Srivaru Holding Limited
Introduction
Ahead of the special meeting to vote on the upcoming merger with SRIVARU Holding Limited (NASDAQ:SVMH), we were invited to meet with the CEO of SPAC Mobiv Acquisition Corp, Peter Bilitsch, and the CEO of SRIVARU, Mohan Ramasamy via videoconference. Due to our busy schedule, we were unfortunately unable to attend this meeting and instead proposed an interview to discuss the company’s prospects. This was conducted via e-mail, with Mr. Bilitsch addressing the shareholder issues while Mr. Ramasamy and Mr. Leow answered questions concerning the company’s products and operations. A final video call was held with Mr. Ramasamy just prior to publication.
We continue to have a positive long-term view of the company’s prospects and believe that the recent sell-off may provide an attractive entry point for investors with a long-term investment horizon. Although SRIVARU may not have the fastest electric motorcycle or the cheapest, it does have cutting-edge engineering and design technology that has the potential to transform the electric two-wheeler (E2W) industry and an accomplished management team spearheaded by a CEO with a background as an engineering executive at Tesla.
SRIVARU is smartly focused on the sweet spot of the Indian market – the mid-market light motorcycle category, which currently accounts for 60–65% of all two-wheeler sales. India is the fastest-growing E2W market in the world, growing at a 62% CAGR from 2016–2020, and E2W sales are expected to account for more than 80% of the two-wheeler market by 2030 as government initiatives to promote sustainable mobility solutions and rapidly falling battery prices are helping to make E2Ws an increasingly more affordable alternative to ICE vehicles. In contrast to developed markets, such as the United States, two-wheelers still dominate the Indian transportation market, accounting for more than 70% of the roughly 200 million vehicles registered in the country. This gives SRIVARU an enormous opportunity in their home market.
The Interview
Q: Electric motorcycles currently represent less than 3% of the Indian motorcycle market but are forecast to grow to 40-45% of the market by 2030, making India the fastest-growing market for two-wheeled vehicles. What are the factors accounting for this rapid growth?
A: India’s motorcycle market is expected to reach revenues of USD$ 25.6 billion in 2023, growing to USD$ 36.1 billion by 2027. By 2030, it is expected that the market share of electric motorcycles in India will reach approximately 50%. This represents a tremendous growth opportunity.
There are many factors driving this growth. However, the three main factors are:
The total cost of ownership of electric two-wheel (E2W) vehicles is more affordable than internal combustion engine (ICE) vehicles while offering an enhanced rider experience. Price and the cost of maintenance are important factors for Indian consumers.
The Indian government is dedicated to supporting the EV segment and is currently implementing various policies to support this shift, ranging from tax incentives to investment support as well as export credits, to name a few.
Last but not least, public awareness of environmental challenges is rapidly growing in India. There is a growing focus on climate issues and consumers are demanding more environmentally friendly solutions.
Overall, we believe it is the right time to be in this market. Given our technological leadership and first-mover advantage and, most importantly, the resoundingly favorable public reviews to date, we are confident SRIVARU will play a significant role.
Commentary
We asked the company about this in order to shed more light on a market that many US-based investors are unfamiliar with. As we note in our conclusion, governmental support has been instrumental in promoting the rapid adoption of E2Ws in India; while one might question the existence of a “first-mover advantage”, with the four largest established competitors accounting for the lion’s share of the Indian E2W market, it is still in the early innings, and we feel that the pie is large enough to allow SRIVARU to grow its sales as E2Ws continue to take market share away from ICE vehicles. Moreover, we think the Prana’s revolutionary design with the integrated rear-wheel motor represents a distinct competitive advantage over existing E2W models. While the bike faces formidable competition, SRIVARU has spent the past two years field-testing it, and we believe the superior design technology should allow the company to overcome the lack of a distinct “first-mover” advantage.
Q: Motorwatt.com called your Prana Grand model a “game-changing urban bike,” with a remarkable blend of performance, sustainability, and comfort. How does the bike compare to other urban E2W alternatives? What are the main selling points and how does the Total Cost of Ownership (TCO) compared to existing E2W competitors?
A: The Prana Is positioned as a premium motorcycle and is expected to become the vehicle of choice for young people looking for a high-performance bike with the equivalent of a 150cc or larger motor. Though Prana is a premium product, it is affordable and the TCO compares favorably with the available alternatives in the 150cc class. As a result, we believe we’ll capture customers from traditional ICE vehicles and transition them into becoming Prana owners.
Prana is the premium electric motorcycle in India. Its technology and features allow for an incredible rider experience. Prana is FAST, FUN, and SAFE to ride.
Commentary
As mentioned in our Conclusion, the company’s products are firmly targeted in the sweet spot in the mid-priced part of the market, which currently accounts for the majority of E2W sales.
Q: Your newest model, the Prana Elite, goes from 0-40 mph in around 4 seconds with a top speed of roughly 75 mph, an expanded 140-mile range, and a fast-charger upgrade. Yet, its performance doesn’t quite match that of more expensive electric motorbikes such as the Emflux One or Ultraviolette F77. Any plans to introduce a model to compete at the high end or is this still a fringe market in India?
A: Performance of the motorcycles is generally measured by speed (top speed), acceleration, and torque. Users primarily notice the acceleration and torque. The Prana’s torque, delivered directly from the in-wheel system, is instantaneous: acceleration of 0-60 km/h is achieved in less than 4 seconds, which is very responsive. Riders enjoy an adrenaline rush when they ride the bike.
Fast acceleration and torque are also critical factors when customers pass other vehicles on the highway or navigate through traffic. The Prana delivers optimal performance in these everyday activities.
The common speed limit on city roads is 70 km/h, 100 km/h on national highways, and 120 km/h on expressways. The Prana’s top speed exceeds these limits.
Commentary
While we would like to see them develop a top-performance flagship model to enhance the overall brand image, the prevailing market dynamics simply don’t support this yet from an economic standpoint.
Q: You have a proprietary charging system that allows owners to charge the bikes in their homes. How crucial is that in the Indian market?
A: This is critical given the charging infrastructure in emerging markets, not just in India. Even some developed countries have not yet deployed extensive EV charging networks to relieve customers’ anxiety about the range of the bikes.
That’s why we have developed a proprietary charging system where you can simply plug in your bike while you’re at work or at home.
Q: With the upcoming launch of the Prana Elite, customers can look forward to an expanded range of 140 miles. Are there enough EV charging stations in India to enable long-distance trips?
A: The Prana is designed to provide 3x the average ride distance and can be recharged at home or at work. The vast majority of motorbike trips are urban and suburban rather than long-range. We are confident that our proprietary charging system will allow interruption-free charging.
Commentary
We asked these questions since, in our experience, EV charging infrastructure is severely lacking in many developing Southeast Asian countries. As we presumed this would also be the case in India, we wanted to learn more about the company’s home charging system. Indeed, Redseer Strategy Consultants note that:
…a long ride is still a challenge in E2W owners’ minds. Underpenetrated charging infrastructure and longer charging times remain the biggest challenges to existing users and the most significant deterrent to those on the fence.
Q: The Prana is really one sharp-looking bike. Who was responsible for the design and what was the inspiration behind it?
A: The primary inspiration is from the eagle and falcon, as you can see in the company logo, which features an eagle. This is an attribute of the company’s mission – providing the best ride experience for our customers while focusing on execution.
Srivaru Motors
Q: What other design features distinguish the Prana from competitive E2W bikes [e.g., the sealed motor, the lack of a clutch and gears, the scalable, reusable battery pack, etc.]
A: Design features include a durable motor, a simplified driving experience, a riding position that supports the back, reverse mode for easy parking and maneuverability, a smooth suspension to absorb vibrations, etc. Overall, the Prana provides a comfortable and superior ride experience.
Q: SRIVARU claims that embedding the drive motor in the rear wheel reduces “fish-tailing,” but 4-wheel RWD vehicles were notorious for poor traction in adverse weather conditions. How is this different in the Prana?
A: The Prana’s design combines several safety features to reduce fish-tailing:
The battery is closer to the ground, providing a lower center of gravity. Common traction issues in 4-wheel vehicles are due to differing road conditions between the two rear wheels; in E2Ws, there is just one wheel and just one type of weather condition.
The sequential braking, which uses magnets located in the wheels, improves road grip, enabling the vehicle to come to a stop more quickly. Whether you apply the right- or left-hand brake, the front and rear-wheel brakes mechanically engage simultaneously while the in-wheel magnetic brake charges the battery.
Q: When do you see the entry-level models, such as the Prana Class, Alive, and Alive-Lite, rolling off the production line, and when can we expect to see them make a meaningful contribution to SRIVARU’s revenue?
A: Our strategy is first to begin the rollout of our flagship model “Prana” to Indian consumers in 2024 to ensure the utmost in customer satisfaction. This confidence level will allow us to launch all our future models, which will be built on the same platform and can be launched in a relatively short time frame.
Commentary
We believe the company’s platform approach is a clear competitive advantage that should enable it to control costs and reduce development time for new models.
Q: SRIVARU was recently awarded a patent for a motorcycle chassis with a battery pack protection system, where the power train and motor are integrated into the alloy rear wheel for more efficient power transfer and a lower center of balance. How does this new design lower manufacturing and maintenance costs?
A: This patent is a testament of our company’s commitment to innovation and to providing the best riding experience. The design offers the rider balanced weight distribution and superior ride comfort. We believe the patent on this chassis will transform the way performance motorcycles are designed and built. Traditionally, many of today’s ICE motorbikes have been manufactured with mid-drive or chassis motors. These designs often require an array of additional hardware to transfer motor power to the wheel, inevitably leading to increased costs, heightened complexity, and more intensive maintenance. In comparison, our innovation sidesteps these challenges. Our design distributes the weight of the motorcycle evenly by keeping the battery in the front of the vehicle and integrating the powertrain and motor into the alloy rear wheel. This gives the motorcycle a lower center of gravity and generates and transmits the kinetic energy directly within the wheel, facilitating improved balance and handling. As a result, the motorcycle has excellent riding stability with reduced manufacturing and maintenance costs.
Commentary
In our view, the rear-wheel drive motor is a game changer that makes the Prana stand out from the competition. Aside from enabling more efficient power transfer, the simplified design can lower maintenance costs, making the bike more cost-effective from a TCO standpoint.
Q: Can you discuss some of the measures you implemented to improve liquidity, facilitate the merger, and ensure investor confidence?
A: The transaction was designed to mitigate the risk of public investors by shifting the majority of the merger consideration to an earn-out. In order to receive the full value of the merger, SRIVARU will need to meet the goals outlined in the business combination agreement. We believe this is an investor-friendly feature that aligns the risks and rewards for all parties.
All of our founders’ SRIVARU shares are unregistered and cannot be sold without an effective registration or exemption. This should give some comfort to our shareholders that the SRIVARU team is committed to long-term success and is incentivized to work to maximize shareholder value.
The bonus pool is an effective means to induce SPAC shareholders to retain their shares instead of redeeming the cash in trust. Given its very targeted distribution, we believe this is the ideal mechanism to incentivize investors while limiting any potentially adverse market reaction. The bonus pool structure was designed to exchange the Sponsor’s registered shares for unregistered shares, limiting its ability to sell shares and aligning the Sponsor with the company’s long-term success.
Commentary
While we liked the idea of an earn-out as it properly aligns the interests of the company with investors, we were not as keen on the dilutive provisions in the non-redemption agreement (Form 8-K of Nov. 7, 2023), which allowed certain keystone investors to exchange 1 Mobiv share for 20 SRIVARU shares. While we understood the necessity of the agreement considering the prohibitively high level of redemptions, sales of the registered portion of these shares, which are not subject to any lock-up conditions, may create a short-term overhang on any share price appreciation.
Conclusion
Although, on a global scale, we expect consumers will be slower to adopt two-wheel than four-wheel electric vehicles due to the lower relative fuel efficiency cost savings, the subsidies and support from the Indian government are already tilting the Total Cost of Ownership (TCO) in favor of E2Ws. Under the FAME-II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) scheme, the government has provided subsidies and raised the cap on incentives from 20% to 40% while many states have been waiving registration fees and road taxes for electric vehicles. In addition, the government’s proposed Battery Swapping Policy and battery component and motor part duty reductions are widely expected to enable faster EV market penetration while lowering manufacturing costs across the board. As battery prices continue to plunge, it creates a favorable backdrop for E2Ws to continue to take market share away from ICE vehicles.
Although competition in the Indian E2W market is fierce, with four major players – Ather, Bajaj Auto, Ola, and TVS – jointly accounting for over 75% of the country’s E2W sales, we feel that SRIVARU’s engineering prowess and design expertise have the potential to be a game changer that should allow the company to carve out a defensible niche in the attractive high-speed light motorcycle segment. With roughly 140 million two-wheelers currently on the road and E2Ws approaching price parity with ICE vehicles, there is a significant addressable domestic market and room for a new entrant with a better mousetrap. While SRIVARU indicated in its F-1 that it plans to target other global markets, such as Southeast Asia, we have not factored this into our evaluation as it is unlikely to have any near or intermediate-term impact on the company’s sales or earnings.
Obviously, as this is, practically speaking, a pre-revenue company (only $112,409 in sales in FY 2023) that is likely to need more financial infusions going forward, there are numerous risks to the investment thesis. Like most companies at a similar stage of growth, there are numerous risks – sales may fall short of expectations or take longer to ramp up, profitability and cash flow may prove elusive, competitors with vaster resources may prevent the company from achieving its goals, etc. Moreover, the overall growth of the Indian EV market would be affected by any cutbacks or failure to implement existing or proposed governmental support or subsidies. The stock should therefore only be considered by risk-tolerant investors with a longer time horizon.
Overall Rating
(on a scale of 1-5, where 1 pepper is a supreme fail and 5 peppers is a smashing hit)
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