Wednesday, September 4, 2013

Are electric vehicles a safe bet in developing economies?

The first Electric vehicle to be launched in the Indian market was the Reva in 20011. The car was built by sourcing parts both locally and globally. Curtis Instruments Inc. (USA) developed the motor controller, Tudor India Limited supplied customized batteries and the charger was developed by Modular Power Systems (USA). How well did this first generation car do? The car was launched in India (2001) and in the UK (2003) and sold a total of 4000 cars. Is this a good enough number? Definitely not considering the price point of 9,500 Euro2. The price in India was about Rs. 3,50,000 ($5,400).

Although the price is low, the product did not sell. Reva was to sell its technology to GM but the merger with Mahindra India, led to GM pulling out in 20103.  GM launched the Chevy Beat in India in January 2012 in the $5,500 - $ 7,000 price range4. The Mahindra-Reva partnership has launched the new Mahindra Reva e205.

How does the company propose to be profitable? 
One school of thought says the Mahindra e20 will not work.6.  The reason behind this assumption is that the price point is wrong, as the total cost of ownership is high. The time to recover the savings is 4 years and the battery (majority of the cost) needs to be replaced in the fifth. Second, the bill approving the subsidy for EVs has not been passed yet and considering changes in the economy seem like they won’t pass. Finally, the lack of charging stations will prevent adoption.

Mahindra on the other hand anticipates a demand of 400-500 EVs per month in India7. That amounts to just 6,000 vehicles. The size of the passenger vehicle market in India is ~3.5 million. Mahindra has invested in production capacities of 30,000 per year. Also, automakers such as Hyndai Motors, Tata Motors and BMW have expressed interest in EVs. Mahindra has announced that they are investing in EVs in India to gain the first mover advantage.

Given the price sensitive nature of Indians and no export of EVs to the UK anymore all raise questions about their investment. On the other hand, Mahindra’s plans to export the e20 to neighboring countries and Europe (not just the UK), along with the anticipation of ecofriendly lifestyles is promising.

How will Mahindra manage if the e20 fails? How will the production facilities that it has created be used considering the electric facility cannot be used to manufacture non-electric vehicles?


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