The Competition Commission of India (CCI) has questioned the proposed $300 million investment jointly by South Korean carmakers Hyundai and Kia in home-grown cab aggregator Ola. CCI’s concern is regarding the “competitive landscape”.
The first application (filed in March) has been declared “invalid” as it failed to give satisfactory explanations. Now, the companies have filed a revised application in September where $250 million will be invested in the cab aggregator entity while $50 million will go into Ola Electric.
In the latest application, the companies have provided a “clearer picture of the competitive landscape, including the market for manufacturer and sale of passenger cars; the market for operational leasing services; the market for radio taxi services and the market for charging infrastructure services for electric vehicles.” CCI had also asked Ola to give a clear picture of the possible impact in the cab-hailing market after the proposed investment by Hyundai-Kia.
CCI is concerned about the possible monopoly that will be created if the proposal is cleared. Now, Ola is trying to show that part of the investment will be in electric mobility – a key focus for the Indian government. In any case, the government has plans to mandate cab aggregators to “convert 40 percent of their fleet” of vehicles into electric by April 2026.
There’s another thing. If CCI decides not to give a go ahead to Hyundai-Kia’s investment in Ola, what would be the fate of the acquisition of 55 percent stake in cab services company Meru for Rs 201.5 crore by Mahindra and Mahindra (M&M)?
CCI’s concern is valid. If one or two carmakers get control over a fast-growing sector which is solely dependent on cars, other companies will suffer. In any case, Maruti Suzuki dominates almost half of India’s passenger car market. But that can be attributed to consumer choice. Here, the possibility is that if carmakers invest in cab-hailing companies, the latter will have to buy from only the investor carmaker which can be categorised as ‘unfair practice’.
But will CCI be able to control it?
This is not the first instance when a cab aggregator is partnering with carmakers. Ola has in 2015 partnered with Nissan Motors to lease cars. The only difference now is that carmakers are turning investors, and not suppliers.
It’s a global trend. Toyota invested $500 million in Uber last year through its largest investor Softbank. In the south-east Asian market, Toyota and Hyundai jointly invested in cab-hailing company Grab last year.
Besides, it is a common practice for a carmaker to offer cheaper prices to institutional clients for bulk deals, and prices do fall a bit more if institutions agree to go for exclusive arrangements. Such deals do not require approval from CCI. And, it has happened in India’s cab-hailing market too.
Tata Group had partnered with Uber and M&M had partnership with Ola since beginning. But these do not fall under CCI lens.
Interestingly, CCI has in the past cleared an investment by a carmaker in Zoomcar, a self-drive car rental company. In August 2016, Ford Smart Mobility invested in Zoomcar, and then M&M also invested in Zoomcar in February 2018.
Truth is, if CCI’s concern is that one or two carmakers will have control over the fast-growing cab hailing market by becoming investors in the cab-hailing firms, it may be near impossible to stop that. CCI can only review certain cases, and it has its limitations too.
For instance, Softbank is the largest investor in Ola’s electric mobility arm. In December 2016, Softbank founder Masayoshi Son had said that he had plans to give away one million electric cars to Ola drivers all for free as part of his dream to transform Ola into a clean mobility company, in collaboration with Toyota.
Considering how Toyota is party to Ola’s electric mobility mission through Softbank, it won’t be too difficult for Hyundai and Kia to follow suit. If CCI does not clear Hyundai-Kia’s investment in Ola, the only thing that the carmakers will need to do is to route their investment through an investment firm, or a private equity firm like Softbank.
Hypothetically, that’s how it could shape up. But we’ll have to wait to see how it will turn out in reality.
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