M&M’s Electric Vehicles Bet: Sound Strategy Or Leap Of Faith?

Anticipating a rise in demand for electric-powered vehicles, homegrown automaker Mahindra & Mahindra Ltd. (M&M) is in the process of raising its capacity to manufacture up to 5,000 such vehicles every month over the next two years.

First, the company plans to add capacity at its dedicated plant for electric vehicles at Bengaluru, raising it from the current 400-500 units per month to 800-1,000 per month, said Pawan Goenka, managing director at M&M. This will be completed within the next two months.

Simultaneously, the company has begun work on a new manufacturing unit at its facility in Chakan, Maharashtra, which when completed, will increase monthly manufacturing capacity to 5,000. It is expected to be completed by 2019.

Goenka refused to disclose the investment in the new plant, as the company is currently in a silent period ahead of the announcement of its results for the quarter ended March 31. So far, the company has invested Rs 600 crore in its electric vehicle business, he said.

The company, the only Indian manufacturer of a electric-powered passenger car, currently sells around 100 such units per month. Its current portfolio of electric vehicles include the e2o plus, e-Verito and e-Supro.

Why The Ramp-Up?

Demand for electric vehicles have failed to pick up so far on account of lack of supporting infrastructure and high running costs. So, what explains M&M’s decision to ramp up capacity?

According to Goenka, the government’s increased focus on electric mobility is likely to give a fillip to the adoption of the technology by the automotive industry, and also by customers.

“I'm seeing a lot more interest, emphasis, focus, thrust, coming from the government of India, including state governments, on electric vehicles,” said Goenka. He went on to cite a report by government think-tank NITI Aayog recommending steps to make India’s automobiles fully electric by 2032.

So far, government incentives have been in the form of subsidies under the Faster Adoption and Manufacturing of Electric Vehicles Scheme, and lower tax rates. In fact, under the Goods and Services Tax regime that will likely be implemented in July, electric vehicles will be taxed at the lowest rate in the automobile sector – 12 percent.

While the lower rate of tax is a good step to incentivise the use of electric vehicles, more needs to be done in order to increase the pace of adoption. The government, he said, needs to play the role of an enabler.

Enabling Green Mobility

For one, the government need not raise the subsidy on electric vehicles, but it should keep it stable for three to five years, he said. Additionally, the government should remove the roadblocks for registration of electric vehicles for commercial purposes, and also consider investing in research and development for electric vehicle technology.

Goenka also said the cost of electric vehicles needs to be brought down by 20 percent for it to be made viable. A large portion of the cost is on account of the battery, which is around one third of the cost of the vehicle.

A reduction in the cost of lithium ion batteries would therefore go a long way towards making electric vehicles more affordable.

The batteries are currently imported and then assembled in India in M&M’s facilities in Bengaluru, Nashik, and Haridwar. Once the plant is completed in Chakan, a large portion of the assembly will happen there.

Going forward, M&M is planning to launch an electric powered three-wheeler, and is likely to soon begin work on developing an electric-powered sport utility vehicle (SUV). It is likely that the Mahindra Group’s Italian design firm Pininfarina will play a part in designing the vehicle, with approvals for the project in the final stages, Goenka said.