Electric 3-wheelers and buses viable as govt cuts GST on EVs to 5%: Pawan Goenka, M&M

We need to just be a little careful that while we are building electric vehicle industry, we do not destroy the IC engine industry as it brings a tremendous level of employment, investment and government tax revenues. Both have to coexist for a while, says Pawan Goenka, MD, M&M. Excerpts from an interview with ETNOW.

The government has cut the GST rate on electric vehicles from 12% to 5%. It is very clear that the government wants to give a very big boost to electric vehicles...
That is very clear. The finance minister has announced in the budget that they will consider a 12% going to 5% and that has now happened and the deed now will give a boost to electric vehicles which are just about to take off. I believe that with the FAME 2 benefit that has come in and with GST reduction that is happening, plus the overall support from both the central and state governments, would certainly make EVs very viable for consumers.

The thrust in India is on commercial applications of electric vehicles, that is for shared mobility and for fleet operators and that is the right way for us to focus on because that is going to give us the biggest advantage in terms of pollution and reduction in oil imports. So I am very happy with this development. We are anticipating it, waiting for it and I am glad it has happened.

Finance Minister Nirmala Sitharaman has also announced that Rs 1.5 lakh tax deduction and now comes this indirect tax boost. The ecosystem is very conducive now. However, the demand outlook, consumption sentiment especially for autos is weakish. Do you think that the GST rate cut would help consumers look towards EVs in a more serious manner?
I do not expect a sudden change. EV is a new technology. We just have a few products in India in electric vehicles right now in all the segments. It is going to take time for EVs to catch on because the consumers have to get used to a different way of using their vehicles. They are not used to having to charge the vehicle overnight or charge it during the day and there are some apprehensions on whether EVs will really deliver.

I will not jump the gun and say that okay from tomorrow EV sales will increase to 8%-10% and I would definitely see a gradual increase but not something overnight. I do not think this takes away from the problem that we are facing immediately in the short term of the slowdown in auto industry overall. For that, many different things that needs to be done. I am sure the Government of India is currently considering what needs to be done for a short term shot-in-the-arm for the auto industry to get it back to a growth path.

M&M on its part has been doing a lot for the electric vehicle ecosystem, but as you said, India’s infrastructure may still not be ready to handle electric vehicles on the road. What sort of teething issues would electric vehicles still face before they can be fully accepted by consumers?
They need to look at it segment by segment and I cannot give one answer that applies to everything. Three-wheelers is one of the high thrust areas for Government of India. In terms of product, everybody is ready for three-wheelers. We have launched it as Mahindra but others are also ready with their products and with the latest change, so that everybody starts launching three-wheelers, it is just a matter of the operators to get convinced that their monthly income will go up with electric vehicles, which we are very sure will happen.

The only sort of constraint right now is that the states have to start giving permits for electric three-wheelers and that is all that we need. When it comes to four-wheelers, it is one more layers that needs to be taken care of. The first layer is that number of products available in India today is not enough and right now only two companies Mahindra plus one more have their products in the market. One has been launched which is on high end and therefore it will not be on a commercial application. More products have to come in for electric vehicles to take off, that is number one.

For electric four-wheelers, the need for charging infrastructure is probably more than for three- wheelers because three wheelers we will have enough mileage without need for midday charging but four-wheelers need to have a midday charging. There the infrastructure will come in the way and the aggregators such as Ola and Uber and many others will have to start focussing on electric vehicles. This will require perhaps a little leap of faith from their side because they need to ensure they will get the number of kilometres everyday and that needs to happen.

We have had a couple of small experiments, nothing big right now. I am hoping that with this latest change, these aggregators will look at electric vehicles more favourably and try to switch as much of their fleet as possible to electric vehicles. That is the biggest enabler for four-wheeler electric vehicles to happen. For busses,we are in pretty good shape.

There are a lot of tenders that have been issued by many state transports. There is a good incentive in metro and the bids that are coming in are very lucrative bids for the transport authorities. We are not in that segment, so I do not know the financial viability of those bids. But what is coming in as a user is a very good bid.

The two-wheeler segment is primarily a personal use segment and there, it really depends on the total cost of operation. Right now, I personally do not have enough knowledge to be able to say that for two-wheelers, the cost of operation will justify with electric though Government of India is pushing very hard for the two wheelers to be converted also.

Our focus is on commercial use of electric vehicles. The service providers who are the people who take the vehicle from the OEMs and provide that as a means of transport end users have to start getting comfortable with electric vehicles both in terms of commercial impact on their earnings and also in terms of reliability, durability, resale value and ease of operations.

These things will take some time. I cannot imagine overnight everybody will jump on two or three electrical vehicle bandwagon, but the government has done everything that you could expect them to do. I have said that before also and we think it again after this GST cut that the OEM service providers to the consumers have to now start looking at EV seriously and make it happen.

Since M&M already has the expertise and has been producing some EVs, how essentially would it change operations for producers and also costing? Most importantly, batteries for EVs are really expensive. Inputs like cobalt, lithium etc are still a rarity in India?
To significantly change the industry dynamics, the supplier-OEM relationship will change in the sense that OEMs will be doing more in-house development or will be buying more. It can go either way and that will evolve over time, that is number one.

Number two, there definitely is going to be more dependence on service providers because I expect EVs to be more popular for commercial applications and therefore it will not be a direct retail sales as much as it is for IC engine. It will be more of a fleet sale, aggregator sales and that obviously has an impact on how the profit pool is shared.

From Mahindra’s viewpoint, we are right now in a pretty good shape. We have three-wheeler lithium ion auto and an auto-rikshaw, both of which we have launched. We have a two-wheeler which we sell outside India right now because we believe the cost is too high for India. We will now consider selling that in India also. We have our EV Verito and we have already announced the launch of two or three more vehicles that will happen over the next two years.

In terms of portfolio, we are pretty good. But electric vehicles also give us a new opportunity as a supplier of electric power train and as we have made the power train a separate company within Mahindra, we believe that if everybody was to go and develop power train on their own, they will become sub scale and nobody will be able to manage cost very well.

We are quite open for anyone to buy our power trains. It could be a company that is competing with Mahindra but that does not matter because we are a supplier of power trains and a separate company with total arm’s length dealing with Mahindra & Mahindra or with any supplier.

It will require a lot of investment clearly from everyone because the capacities right now are very small and these capacities cannot lead to a significant electric vehicle switch in India. This is true for almost anyone. If anything, Mahindra probably has more capacity today than anyone else as far as I know, but we will have to invest quite a bit in capacity.

We have already made announcements for about Rs 1,000-crore investment taking capacities to 5,000 to 6,000 vehicles per month in two years but if the government’s dream comes true, and I hope it does because that is our dream also, then that capacity will not be enough and we will have to invest more in capacity.

The problem that the industry is facing is what happens to all the investments that is on the ground today for IC engine, the BS-VI investment that has been made in the last two, three years and will be made for the next eight, nine months and that is a concern.

But I think we will have to manage all of that. We just need to pay selected vehicles properly so that we do not end up importing too much and that is my biggest concern that if we try and do it too rapidly, we probably will start importing everything. Assembling in India is not what we want to do as a country or as a company either way because we need to ensure that the value addition in a vehicle does not go down because of EVs.

If anything, we need to make it go up and for that, the lithium ion cell plant becomes a very important enabler which is a very big investment and right now, the Government of India is focussing very aggressively on how we can have two or three or four lithium ion cell plants, because that will significantly increase the value addition in India.

It cannot happen overnight. How long do you think it will take?
The two segments that perhaps can happen the fastest are the three-wheeler segment and the bus segment because three-wheelers are commercially viable now with the 5% GST and therefore that should catch on very quickly. The aspiration of 2023 for three-wheelers is not something that is unattainable. A lot of work will be required by everyone involved but it is doable. Similarly, all the new buses that are coming in slowly can become electric buses. So these two can happen very quickly. The four-wheelers and two-wheelers will probably take a little longer and we have to wait and watch to see how rapidly we convert to electric vehicles.

We need to ensure that in the process of building electric vehicles, we should not destroy the IC engine industry because this industry brings a tremendous level of employment, investment, government tax revenues in export and everything. We need to just be a little careful that we do not destroy that industry while we are building electric vehicle industry, both have to coexist for a while.