Govt should give stakeholders greater clarity on rare earth magnets: Rajiv Bajaj

Time of India

3 days ago

Bajaj Auto
MD discusses the extent of the impact of rare earth magnet shortage, looming
production halt
, and the broader implications for the
EV ecosystem
in an interview with Shally Seth Mohile. He outlines the challenges in finding short- and medium-term alternatives, uncertainty over government policies, and troubling delays in state-level EV incentive reimbursements. With the festive season approaching and supply chains disrupted,
Rajiv Bajaj
voices concern not just for his company, but for suppliers, dealers, and industry momentum at large, urging for greater clarity and policy integrity.
Question: What has been the impact of the rare earth magnet import curbs on Bajaj Auto? How many days of inventory do you have to ensure continued production of Chetak and electric three wheelers?
Rajiv Bajaj:
Bajaj Auto had in recent months achieved pole position in both the electric scooter segment with its Chetak and the electric three-wheeler segment with its GoGo. Hence, since our volume requirements are quite high, particularly with the festive season approaching, we have been hit quite hard by the unavailability of heavy
rare earth magnets
as opposed to some of the smaller low-volume manufacturers.
Our component inventory saw us through until June, but we are down by half in terms of production in the current month, and I am afraid that we are looking at a zero month in August as of now. Should that happen, it would be not just a significant impact on our leading share and revenue, but also on our Ebitda (earnings before interest, tax, depreciation and amortisation) as our EV portfolio is now reasonably profitable.
Question: What are the alternative mid-to-long term strategies you are looking at to circumvent the shortage?
Rajiv Bajaj:
In the short-term, there are no alternatives. In the medium-term, the two obvious alternatives are to look for an alternative to the high rare earth magnet and/or to look for an alternative to the source i.e. China.
However, changing product design and/or the supply chain is easier said than done because it sets you back on what is already a rather steep learning curve in terms of quality and cost.
Have there been any assurances by the policy makers on relaxation of DVA norms under PLI scheme if companies have to rely on import of motors/ sub-assemblies?
I believe that there have been discussions with respect to DVA, PLI., etc, in the context of the import of sub-assemblies/assemblies in place of components. While Bajaj has not sought such a waiver, I am supportive of those who have, given that this is an acute situation brought on by unusual circumstances. However, we have not heard anything conclusive in this regard from the ministry or from any other regulatory authority.
Question: What implication will it have on the cost of production? Will you be able to pass it on to buyers?
Rajiv Bajaj:
The per product cost implication is hard to estimate at this stage. There is no doubt that there will be some cost impact ranging from a relatively small one if a suitable product substitute becomes available from the current supply chain to a relatively large amount should this not materialise.
Question: What impact will the magnet shortage have on the e-scooter growth story?
Rajiv Bajaj:
Well, in the scooter segment, EVs have achieved a relatively high penetration of the order of about 25 per cent unlike with cars where I believe that it is still around just 2 per cent. In some of the large metro markets, the penetration is even higher, and in such markets, there will be a definite demand contraction as a section of consumers that are now recalibrated to the joys and advantages of riding an electric scooter will resist reconciling to an ICE product. However, my greater concern is for our suppliers who have invested heavily in EV development and production as well as for our dealers who have set up exclusive distribution facilities for EVs. These relatively small entrepreneurs and their employees will be hit very hard if the current status quo becomes chronic.
Finally, the momentum of the progress that the Indian industry was collectively making with EVs in line with the vision of the government will be seriously hampered.
Question: What in your opinion can New Delhi do with regards to dialogues with Beijing on the rare earth magnet issue?
Rajiv Bajaj:
It is not for me to say what our government can do vis-a-vis their Chinese counterparts, but I would certainly say that our government should as much as possible be giving all of the stakeholders mentioned above greater clarity on what the exact situation is and what their best judgement is in terms of the near term outlook. For as of now, except for being given to understand that efforts are on, we know precious little.
Question: ET has learnt the Maharashtra government has inordinately delayed reimbursing EV incentives to manufacturers. What has Bajaj Auto's experience been?
Rajiv Bajaj:
The electric scooter and electric three-wheeler segments are significant in the state of Maharashtra and Bajaj Auto being the market leader by far in both with over 50 per cent market share is entitled to receive a large incentive from the state government basis its EV support policy and which, in turn, we pass on to our customers.
However, for over two years now, for reasons that we are unaware of, we have received almost nothing, barring a tiny tranche that came in a couple of weeks ago whereas we have already passed on the entire amount to individual customers.
This delay obviously has a significant impact on cash flow, and of course, the state never makes good the loss of interest. But more worrisome is what we informally hear, which is that the state finances may not permit the state to fulfil its policy obligation. Should there be a failure of policy integrity, it will certainly bode poorly for Maharashtra, which is otherwise deemed to be one of the finest destinations for business investment.