Why Mahindra & Mahindra Needs Reva
Image: Gireesh GV for Forbes India
nand Mahindra recalls bumping into an enthusiastic private equity investor at the World Economic Forum in Davos earlier this year. The moneyman had just made an investment in electric vehicle evangelist Shai Agassi’s firm Better Place — and couldn’t stop talking about it. Better Place was on track for a full commercial rollout next year in Israel. Agassi had developed an electric car branded as Zoe, in partnership with Renault and had also built a whole new infrastructure of charging points all over the country. As he heard the investor wax eloquent about Better Place, the 55-year old vice chairman and managing director of the Mahindra & Mahindra group couldn’t suppress a smile. More than 10 years ago, he too had dreamt up a similar concept of employing a cassette-like, battery hire EV operation in New Delhi.
At that stage, M&M was largely a jeep and tractor-maker, with ambitions to move into personal vehicles. Yet it had begun taking bets in the new and untested field of electric vehicles, even though it remained a weak alternative to the internal combustion engine technology. “We had submitted an ambitious plan to the government to decongest Connaught Circus, one of the busiest and most-polluted areas in the capital,” recalls Mahindra. The plan was simple: All two-wheeler traffic would be stopped from entering the 5 sq km area. People would be encouraged instead to use 10-seater electric vehicles that ran on a circular route. Bijlee, M&M’s EV avatar, would be powered, thanks to a chain of battery stations around the locality. The owners of these stations would lease out batteries to the vehicle operators for a modest rent. The innovative plan was nixed by Bijlee’s own mechanical problems and stiff opposition from the taximen’s union. In Mahindra’s mind though, it sowed the seeds of a whole new way of making electric vehicles a reality in India.
Over the next decade, as the Mahindra group expanded into sports and personal cars, the vice chairman kept his eyes on the developments in the cleantech space. M&M began working on electric versions of mainstream vehicles like the mini-truck Maxximo, as well as continuing research on hybrid technology. In September 2008, it got a wake-up call when Tata Motors, its arch rival, announced that it had bought Miljo-Grenland, a Norwegian company which made electrical vehicles. Tata also hired Clive Hickman, a veteran, to head its engineering effort behind the EV programme. It had an electric version of the Indica set for launch in 2010. By then, Pawan Goenka, M&M’s pragmatic president for the automotive and farm equipment sector, knew that they didn’t quite have the wherewithal to either play catch up or pull off an EV on their own. They needed to find a technology partner to pull together their EV strategy.
Back in Bangalore, Chetan Maini knew he was in a spot of bother. The 39-year-old technocrat and the creator of the Reva, the country’s first electric vehicle, had unveiled two brand new prototypes at the Frankfurt Motor Show in September last year. His two new models — a quantum improvement over the original Reva — had received critical acclaim for the robustness of their EV technology. Maini had used his chutzpah to put in place a new $20 million manufacturing line, which he claims would have cost any other player nearly four times more. And he had a clear plan to take these vehicles to almost 24 markets around the world. There was one small hitch: He needed lots more capital to pull off his grand plan. And his family wasn’t willing to lose any more money trying to bankroll his EV dream.
Reva Maini, the matriarch of the Maini group, knew the Mahindra clan, especially Anand’s mother, who had passed away six months ago. There was a basic trust within the two families. Exact details on how the deal moved forward is unclear. At some stage, about eight months ago, the two investment bankers on both sides decided to initiate the process of acquisition. As part of the due diligence, Pawan Goenka went to see the Reva facilities at Bommasandra, on the outskirts of Bangalore. By then, Goenka had already evaluated similar projects elsewhere in the world. But the high cash burn deterred him.
Besides, other than the EV technology, most firms did not yet have a product on the ground. Reva, on the other hand, had the experience of a product that had already done 100 million kilometres. And in Chetan Maini, they also had someone who had the global network and capabilities to drive EV technology development for M&M. Given the buzz that preceded it, M&M’s move to buy 55.2 percent stake in Reva Electric Car Company (RECC) may not have come as a surprise for auto watchers. But the significance of the move would not have been entirely lost on them either. For one, it provides ample evidence that EV technology and products is now part of the mainstream Indian auto industry. After Tata Motors, M&M is the second major auto maker to place its bets in the EV race that has already begun in right earnest around the world. To be sure, the internal combustion engine isn’t about to die in a hurry. But the fact is that tougher emission laws and greater consumer consciousness has forced every major auto maker to put in place a credible EV strategy.