Hero Electric Faces Bankruptcy: EV Pioneer Struggles with ₹301 Crore Debt

Hero electric scooter maker is undergoing insolvency resolution process in regards to their debt amounting to over Rs 301 crore under the Insolvency and Bankruptcy Code (IBC). The resolution professional (RP) has put out the financially distressed company for bids for interested investors.   

Timeline for bidding and resolution  

The forms for expressions of interest were supposed to be released on February 18 and accepted until March 14. Hence, the list of eligible bidders will come out on April 8. The final resolution plans are due on May 13.  

Due to a default amounting to Rs 1.85 crore, Hero Electric subsequently defaulted into insolvency proceedings in December 2024. As claimed by the Economic Times, they also admitted claims from creditors which currently exceeds Rs 301 crore.

It includes the claims wherein Rs 82 crores are owed to major lenders Bank of Barat, Kotak Mahindra Bank, South Indian Bank, and IDFC First Bank. These creditors are holders of 100% of the voting rights in Committee of Creditors (COC) that shall determine the company’s future - if it shall undergo restructuring or liquidation. The explanation provided delves into details about the claims under Kolak Mahindra Bank which has claims more than 357 crores. 

Bank of Baroda has the larger proportions of the votes at 66.92%, followed by South Indian bank 21.03%, and IDFC First Bank with 11.40%. Furthermore, Kotak Mahindra Bank holds less than 1% and is the least accredited out of all the mentioned banks.  Additionally, claims summing up to Rs 557 crores still undergoing verification. 

Decrease in sale :::

The company was a leader in the market for years and managed to log sales of approximately 100,000 bikes during the fiscal year of 23. After an examination it was realized that due to regulatory barriers, sales were able to drop further to 11500 units in the last financial year. 

A senior industry executive informed The Economic Times that post pandemic, Hero Electric was reportedly in advanced talks with a Saudi investor regarding 1000 crore funding, however, the talks were ditched due to complex regulatory issues. 

The pandemic has affected the Electric two wheeler industry through various setbacks, especially through the supply chain issues that caused severe disruption in localization.

The report suggested that the delay on the local content requirements for two-wheeler manufacturers posed a threat to major companies like Hero Electric, especially since legislation gave an entire year to four-wheeler manufacturers. 

EV market outlook amid Hero Electric’s struggles 

In spite of the impending doom faced by Hero Electric, the Indian EV market is projected to grow robustly. Experts predict that the share of electric two-wheelers will reach more than 30 percent in the next five years, with one in every five two-wheelers produced being electric. According to data provided by the Federation of Automobile Dealers Associations (FADA) and Vahan Portal, EVs had overtaken two-wheeler sales for the first time in 2023, accounting for 6.1% of total units sold, which was more than a million. 

Hero Electric was also among the firms that came under the radar for the FAME II – Faster Adoption and Manufacturing of Electric Vehicles mismanagement, along with other firms such as Okinawa Autotech, and were accused of abusing government subsidies. These companies were asked to return funds of Rs 469 crore for breaching incentives terms while claiming their subsidies. Those firms that did not comply with the repatriation requirement were excluded from subsequent financial assistance schemes.

Hero Electric contested the recovery claim in the court, and subsequently sought an order for the release of Rs 556 crores pending on account of subsidies. In October 2024 the company again submitted some proposals like fines, mediation, and retesting of vehicles, but they were not able to reach an agreement.    

Investigation, as well as espionage, is continuing from here.  

The Serious Fraud Investigation Office has taken possession of the premises of Hero Electric, and is conducting investigations about the allegation of subsidy fraud on the company which is beneath the FAME II program. The company challenged this order in the Delhi High Court and sought the supervision of the Ministry of Heavy Industry. The court decided on December 20, 2024, that the investigation shall proceed so long unresolved.