By Tarun Mehta
Mr. Johnson wrote a blog highlighting the poor sales of the Mahindra e2o electric car, over the last year.
It’s a nice article and he does a great job of highlighting some key challenges facing the Indian EV industry.
This blog is my take on the same.
It’s a nice article and he does a great job of highlighting some key challenges facing the Indian EV industry.
This blog is my take on the same.
Mr Johnson highlighted few major points in his article:
- Mahindra e2o's new ‘battery on rent’ scheme is merely a marketing gimmick and does not make sense
- The marketing campaign sucked and hence there is not much awareness about the e2o
- e2o sales could be really increased if they marketed well to rich villagers and people in small towns
- Mahindra should have a cheaper version of the e2o using lead-acid batteries
The Mahindra e2o was launched amid fanfare on March 2013
It’s a nice article and he does a great job of highlighting some key challenges facing the Indian EV industry but I don’t completely agree with his diagnosis. So here’s my perspective:
Mahindra e2o's new ‘battery on rent’ scheme
Mr. Johnson is correct in pointing out that it does not make a significant economical sense.
But then, unless e2o decided to take a hit on margins it simply cannot make much sense. The program is only to amortize the cost of the battery over a few years instead of asking the buyer to pay upfront for the entire cost. The author actually missed about the time value of money. Here’s a (slightly more detailed) math behind it:
Cost of vehicle: 5,40,000 (Bangalore city cost)
Cost of fuel: 2,599 X 60 = 1,55,940
Accounting for time value of money, actual fuel cost: 2059 (for a 5 year usage)
Actual cost of fuel (since you are going to pay 2,599 forever and not inflation adjusted): 1,23,552
Total cost (at the end of 5 years): 6,63,552
This team-bhp article claims that the new vehicle price is 1.7L lesser than before. So, it does not look too bad, does it? Obviously e2o is counting on re-using the battery in other industries and hence is comfortable with that price point too.
Financially, it looks sort of okay. In fact, it looks like a better deal than the previous case. I guess it would make better sense for e2o to merely reduce the price than come up with such a confusing scheme. Nobody loves doing math (we will come back to this).
Although an important point to be noted is that there has been changes to the e2o which sells for Rs 5,40,000 + energy charges. The cheapest e2o goes only 80km instead of usual 100km distance. Mahindra has reduced the capacity of the battery pack to reduce the initial price.
Mahindra e2o's new ‘battery on rent’ scheme
Mr. Johnson is correct in pointing out that it does not make a significant economical sense.
But then, unless e2o decided to take a hit on margins it simply cannot make much sense. The program is only to amortize the cost of the battery over a few years instead of asking the buyer to pay upfront for the entire cost. The author actually missed about the time value of money. Here’s a (slightly more detailed) math behind it:
Cost of vehicle: 5,40,000 (Bangalore city cost)
Cost of fuel: 2,599 X 60 = 1,55,940
Accounting for time value of money, actual fuel cost: 2059 (for a 5 year usage)
Actual cost of fuel (since you are going to pay 2,599 forever and not inflation adjusted): 1,23,552
Total cost (at the end of 5 years): 6,63,552
This team-bhp article claims that the new vehicle price is 1.7L lesser than before. So, it does not look too bad, does it? Obviously e2o is counting on re-using the battery in other industries and hence is comfortable with that price point too.
Financially, it looks sort of okay. In fact, it looks like a better deal than the previous case. I guess it would make better sense for e2o to merely reduce the price than come up with such a confusing scheme. Nobody loves doing math (we will come back to this).
Although an important point to be noted is that there has been changes to the e2o which sells for Rs 5,40,000 + energy charges. The cheapest e2o goes only 80km instead of usual 100km distance. Mahindra has reduced the capacity of the battery pack to reduce the initial price.
Potential of rural and small town market
I don’t buy it. The e2o isn’t appropriately priced for the rural market yet. Yes, the rich farmers can probably easily afford it and perhaps also have the land for the solar charger BUT please remember, we are humans. Most farmers in that category (rich with some disposable income) will buy a car to show-off. All that the farmer gets by buying the e2o is a potential savings of maybe 10k to 20k p.a. (assuming he drives at least 25kms every day). How many of those farmers will be motivated by saving the environment? Your guess is as good as mine.
Such meagre savings are not enough for anybody to be seen riding in an inferior looking and performing vehicle. This is what killed the Nano. Nobody – absolutely nobody wanted to be seen driving around in the cheapest vehicle. It’s always a game of perception. We human beings are slaves to our emotions. We are not rational or logical despite all logical evidence to the contrary (talk about irony). And hence, that’s why an emotional appeal sells – it appeals to something much deeper in us.
This brings me to the final point – marketing.
I don’t buy it. The e2o isn’t appropriately priced for the rural market yet. Yes, the rich farmers can probably easily afford it and perhaps also have the land for the solar charger BUT please remember, we are humans. Most farmers in that category (rich with some disposable income) will buy a car to show-off. All that the farmer gets by buying the e2o is a potential savings of maybe 10k to 20k p.a. (assuming he drives at least 25kms every day). How many of those farmers will be motivated by saving the environment? Your guess is as good as mine.
Such meagre savings are not enough for anybody to be seen riding in an inferior looking and performing vehicle. This is what killed the Nano. Nobody – absolutely nobody wanted to be seen driving around in the cheapest vehicle. It’s always a game of perception. We human beings are slaves to our emotions. We are not rational or logical despite all logical evidence to the contrary (talk about irony). And hence, that’s why an emotional appeal sells – it appeals to something much deeper in us.
This brings me to the final point – marketing.
Marketing campaign failure
True that. At sales of around 500 in over 10 months, I doubt it can be considered a success by any which way. e2o has failed spectacularly to excite the public. And how will it excite?
The e2o can come up with the best possible features, extremely reliable build, and competitive performance – but in the end it is the packaging that dictates the sale. There are some performance parameters that the e2o still needs to meet (speed and range being the primary ones) before people start making a logical decision.
Honestly, I do not envy the job of their marketing department. Selling it would be hard. I said earlier that people hate doing math. They will do the math as a last resort thing. When two products are similar in all other aspects and nothing else but complex financials differentiate them – that’s when we pick up our calculators and fire away. Until then, the game is wide open. Vespa would have gone bankrupt and Apple would have been an organic food company if everybody made a decision based on pure math. Quality sells. Emotional appeal sells.
- Its looks are no killer.
- Its specs are quite ordinary.
- Its build quality is not legendary.
- For a vehicle with a top speed of 80-90 kmph it is not exactly cheap at 5.5L.
The e2o can come up with the best possible features, extremely reliable build, and competitive performance – but in the end it is the packaging that dictates the sale. There are some performance parameters that the e2o still needs to meet (speed and range being the primary ones) before people start making a logical decision.
Honestly, I do not envy the job of their marketing department. Selling it would be hard. I said earlier that people hate doing math. They will do the math as a last resort thing. When two products are similar in all other aspects and nothing else but complex financials differentiate them – that’s when we pick up our calculators and fire away. Until then, the game is wide open. Vespa would have gone bankrupt and Apple would have been an organic food company if everybody made a decision based on pure math. Quality sells. Emotional appeal sells.
Its should not be about 'cheapness'
Mahindra Reva should try and appeal to something higher than cost savings. If the folks at Reva believe in the greenness than please sell that. Don’t give a confusing message by highlighting the cost savings. The minute a product focuses on its cheapness, it is entering one of the most crushing competitions ever.
That in my humble opinion, is what is killing e2o today.
Mahindra Reva should try and appeal to something higher than cost savings. If the folks at Reva believe in the greenness than please sell that. Don’t give a confusing message by highlighting the cost savings. The minute a product focuses on its cheapness, it is entering one of the most crushing competitions ever.
That in my humble opinion, is what is killing e2o today.
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