss of ₹32.3 crore in FY24, as per its filing with the Registrar of Companies.

TI Clean Mobility’s three-wheeler sales grew to 6,110 units in FY25 from 2,848 in the year-ago period. But the company had incurred losses, cumulatively amounting to ₹650 crore from the date of incorporation in 2022 till the end of the October-December period last year, as per portfolio management firm Marcellus Investment Managers.

TI Clean Mobility, nonetheless, remains ambitious. “We have aggressive plans both in the passenger segment as well as in the cargo segment, which we will seed in quarter 4 and scale up our volumes starting April onwards," Jalaj Gupta, managing director, said during Tube Investments of India’s earnings call on 4 February.

The company wants to rake in $1 billion in revenue from the EV business by 2029. Asked about the rationale behind getting into the space and competing against legacy companies, Vellayan Subbiah, non-executive vice chairman at Tube Investments of India, said, “I think that the market is just beginning to play out, and we’re still in very early days in terms of how the market will play out."

One of the key planks, Vellayan believes, is its presence in segments such as the electric heavy truck, where no other company has a presence. However, it is cognizant of the threat it faces from the legacy lot.

“Incumbents have an advantage in terms of presence—geographic presence in terms of dealerships and distribution," Vellayan said. “But I do feel that we will be able to overcome that and get to our stated internal market share target."

Mint approached all the three component companies for comments. They did not provide clarifications.

The empire strikes back

To be sure, legacy automakers, which had steered clear of EVs until a few years back, have become very aggressive in the space today. Bajaj Auto Ltd, TVS Motor Co. Ltd, Hero MotoCorp Ltd, Mahindra & Mahindra Ltd and Tata Motors Ltd, among others, have all become very active in the segment.

Bajaj Auto launched three EV models in the three-wheeler space last month. Also last month, Hero MotoCorp announced a ₹525 crore investment in Euler Motors to enter the three-wheeler space. In the two-wheeler segment, Bajaj, TVS and Hero have rapidly increased sales over the last year. Bajaj recorded growth of 114% in two-wheeler EV sales in FY25 while TVS recorded 30% growth the same year.

 

Given the fact that every EV segment is now witnessing the entry of legacy manufacturers in both the passenger and commercial vehicle space, some analysts believe it will be difficult for brands that haven’t traditionally been in the original equipment manufacturing space to hold their market share or expand.

Distribution challenge

While the barrier to enter the EV business is lower compared to the ICE segment, some operational issues are the same—distribution and service are two of them. “In the initial years of EVs, when the scale was low, players did not think about the after-sales service network and distribution," Sharma explained.

But such networks are now critical to succeed. In September 2024, Mint reported that Ola Electric had been receiving nearly 80,000 complaints every month, and its service centres were struggling to keep pace. In October, Reuters reported that the ministry of heavy industries has called for an audit of the company’s service centres for delayed and unsatisfactory after-sales service and inaccurate invoices.

For the auto component players, which have traditionally worked with a limited number of customers, establishing and running such networks won’t be easy.

“Although the barrier to entry is lower, the barrier to success for players traditionally in the B2B (business-to-business) segment is higher. It’s not easy to have a vast distribution network, which an OEM (original equipment manufacturer) needs," Wadhwa said.

The learning curve

“Building EVs can be a good strategy to learn how to cater to OEMs’ changing needs. However, to enter the market quickly, some players brought over Chinese technology for the Indian EV market. This was not a long-term or sustainable situation," said Sunil Kaul, chief technology officer of the ANAND Group, an auto components manufacturer. “In the longer term, those who develop their own technology and innovate, working closely with customers, and understanding as well as fulfilling their requirements, will be the component leaders in this space."

For instance, the Murugappa Group’s Tube Investments of India is investing in research and development to work on electric components and battery packs. The company has expanded its research and development team to over 250 people to build in-house capabilities to develop motor control units, a key part in an EV.

“I do believe that it is going to be a significant advantage…both on the hardware and software front…from a cost perspective, because those components are significant in terms of the BOM (bill of materials)," Vellayan noted in the earnings call cited earlier.

Component players are also entering partnerships to develop the technological capabilities needed to manufacture EV components. Greaves Cotton has inked a partnership with UK-based Eta Green Power Ltd to use its electric powertrain solutions. Meanwhile, its retail arm, Greaves Retail, has inked a technology transfer agreement with Tsuyo Manufacturing, an EV component maker.

There appears to be a broad consensus among analysts that investing in core capabilities to make them more electric could be a game-changer for auto ancillary companies.

Facing consolidation

While legacy players would once shy away from making big bets in the electric space, they appear to now be fully invested in the transition.

Bajaj Auto, Mahindra Last Mile Mobility Ltd and Piaggio Vehicles Pvt. Ltd face each other in the electric three-wheeler lane, while Bajaj and TVS Motor are locked in a tight race at the top in the two-wheeler space with Ola Electric Mobility Ltd.

 

“With legacy players sure of electric technology, they are going to increase their share of the market. Consolidation is always a reality after a few years of a disruption," said Ashim Sharma, senior partner and group head of business performance improvement consulting at Nomura Research Institute.

“The electric three-wheeler market is going to consolidate. In the next couple of years, we would like to capture an additional 10% market share in the passenger segment," Samardeep Subandh, president, intracity business unit, Bajaj Auto, told Mint after the launch of Bajaj’s EV models last month.

The electric two-wheeler space has already seen increasing consolidation, with the top five players constituting nearly 90% of sales last year.

In the coming years, industry watchers do not expect more component makers to transition into EV manufacturing.

“About 80-90% of players in the space will face significant heat on their financials as legacy players will sweep the market with their products," an industry consultant working with component players said. “The future isn’t that bright for players who haven’t traditionally been in the OEM space. The small ones do not have a moat or brand recognition to survive."