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PluginIndia Electric Vehicles

Judging a book by its cover - Mahindra e2o

6/3/2014

11 Comments

 
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.
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
Picture
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.

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.

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?
  • 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.

Granted that the vehicle has a lot of interesting features - like the smartphone connectivity, intelligent energy management system (iEMS), 10 on-board computers, regenerative braking, impregnated colors etc. as some of them. I won’t deny them. The design team has made good use of the electric drive-train and introduced several cool tech features. The question is, is that enough?It is no adrenaline-pumping Tesla nor is it a reliable Maruti 800. Most people are going to see it as good, old-fashioned mediocrity. One of the highest selling electric cars of the last decade definitely does not deserve that tag! But then, people do judge a book by its cover.

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.

11 Comments
Johnson
6/3/2014 11:17:56 am

Ha Ha Tarun good one.. :-)

We had in fact given them a Marketing plan... a plan if they had agreed (which cost around 15 Lakhs... peanuts for them) would have put their name in history and given them a lot of publicity.

Publicity not like what blankly comes in the newspaper... but with a lot of education and information... and entertainment dispersal... and even lot of first hand look and feel for the people who are not used to seeing the vehicle.

But sadly Mahindra Marketing department seems to have thrown the plan in the dustbin.

Maybe be when another company with an Electric vehicle comes we might approach them, with the same plan, and possibly they might accept it.

Personally for me I would rather have an Indian company get that level of publicity rather than any other company because Reva was a pioneer in its field and extra special for it to be carrying the "made in India" tag.

But at the end of the day we have to help our country get rid of the dependence on oil so we might as well support any company that are willing to go the extra mile.

Reply
Johnson
6/3/2014 01:51:44 pm

Another point to note is that the person would be getting a 80km (20% inferior) vehicle for almost the same price.

So I feel it is a real bad idea. Unless ofcourse the person is paying hard cash for the vehicle and opting for the energy charges.

My battery-on-rent idea was to double the distance but Mahindra wants to decrease the range.

Reply
Sateesh Reddy
6/3/2014 02:08:19 pm

This is a nice read. Thanks.

I would rather give my money to Mahindra Reva than other car makers, who sell shiny new cars - but have the same old Internal Combustion Engine.

I see innovations here that i don't see in any other petrol car that is launched. The last project in the automobile industry that was innovative was the Nano project.

Calling the e2o mediocre is a very harsh dont you think?

Reply
tarun
6/3/2014 04:04:41 pm

Hi Sateesh,

Love that you believe in the power of electric.

I actually discussed this for some time. I took a stance that perhaps the new Reva isn't mediocre after all and is indeed technically advanced. But to the average customer, it's almost impossible to care or notice. The car is good, but still the customers don't seem to care 'enough'.

Reply
Swapnil Jain link
6/3/2014 04:09:37 pm

Its nice to see people like you who actually care about innovation.

Problem with us engineers and technology enthusiasts is that we give too much importance to innovation, while what sells in the market is the final product.

As a innovative project, E20 has nailed it but as a product it is a failure as was Nano. We all have to accept that, innovation doesnt sell only the product does.

The problem with E20 was they went so far but just not far enough to make them desirable by every individual. Their marketing did not help either. I am in EV field and I still dont know half as much about E20 as much I know about Tesla.

The E20 is not mediocre in its technology but as a product it is because with its specs it does not satisfy most of the market.

Reply
Kamlesh Mallick
6/3/2014 02:24:59 pm

Hi Tarun,
Great blog. I agree with you on lots of points like its not meant for villages etc.

Regarding the car, however the car is great for its class.
I dont know what more Mahindra Reva could have done to get an electric car in the Indian market at an acceptable rate.

Lithium packs are expensive. The bigger and more powerful car you make, more battery packs would be needed. And that would overshoot the budget for a hatchback.

Already the e2o costs 10% more than a hatchback of its size and quality, if you compare petrol cars like i10 automatic, Honda Brio, Maruti Swift etc.

So giving the e2o more range, more power and a bigger body would mean more costs. And that would have meant it would have been beyond reach for many customers.

Look at the electric cars around the world. OK. Forget bout Tesla. They are the best and they also cost you a truck load of cash.

Look at Nissan Leaf, Think EV, Mitsubishi iMiev, Ford Focus EV and other EV's in the world. The range they offer is around 120-150 km. Just 20-50km more range than what the e2o offers. Ofcourse they have good torque and power. But also look at the costs of those cars.
They cost 25,000 $ and above after rebates.

Mahindra Reva could have made a bigger EV that goes 200+ km and has great torque, but who would pay so much?

Under the contraints they are in, they have made a great product.
It can be called the 'Worlds cheapest electric car' but it can also serve the purpose of 90% of the urban population and thus help in reducing our OIL imports.

Best,
Kamlesh

Reply
Swapnil Jain
6/3/2014 04:29:26 pm

'Worlds cheapest electric car' - This tagline would be the killer for a product whose existence means a status symbol. India is not same as US, in here buying a car is a huge investment and reflects your personality. If the product lacks the performance or the looks it will not be acceptable. Its not specific to EVs we have seen this happen with the worlds cheapest car Nano.

We see so many Mercedes, BMWs and Audis on road everyday, if the E20 was on par with these vehicles it would sell as much as these. There are potential buyers for Tesla in India.

We love E20 because it is beneficial to our country and environment but many people wont rationalize enough and would see it as a compromise.

Reply
Kamlesh Mallick
7/3/2014 02:17:21 am

So you suggesting Mahindra Reva to go with the Tesla Model? Tesla as you know started selling the Roadster for 1 Lakh USD! They targeted the rich and used the money they got from the sales of that to develop the Model S and now they are using the money from the sales of the Model S (and its selling well), for the 3rd generation cheaper car (35,000 $)

Im not sure if that kind of strategy would work in India. When a rich guy can afford a Mercedes, BMWs and Audis, why would they go for a REVA?
If Mahindra had a 25 Lakh Electric car that goes 200 km, am absolutely sure the rich will rather get that Mercedes or the BMW, which would be much more of a status symbol than a Reva? And lets admit 95% of people buy those cars as a status symbol. They don’t care about OIL, Energy efficiency, Innovation, Technology.

So targeting the hatchback market was a right thing to do.
I agree that the car could be better, they could have made the car bigger with 4 doors and even if it meant it would be expensive.

But at the same time I guess its a start. They are planning to launch the Mahindra Verito Electric Sedan. This might be a more desirable product. But again from what am reading, the range of 100 km will not guarantee that it will eat into the Sedan market.

Ramesh Krishnan
8/3/2014 03:40:49 am

I agree with Swapnil Jain that "innovation doesnt sell only the product does" and also with the statement that "'cheapest' - tagline would be the killer for any product"

Reply
Johnson
8/3/2014 04:51:55 am

Another good idea for them would be to offer the Car for 3 Lakhs and leave the customer to choose the battery option having range: 50km, 100Km, 150km, 200Km or even 300km.

So the 50km Vehicle will cost only 3+1.5 = 4.5 Lakh,
100 Km vehicle will cost 3+5= 8Lakh,
200 Km Vehicle will cost 3+10= 13 Lakh
300Km Vehicle will cost 3+15 = 18 Lakh

Even then the E2O is much cheaper than its competitor...

And where is the marketing? Nobody knows anything much about the car?

The youth do not really look up to the car. But the VERITO is the Benchmark to test the Electric car success.. and not E2O yet Mahindra keeps postponing its release.

One of the reasons I can see is to kill the Electric Car. Just like Honda has stopped production of the Jazz/Fit EV without even selling a single car. Those produced were leased out but never sold.

Everywhere we see the same story repeating itself right from the Toyota RAV1 EV... make a few models... dont sell it... then say they never sold... so EV is a bad idea... dont develop it...end of story.








Reply
Kamlesh Mallick
8/3/2014 08:13:00 am

I don't think the e2o can have capacity to store more battery packs. One has to consider the weight of the additional battery packs.
Even if we manage to fit in the packs, the motor will not have the ability to handle the extra kg's.

Look, even if the price is under Rs 5 Lakh, 80% of potential customers would rather pay that 5 Lakh and be 'safe' and go for an automatic like Celerio or i10 knowing that they can go wherever they want instead of worrying bout range.

That leaves the rest 20% people as the market for EVs. These are the people who appreciate the EV movement, the innovation of the car.

Am not sure Verito electric will eat into the Sedan market. They are talkin about a 24kWh battery pack (bigger pack for a bigger car) that only goes 100km.

The best time for Mahindra to launch the Verito electric would be once they complete installing 3-4 DC quick charging stations around every city, which would ensure the customer can occasionally go beyond the 100 km.
If they launch it now with no Quick charge infra, lets face it, they will still only be targeting the market of 20% of people.

I dont think they are postponing the release of it as they want to kill the electric car :)
Also policy details matter. For example, Mahindra is doing more work in Bhutan than here as there are favorable policies there.

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