Hero MotoCorp Ltd’s launch of its first electric two-wheeler (E2W) under the battery-as-a-service (BaaS) model will significantly reduce the entry barrier for the segment and perhaps help expand the market. The BaaS model offers a substantial drop in the purchase cost and variable charges based on the customer’s actual usage. Yet, with the intense competition and persistent losses in the E2W segment, it could take the company a few years just to break even.
At ₹59,490 (ex-showroom), the base model Vida VX2 Go is 40% cheaper than the same model without BaaS, along with running charges of ₹0.96 per km. The strategy has greater significance for Hero because of its higher share in the entry-level market.
“We see the VX2 as a strategic move by Hero to build scale in India’s mass 2W electric vehicle segment by blending affordability, functional utility, and Hero’s expanding charging network (3,600+ points),” said Nomura Global Markets Research in a 1 July report.
Nomura’s analysts, however, said that hadn’t yet seen general consumers in India warming up to BaaS, adding: “Hence, we will keenly observe the response as this product holds promise.” The company could be taking cues from the traction generated by the first electric four-wheeler based on BaaS model launched in September, which achieved sales of 20,000 units in six months.
Margin challenges
Yet, the E2W business remains challenging. The company’s E2W Ebitda margin in FY25 was negative 95%, albeit much better than FY24’s negative 155% margin, management said in the March-quarter earnings call. It needs a monthly run rate of 25,000-30,000 units to break even, against the current average of 7,000-8,000. The company aims to double this by March 2026, and increase its market share to 12-15% from 7% in March 2025. Hero has also filed for production-linked incentives (PLI) for Vida V2 Pro and expects to receive approval this month.
Meanwhile, Hero recorded 10% growth in overall sales to 554,000 units in June. This marks a smart reversal from the 21% drop seen in the first two months of FY26. The revival in June was led by exports, which rose 140%, though they account for just about 5% of the total.
Yet, June quarter (Q1FY26) volumes declined by 11% to 1.37 million units, dragged down by the performance in the first two months. While the two-wheeler market remains strong thanks to strong rural demand, Hero continues to lose market share. In the eight quarters to Q4FY25, its market share declined by about 910 basis points (bps) to 41.5% in motorcycles and 620 bps to 28% in two-wheelers. However, volumes may increase with the 100 bps reduction in the repo rate, which reduces the cost of financing. Note that about 63% of FY25 sales were through financing.
Rich valuation despite correction
To be sure, the company’s declining market share has weighed in investor sentiment. Hero’s shares are down about 23% over the past year vis-à-vis a drop of 4% in the Nifty Auto index. Despite the correction, the stock’s valuation of 17 times estimated FY26 earnings, as per Bloomberg consensus, is higher than the long-term average of about 15. Market-share gains are crucial for the stock’s trajectory.
However, subdued performance in the 110-cc motorcycle segment, where Hero has a strong presence, and intense competition in the 125-cc motorcycles segment could curtail the company’s market-share gains in the coming years. Also, the launches of premium models are expected to increase its market share by only 200-300 bps (its current share is 2%) with weak brand positioning versus the competition, according to a Kotak Institutional Equities report.
