 "Here's why Mahindra may be keen to sell electric vehicles in China")
Mahindra and Mahindra (M&M) Ltd, India's largest SUV maker, is looking for a joint-venture (JV) partner in China to tap the country's electric vehicles market, Bloomberg reported on Monday.
Quoting Arvind Mathew, chief executive officer of Mahindra Reva Electric Vehicles Pvt Ltd, the report said M&M's electric car unit, which sells electric cars in India and the UK, aims to manufacture and sell electric vehicles in the Chinese market.
The report added that the unit is willing to share its powertrain technology with companies other than its parent. Mathew did not divulge which Chinese companies, if any, the M&M unit was in discussions with.
Mahindra Reva Electric Vehicles is not alone in its efforts to manufacture electric vehicles jointly with Chinese companies.
In September this year, Fortune magazine reported that Volkswagen AG had signed a preliminary deal with China’s Anhui Jianghuai Automobile (JAC Motor) to explore the possibility of a JV for manufacturing electric vehicles. The report added that Volkswagen and JAC Motor were eyeing a formal agreement within five months.
In July this year, the Wall Street Journal reported that Electronics-giant Samsung Electronics Co acquired a two per cent stake in China's most popular electric and hybrid vehicles company, BYD Co, for $455 million.
But why are these companies keen on China?
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According to the Bloomberg report on M&M's China move, foreign automakers are required to set up JVs with local partners to manufacture vehicles in China. This isn't particularly disadvantageous as Chinese electric vehicle makers have been backed by steady government subsidies so far and have access to the largest electric car market in the world, having overtaken the US in this regard, according to the International Energy Agency's Global EV Outlook 2016 report.
The attractiveness of having such a business in China lies in the sheer scale of that country’s ambition when it comes to electric vehicles.
According to CCTV.com, China aims to have three million electric cars on its roads by 2025, and the plan "appears to be on track".
The Chinese government, for its part, has put its money where its mouth is.
According to a Forbes report, subsidies from the Chinese government have played a large role in the surge in sales of electric and plug-in hybrid car sales in the country, with the number of such vehicles sold in China quadrupling to 351,000 units in 2015.
Buyers, the report adds, benefit from a number of subsidies and other perks if they opt for electric or hybrid vehicles. China's electric vehicle manufacturers also benefit from government largesse.
Chinese auto maker BYD, which sold 58,000 electric and plug-in hybrids in 2015 and enjoys an 80 per cent share of the country’s plug-in hybrid market, for example, received 2.9 billion yuan ($435 million) in government support during the five years ended December 31, 2015, the report said.
In fact, the report added, in 2012 and 2014, government subsidies to BYD outstripped its profit. In 2012, the 550 million yuan worth of grants and subsidies received by the auto maker were more than two-and-a-half times its net income of 213 million yuan.
China, of course, is not the only country which has resorted to subsidies to give a boost to the sector.
China, of course, is not the only country which has resorted to subsidies to give a boost to the sector.
India, for its part, is also moving towards adoption of electric and hybrid vehicles.
Under the National Electric Mobility Mission Plan (NEMMP) 2020 the government wants to ensure a vehicle population of about 6-7 million electric or hybrid vehicles in India by 2020, along with a certain level of indigenisation of technology.
Under the Faster Adoption and Manufacturing of Hybrid and Electric vehicles in India (FAME India) initiative, which is part of the NEMMP, launched in 2015, the government is offering incentives on electric and hybrid vehicles of up to Rs 29,000 for bikes and Rs 1.38 lakh for cars.
According to a release from the Ministry of Heavy Industries & Public Enterprises, the FAME India scheme under Plan Head has been launched for the initial two years – Phase I (2015-17) – with an outlay of Rs 795 crore.
China has also been addressing the other challenge associated with widespread use of electric vehicles – building the associated infrastructure.
In May 2014, China decided to allow private companies to invest in and build electric charging and replacement stations, Forbes reported. According to the report, the move came when China’s State Grid decided that it would support the development of "privately owned distributed energy resources".
By June-end this year, according to the report, China had 81,000 public charging stations, up by 65 per cent when compared with the number the end of the previous year. Also, during the same period, citing National Energy Administration data, the report said the number of private charging stations rose to more than 50,000.
In this regard, China has encouraged the participation of private capital. Private entrepreneurs, Chinese car companies, start-ups and private equity funds have all lined up to get involved in investing in the enabling infrastructure required for mass use of electric vehicles.
What does the future hold?
However, the "honeymoon" phase enjoyed by Chinese auto makers engaged in manufacturing electric vehicles will not last indefinitely.
According to a Financial Times report, the Chinese government earlier this year decided to curb its reliance on subsidies to promote the electric vehicle industry.
Chinese Premier Li Keqiang said that the government would “step up support” for the electric vehicle industry. Keqiang, while speaking at a meeting of the State Council earlier this year, said that the government would be looking to shift from its current model of providing funds for supporting production of electric vehicles to a model where companies would be "rewarded" if they produced new technologies and achieved sales targets.
The core idea, the report added, was to shift focus towards achieving a “revolutionary breakthrough” in battery technology and using eclectic vehicles for public transport.
In keeping with this shift, the government, CCTV.com reported, planned to phase out these subsidies by 2020. Differing from the CCTV.com report, according to the Financial Times, the subsidies will be phased out in 2021 instead.
The move comes after the government discovered that certain companies that had received such subsidies had not contributed to the sector’s growth. According to CCTV, the Chinese government has begun to implement checks against such practices after it discovered that five companies "abused the subsidy programme". The report added that these companies either overstated their capabilities or falsified sales information.
According to Reuters, Chinese Finance Minister Lou Jiwei in January this year outlined how the subsidies would be phased out. The government plans to cut subsidies by 20 per cent over the next two years, 40 per cent by 2019-2020, and eliminate them completely after 2021.
As far as infrastructure is concerned, Forbes reported that China aimed to have 4.8 million charging stations in operation by 2020. These stations will be capable of meeting the charging needs of 5 million electric vehicles.