India’s Mahindra Sees Fightback by Regular Cars Versus EVs: Q&A

By Vandana Gombar, BloombergNEF. This interview first appeared on the Bloomberg Terminal

The $21 billion Mahindra group sells about a million vehicles every year, mostly in India – two-wheelers, three-wheelers, sedans, utility vehicles, trucks and tractors. Mahindra’s electric vehicles business is much smaller, though sales have been increasing – about 4,000 EVs were sold in the year ended March 2018, against 1,000 EVs in the prior year – and so has the ambition.

“Mahindra wants to become a global leader in electric mobility,” Anand Mahindra, executive chairman of the Mumbai-based group, said in an interview conducted via email, and phone, though he also expects a fightback from the conventional vehicles side.

“When you come to a conventional combustion engine, the fallacy people have, or the mistake they make, is that [they assume] technology stands still. Let me take the analogy of steel. Some time ago, people said that steel is on its way out, and that aluminum will replace it and composites will come up dramatically. Steel is still going strong, and the reason is because steel producers took it up as a challenge and started reducing the cost of steel and improving its properties from a technical point of view. You can count on that happening with internal combustion engines. Don’t presume the internal combustion engine ecosystem will give up without a fight,” he said, ruling out the complete obsolescence of ICE vehicles, as predicted by some. “I think there is going to be a very healthy and a positive battle that will go on for a while,” he added.

The Mahindra group, including quoted company Mahindra & Mahindra Ltd., has over 240,000 employees working across multiple sectors such as clean energy, real estate and financial services. In September 2018, Mahindra announced the decision of the group to become carbon-neutral by 2040. Some group companies are committed to 100 percent renewable energy use, while some have taken on productivity enhancement targets. “We believe renewable energy will play a strategic role in our becoming a carbon-neutral group,” Mahindra said.

In the EV space, Mahindra wants to offer customers a whole range of options, from an electric two-wheeler to a high-end performance car dubbed PF0, designed in partnership with Automobili Pininfarina of Italy. The $2 million “hypercar” was first unveiled at Pebble Beach, California, and is to be seen again at the Geneva Motor Show early next year. “Tesla is in a much lower segment,” quipped Mahindra.

An autonomous self-driving tractor has also been demonstrated by the group. “I have been on record for a while saying despite all the sexiness of autonomous cars, it will be tractors first, trucks second and then cars,” he said.

Q: Let me begin with the recent announcement on the carbon neutrality of the group by 2040: How did the idea evolve? What apprehension did you have when deciding to make this commitment?

A: We were taking steps toward energy efficiency, increasing our use of renewable energy and doing afforestation work for almost a decade, but carbon neutrality seemed too high a bar in the past. We believe the time is now right. Our corporate sustainability team has been doing its homework for the past two years, developing plans for how we as a group can become carbon-neutral. This included speaking with the leaders of our various businesses to demonstrate to them that this was indeed an achievable goal.

We already have a number of green businesses including electric vehicles and solar energy, so our ambition to become carbon-neutral is [also] a natural progression for us.

Q: What are the top three actions you need to take to reach carbon neutrality?

A: Optimizing energy efficiency, focusing on the use of renewable energy and creating carbon sinks are in my opinion the three major actions we need to take to achieve carbon neutrality. Some Mahindra companies have already begun their journey by signing up to the EP100, a commitment to double their energy productivity by 2030, and to RE100, a commitment to increase the use of renewable energy. The Mahindra group has also planted 15 million trees through its Hariyali program and intends to plant about two million more trees each year.

Q: What are the main challenges you see on the carbon neutrality path?

A: Regulations and technologies will need to evolve if large corporations are to completely switch over to the use of renewable energy in India. More innovations will be required to push the envelope in energy efficiency, and the process to create certified carbon sinks will have to become simpler and less expensive.

Q: What are the milestones you are working toward?

A: The major intermediate milestone is the Science Based Target for 2030, which is currently being worked on. We also have individual milestones for group companies, based on their selected path toward carbon neutrality. For example, our flagship company Mahindra & Mahindra has, in its roadmap, committed to a 25 percent reduction in its carbon footprint by 2019. M&M has also signed on to EP100 and our automotive division has already doubled its energy productivity ahead of the 2030 target. Mahindra Holidays has signed on to RE100 by 2050, and is also planting 1.5 million trees annually.

Q: You have shared an internal carbon price ($10). How does that impact your operations?

A: In 2016, M&M set a carbon price of $10 per ton of carbon emitted. We have used this internal carbon price to fund projects that will help reduce our carbon footprint. It is also helping fund our investments in renewable energy, including solar, wind, heat recovery systems, energy-efficient motors, etc.

Q: You are in favor of Science Based Targets on emissions by the corporate world. There is a big gap between what is getting done and what needs to be done. Does climate change worry you personally? How do you protect your businesses from the impact of climate change?

A: Yes, the impact of climate change worries me a lot. The fact that accelerated action has to be taken at scale is clear and the possibility of that not happening is of deep concern. We do not have the luxury of letting people discover the path at leisure and so we are trying to act boldly and nudge people along. The Science Based Targets are a good way of setting a realistic yet aggressive trajectory. We have to move from an initiative-led approach to one where we are able to say that we are doing more than our part to be able to make a real difference. The possibility of a lot of action being taken without a meaningful impact being made, is a very real one today. Almost 500 global corporations have signed up for Science Based Targets, but this is not enough and there is still a very long way to go.

Q: What role will renewable energy play in the group’s zero-carbon aspirations? Are you considering committing to 100 percent renewable energy for the whole group?

A: Yes, I believe at some point in time that will happen. It is no longer an “if” it is more of a “how” and therefore “when”. Mahindra Holidays is the first company in the hospitality sector to sign on to both the EP100 and RE100. M&M and Tech Mahindra are already increasing their use of renewable power through their investments in solar and wind power projects. We believe renewable energy will play a strategic role in our becoming a carbon-neutral group.

Q: Do you think we are not too far from a time when the Indian power consumer (residential or corporate) would be willing to pay a premium to secure clean power?

A: Consumers will not have to pay a premium for clean power – that is the beauty of climate change action and technological breakthroughs. There is so much that will happen in the clean energy sector that the costs of clean energy will drop significantly over time. We are already witnessing the payback period of solar power going down for industrial consumers and this, I think, will be replicated for individual customers as our housing societies begin to adopt renewable energy.

Q: What is the long-term vision of the Mahindra group for the electric vehicles business – in cars, in two-wheelers and in three-wheelers?

A: Mahindra wants to become a global leader in electric mobility, and is currently working to enhance its technology expertise at the company’s global network of R&D centers, and through key supplier partnerships. We want to offer consumers an array of EV mobility products spanning two and three wheelers, cars, buses and high-end performance cars.

In India, we are the pioneers of electric mobility and globally we are working with group companies like Ssangyong in Korea and Automobili Pininfarina in Europe. We are also part of the Formula E electric racing car championship.

We are actively exploring mobility solutions too, like our recently unveiled integrated sustainable mobility platform for EVs called NEMO. Currently, we are testing the platform as a one-stop solution for the mobility needs of corporate employee commutes, ride-hailing, ride-sharing, self-driving and community mobility needs.

Q: Mahindra wants to be in all categories of electric vehicles – from 2-wheelers to high-end performance cars. At the high end of luxury electric cars, who do you see Mahindra competing with?

A: We are currently working on developing an electric hypercar through our group company Automobili Pininfarina. This model, called the PF0, will be one of the first models at the very high end of the electric mobility market segment and will be shown at the Geneva Motor Show in early 2019. We showed it to a private audience at Pebble Beach [California] recently. These cars will be in excess of $2 million each. This is a very rarefied market. We are talking Bugattis at this stage. Tesla is in a much lower segment. We intend to make no more than 150 of these cars. Our lead markets for this will be the hypercar markets – U.S., Middle East, Europe and China. Clearly, that kind of car is not something that at this point in time we see a large market in India for.

Q: The future is electric but the market is fluid. By when do you think EV sales might surpass those of ICE vehicles at Mahindra, and in India?

A: You really need to be an astrologer or a futurist to answer that question. There is a range of answers. [U.S. author] Tony Seba has predicted revolutionary changes. When you come to a conventional combustion engine, the fallacy people have or the mistake they make is that technology stands still. Let me take the analogy of steel. Sometime ago, people said that steel is on its way out, and that aluminum will replace it and composites will come up dramatically. Steel is still going strong, and the reason is because steel producers took it up as a challenge and started reducing the cost of steel and improving its properties from a technical point of view. You can count on that happening with ICEs. People are just going to make the direct injection engine much more efficient and eventually, I believe most governments in the world would have to stipulate what emission standards they want, not what technology they want. That is usually the wrong way to lead innovation – you never want government to dictate technology; you want it to set standards and requirements for society. I would say don’t presume the internal combustion engine ecosystem will give up without a fight. They will make the direct injection diesel and gasoline engines more efficient and emission-free, and continue to fight. So I don’t go along with the futurists who say you are going to have complete obsolescence of ICE vehicles. I think there is going to be a very healthy and a positive battle that will go on for a while.

Q: Is that healthy battle of technologies also taking place within the walls of Mahindra group?

A: It is not even a battle for to us. From our point of view, it is a question of co-existence. We have made hedges: when people would not have dreamt of electric, we did. We even looked at hydrogen. I was on the hydrogen board of the government earlier, along with [Ratan] Tata. I believe a company’s job is to be eclectic and look at every possible outcome. If you want to survive, then you can make bets, and we made bets on the electric, but you can’t make them to the exclusion of all else. What we have done is we have developed options all across – so we have developed a gasoline portfolio, in case diesel for example falls out of favor. However we continue to improve our diesel. And there is the electric car. So we are hedging; we are creating options. I think a good leadership has to create options for companies.

Q: Do you think you may be surprised by the speed of transition to electric mobility. There is an element of surprise in what we are seeing in China EV sales…

A: We were called foolhardy for investing in Reva [India’s first and only electric vehicle maker for many years]. Obviously, when we did, we expected the pace to be even faster. We have been disappointed frankly so far with the pace in India. We think the pace in China is a pointer to the entire world. So I am in the other camp: I am surprised it hasn’t happened quicker!

Q: On autonomous self-driving tractors, your view that autonomous vehicles will be seen first in farming is really interesting. When does the first autonomous tractor get to market?

A: We have already demonstrated our driverless tractor which will open up entirely new possibilities in farming. We are working very closely with the company we invested in – Mitsubishi Tractors. They were ahead of us in that area.

Overseas markets will probably take to it first. I have been on record for a while saying despite all the sexiness of autonomous cars, it will be tractors first, trucks second and then cars. When this technology moves to Indian roads, I think it will be adopted quite quickly by commercial vehicles including trucks and taxis.

Q: The government seems to be vacillating on EV policy. What would be your policy prescriptions to grow this market?

A: The government is clearly committed to growing the usage of EVs in India, recently announcing that 30 percent of vehicles on the road should be EVs by 2030. We think this is a very positive announcement. In addition, the FAME scheme [for Faster Adoption and Manufacturing of hybrid and Electric Vehicles in India] has also had a positive impact with good demand-side incentives. We are hopeful that Phase 2 of this scheme will remain in force for three to five years to help the industry grow.

The recent tenders by EESL [Energy Efficiency Services Ltd.] to encourage the adoption of EVs in government fleets and DHI [Department of Heavy Industry] initiatives to promote multi-modal electric mobility for city transportation are very encouraging steps from the government. In addition, there are several positive policy measures being taken and more being discussed actively. We have seen important developments like the charging standards for the country being rolled out, a proposal for green number plates for EVs, adoption of EVs at government departments, targeting a fully electric fleet for public transport, including buses, taxis and auto-rickshaws, and all these help in creating a positive overall environment for EV adoption.

Q: You believe that the future of mobility is electric. What would be the drivers of this transition?

A: We have a strong belief that electric vehicles represent the future of mobility and began our journey back in 1999 with the electric Bijlee three-wheeler.

The Indian economy is urbanizing rapidly. According to the World Bank, between 2014 and 2050, close to 400 million Indians will move to urban areas. As early as 2030, we will have at least seven mega cities with a population of over 10 million and almost 50 cities with a population of over one million. We believe that EVs will play a key role in decarbonizing these cities by providing clean mobility solutions. So long as electricity continues to be generated from fossil fuels, EVs will help reduce the pollution levels in densely populated city areas. Over a period of time, energy generation too will have to move to renewables and ensure that the advantages of clean mobility reach other parts of the economy too.

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