Automakers' EV drive could be turning into a loss-making affair. Here's why

It is difficult to comprehend the price… We have been in the EV business for some time. We know the cost structure and subsystems: Pawan Goenka, managing director, M&M
The domestic automobile industry's electric mobility ride may be turning into a loss-making affair, thanks to an aggressive pricing by few players in a race to gain volumes. In the two biggest tenders for e-cars and e-buses that have been finalised in recent months, price quoted by some companies has left industry peers surprised. These low prices have in a way become a base for the future transactions.

Take the case of the tender for ten thousand electric cars finalised by EESL in October last year. M&M, which has been the first mover in domestic electric vehicle (EV) space, was outbid by Tata Motors, a relatively newer player in the segment. Against a price of Rs 1.2 million quoted for each such car by M&M, Tata's bid happened to be about 15 per cent lower at Rs 1.016 million.      

"It is difficult to comprehend the price quoted by the L1 bidder (Tata Motors) though we have been in the electric vehicle business for some time and we know the cost structure and subsystems very well," Pawan Goenka, managing director at M&M said after Tata Motors emerged the lowest bidder last year. M&M, which was the only other eligible bidder besides Tata, however, decided to match the competitor’s price to get part of the EESL order.

But Goenka categorically said M&M will not be making any money on the EESL orders. “We will be losing money on every car”. Tata Motors firmly maintained that it will make ‘enough money’ on the EESL orders. The company’s domestic automobile business, comprising of commercial and passenger vehicles, has incurred a loss of Rs 5.79 billion in the first nine months of FY18. Tata Motors does not sell its electric cars to retail buyers the way M&M does.

The EESL event was not an isolated one. In the recently finalised multiple tenders for electric buses by state transport undertakings (STUs) two bidders- Tata Motors and Goldstone-BYD- cornered most of the orders. Goldstone is the Indian partner of Chinese electric vehicle major BYD, the largest player in global electric bus market.

 Some STUs opted for outright purchase of these buses while some chose a gross cost contract (GCC) model where the buses need to be maintained by the seller at a fixed cost per kilometre and payment is linked to performance. Transport entities of five cities- Indore, Lucknow, Kolkata, Jammu and Guwahati- went for an outright purchase and all these cities went to Tata Motors, which quoted prices beginning Rs 7.7 million for nine metre buses after adjusting the subsidy. In case of an outright purchase, the Department of Heavy Industries offers a sixty per cent subsidy or Rs 10 million on the purchase cost, whichever is lower. A manufacturer has to meet 35 per cent localisation clause for the same.

In the GCC model, the FAME subsidy is spread over a three year period. Five cities-Bangalore, Mumbai, Hyderabad, Ahmedabad, and Jaipur- invited bids under GCC model. Goldstone-BYD claimed all orders from Bangalore, Hyderabad and Mumbai. Tata Motors got orders from Jaipur while Ahmedabad went to Ashok Leyland. The final tally is as follows: Goldstone-BYD (290 orders), Tata Motors (190 buses) and Ashok Leyland (40 units). Others like M&M and JBM-Solaris did not get any orders. Even Ashok Leyland’s order of 40 buses in GCC, given that it is biggest bus player in domestic market, is small. 

Ashok Leyland, however, says that it is not ‘disappointed’. Karthick Athmanathan, head (EV and eMobility Solutions) said at Ashok Leyland said the company has consciously chosen to stay away from such contracts even in diesel orders. “We will not offer a certain price just to win an order. Our focus has been to do a healthy business with tightly controlled costs and that is why we are the most profitable commercial vehicle company. We have seen evidence, once again, that pricing is a policy and costs are a reality. We have no other reason for not matching these prices”.

M&M, which did no bag any orders, said it the company bid rates it found to be ‘reasonable’. “We are not able to comment on how other bidders are able to bid much lower”, said a company spokesperson. While industry peers remain wary about the bids in these tenders, Tata Motors says it has taken a long-term view on electric mobility. “We have a clear line of sight of profitability. We remain committed to this cause and will continue to invest in this field,” the company said. It did not comment on the pricing strategy and the cost structure that allowed such aggressive bids.

N K Rawal, managing director at Goldstone Infratech, claims that his company has emerged the winner in GCC model since its buses are capable of a ‘significantly’ higher performance to competitors. “We were not able to match prices of competition in case of outright purchase tenders since our buses are quite expensive at upfront cost. The cost over life cycle, however, is lower”, he claimed. Rawal said the company will make ‘nominal’ profits in these orders and the focus is more on market creation for electric buses.

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