Mahindra & Mahindra (M&M)’s decision to disengage with Ford Motor Company for the second time in its history was driven by the urge to prioritise development of electric vehicles, which the company believes will become the mainstay of its business apart from its core strength in SUVs.
The Mumbai-based maker of the Scorpio and XUV500 SUVs is rerouting financial resources towards electric vehicles (EV), which would entail fresh investments that would be over and above the reduced Rs 9,000 crore committed for three years starting FY22. It had earlier spoken of Rs 12,000 crore capital expenditure for the same three years.
Speaking to analysts, Rajesh Jejurikar, Executive Director, (Auto and Farm Sectors) Mahindra & Mahindra, said: “The free cash flow, capex plus investment, together will be accretive compared to what would have been had we gone ahead with the JV. So, the money we may have invested in the JV is what we will use —some of that — to build the EV platform.”
Early bird squanders advantage
Despite being the first to enter the EV race through the acquisition of Bengaluru-based Reva Electric Car Company, M&M has not been among the nimble footed ones in expanding its EV portfolio in the personal vehicle segment. Though Tata Motors entered the EV space only a few years ago, the Mumbai-based company has become the segment leader after beating M&M.
Launched a little under a year ago, the Tata Nexon has become the highest-selling electric vehicle in India. In the September-November period, the electric Nexon sold 1,000 units (cumulatively 2,200), pushing Tata Motors’ market share to 74 percent in the EV segment. Hyundai and MG Motor debuted in the EV space with the Kona and ZS EV, respectively.
M&M, however, is the leader in the electric passenger three-wheeler segment which it refers to as ‘last mile’. Here the company intends to work on the segment and expand its products in the near term.
“Besides the last-mile portfolio, we are working on an entire SUV portfolio in EV that will keep us ahead of the curve as we talk about the period from 2025 onwards. And that’s an area where we need new investments and a new approach”, he added.
SUV focus
M&M claims to be working on new, ground-up SUVs that are being built as electric vehicles. This is unique to the company’s strategy since all of its current generation EVs and those in the pipeline are originally petrol/diesel-powered SUVs and sedans.
Last February, M&M launched the electric version of the KUV100 at Rs 8.25 lakh, making it the cheapest electric car in India. However, nearly a year on the mini SUV is yet to be made available to buyers in showrooms. M&M now intends to bring the electric version of the XUV300 in the market, in the latter part of next year.
The company is hoping for a swift pick-up in demand for EVs in India overall, which it hopes will wipe out the losses clocked by its subsidiary. M&M’s electric vehicle subsidiary Mahindra Electric Mobility recorded a loss of Rs 55.2 crore in FY20. M&M’s management announced that the break-up with Ford and divestment plans for SsangYong are part of the targeted 18 percent return on equity (RoE).
In 2019-20, Mahindra Electric clocked sales of 14,602 units (966 four-wheelers and 13,636 three-wheelers), a growth of 42 percent compared to 10,276 units (1,811 four-wheelers and 8,455 three-wheelers) sold in 2018-19.
“M&M has commenced its path on RoE accretion as it realises that healthy capital efficiency is paramount for long-term self-sustenance of its business model as well as to create wealth for its shareholders. In the recent past, M&M has taken the hard calls and we remain constructive on it,” said an ICICI Direct report.
What had M&M-Ford planned?
M&M and Ford had planned over half a dozen models for India and export markets and together with SsangYong a total of 10 products were envisaged.
Both companies were to produce one mid-size SUV model (internally called C-SUV) and two smaller-specification SUVs (called B-SUV) each. M&M was to also lend an MPV platform such as the Marazzo to Ford.
There was even an all-electric car derived from the Ford Aspire sedan that M&M had planned to develop.
M&M had agreed to pump in up to Rs 1,400 crore, including the Rs 657 crore that it has agreed to pay for the 51 percent stake in the joint venture company. Thus, the remaining Rs 743 crore could be used to develop new products.
The Indian auto firm had said that the JV’s investment plans would have to be revised upwards, well above Rs 1,400 crore, and this would have rendered the programme economically unviable.
The first time Mahindra and Ford came together was in the mid-1990s, when they made the Ford Escort together. Ford later bought out Mahindra to assume full control.
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