While Honda ventured on its own in 2001 with the launch of the Activa, in 2011, it ended its highly successful joint venture with Hero to redouble its efforts in India. Since then, it has been closing on the heels of its former joint venture partner—the world’s largest maker of two-wheelers—and even surpassing it in monthly sales on a few occasions.

In a conversation with Fortune India, Yogesh Mathur, director, sales and marketing, Honda Motorcycles and Scooters India, delves deep into the Japanese two-wheeler manufacturer’s India strategy—which spans flex fuels, electric scooters with swappable batteries, and, most importantly, customer retention.

 Q. What was the thought behind going into battery swapping technology?

When we entered the electric two-wheeler market, a lot of research went into the consumer pain points around the ownership of the vehicle. So, when we entered the market, we wanted to ensure that we also brought in the solution that could cater to the pain point of the consumer. So, we brought in two distinct technologies into the market. One is the fixed battery solution, which is already available in the market, and the other is the swappable battery mechanism, through Activa e. This is very new for us to establish in the market, and for the consumer as well. It takes a lot of time for the consumer to grasp the technology and then take ownership of it. The most important factor is how the asset value is being protected by the consumer.

One of the pain points for consumers was that, after maybe three, four, or five years, the battery starts to deteriorate. During that time, the customer has to repay the entire cost of the battery, which is huge. So when we brought the Activa e with a swappable battery, we ensured that at least the ownership of the battery does not remain with the customer. It remains with Honda. So, at least the consumer can enjoy a similar kind of longevity that they currently enjoy with the ICE scooters. For that, we wanted to make sure that the quality and technology of the product would be designed in such a way that it lasts as long as an ICE scooter does. Currently an ICE scooter lasts for 15 years, so we wanted to ensure that the consumer does not worry about the health of the battery for 15 years.

Q. Are you seeing individuals with private use using the battery swapping technology? Because battery swapping is traditionally associated with the gig economy workers, who use low-range, low-speed scooters for deliveries? Are more private consumers realising the benefit of battery swapping?

We are seeing the private person buying the Activa e. But yes, it is taking time for the consumer to consume the new technology. It becomes easier for B2B people, because they have a higher commute distance, so they have a higher chance of using the Activa e. But we are seeing good traction of normal users who are looking at a different technology.

Q. How has the premium and ultra-premium segment fared for HMSI?

We are selling bikes upwards of 250cc through the BigWing dealerships. Currently, we have 150 dealerships pan-India, and with that limited network, we have been getting a phenomenal response. This year we are planning to add 70 more dealerships across tier-2 and tier-3 markets. Since India is a market that has a lot of aspirational buyers, especially the young consumers, who are driving the demand. It is these passionate riders who are buying the 350cc plus products. We are getting very good traction, especially in this segment. This year was phenomenal for us, almost eight CBUs were launched from our side, which is the global line-up being introduced in India. That also is helping us driving the overall business of the BigWing portfolio.

Q. According to you, is India going to become the go-to destination for the CBU products, and will it be a part of your growth strategy?

The 350-plus cc segment is contributing very, very small to the overall two-wheeler market. Going forward, there is enough scope. India is a growing economy. The youngsters have enough disposable income to spend on these products, and it will drive the demand in the future. We will continue to study the trends that are visible, and will evaluate the global lineup that can be introduced in India.

Q. In terms of electrification, do you think electric scooters are the way to go forward? A lot of electric scooters have flooded the market, whereas electric motorcycles are far and few between. Is it because of the prohibitive pricing of electric motorcycles, vis-à-vis electric scooters and ICE motorcycles?

We need to look at who the people are that are shifting to electric two-wheelers. It is the people who have used ICE two-wheelers in the past that are driving the adoption. In the near future, I think scooters are going to hold the majority of the share in electric two-wheelers. But yes, there will be some consumers who will also prefer riding electric motorcycles.

We also need to look at why this trend is happening. The first reason is the past preferences of the consumers, which is a scooter. The other reason is that in the rural markets, people who get free electricity are also coming to dealerships to buy an electric scooter. So there are inherent advantages of an electric scooter over electric motorcycle.

But we are looking at how to become carbon neutral. This is one of our themes, to become carbon neutral by 2050. Keeping that global direction in mind, we are working hard on not just EVs, but also flex fuels, which hold enormous potential in India, which we can also look at, going forward. The government’s commitment is to go towards E85.

Q. What has been the response like for the flex-fuel motorcycle, the CB300F? How has the consumer received it?

We have a set of very enthusiastic consumers who were looking at a fresh technology to embrace, and we have been getting good response for the CB300F. However, the expectation is that there needs to be a benefit for using the E20 and the E85 fuel, and currently the consumer is not able to find that benefit. It is one of the concerning points of the consumer. If that is taken care of, then it will drive the demand for the CB300F.

Q. Is demand for electric portfolio skewed towards urban consumers, or are you also seeing demands in rural areas?

We were surprised to see that the demand for the electric portfolio was also coming from tier-2 and tier-3 cities. In fact, the adoption was much faster and better in these areas. In the rural areas, the electricity is subsidised. That is also driving the demand in the hinterlands faster than our expectations.

Q. Do you see rural India as a demographic where you can unlock growth, not just for your electric portfolio, but the entire HMSI portfolio?

Rural India is developing and getting better. Every six months you visit; a lot of development has happened. This is because the divide of information is not there. Whatever information is available in urban areas, it is also available in rural areas, in real time. So, information flow is much faster. The aspiration of rural youth is catching up fast, almost at par with their urban counterparts. We are seeing that in our 125cc portfolio, the demand is being driven in the rural areas.

If this demand cycle of EV persists, then we need to look at whether the electricity that is charging the EVs coming from, because most of our power demand is met by thermal. So if it remains like this, then we need to look at solutions apart from EV to meet India’s goal of becoming carbon neutral by 2070. Flex fuels have a lot of benefits in this case.

Q. But currently the consumer is not able to see the benefits of flex fuel.

There needs to be a differentiated pricing for consumers to adapt flex fuel. We are also expecting that going forward, government will definitely rationalise the pricing of flex fuel. If that happens, that will definitely drive the demand up. The flex fuel technology is not only available in India, but will also support the local economy. I expect a major development to happen in the next three to five years.

Q. What is your long-term strategy for India?

From Honda’s perspective, India is the biggest market. India has the potential to grow more than the 19 million two-wheelers it sold last year. Once the market grows, then it will give us an opportunity to consolidate our position in India.

More important aspect than sales is how to retain customers. If you launch new products, sales will happen. But what is more important is what they expect from the brand. So, at every touchpoint, every time they come for service, they get the kind of experience that is expected from a global brand like Honda. So we are already upgrading our infrastructure to give a similar kind of experience that they give during the sale process.

We have already upgraded 100+ dealers across 1,000 touchpoints to our new guidelines, and the response we have received from consumers has been phenomenal. Even the customers who were reluctant to go to such workshops have given good feedback. So have the employees who work there. So for us, customer retention is as important as making a sale.

Q. Do you see India as an export hub for HMSI?

Yes, there is a lot of opportunity for us to export. Our regulations are at par with Euro V, with the BS-VI emission norms. This has opened a lot of opportunities for us to export back to Japan, to developed markets like Europe, and to Australia. There are many countries added to our portfolio.

On the other hand, Honda is a global manufacturer. There are plants worldwide, so there is limited scope to export from India. But our export is decent, this year we will be doing around five lakh units in exports, which we did last year as well. This year we will be adding a few more countries. We are currently exporting to 62 countries, and we will further consolidate our exports.