Originally published on Sustainablity Outlook.
Mahindra’s recent slash on the purchase price of its electric car (E2O) to Rs. 4.99 lakhs and the increasing inflation in the cost of vehicle fuel relative to the cost per kWh for electricity, has positively altered the price attractiveness of the Electric Vehicles.
In alignment with our previous analysis on electric cars last year, the recent purchase price drop for the E2O has better positioned the car to compete with other alternatives in the Indian market. However, the relative inflation of petrol vs. electricity costs is likely to favour electric vehicles and boost the market.
While it is difficult to forecast electricity and petrol prices an Indian consumer faces as energy prices are heavily regulated, a historical analysis shows that prices an Indian consumer faces for electricity are declining, and the retail prices (at the pump) for petrol is increasing. In fact, in 2014, the price of diesel and petrol are on the high-side compared to their historical trends. Sustainability Outlook lower limits (green dots) and upper limits (blue dots) for energy prices have been used to compare Mahindra’s E2O with some other Indian cars.
Source: IEX, Planning Commission, Shell India, Ministry of Petroleum & Natural Gas, Sustainability Outlook analysis
This affects how much a petrol car will cost to run in India, compared to how much it will cost to run an electric vehicle, for a typical Indian. In addition, Mahindra has launched a new battery charging monthly service that makes it less cumbersome to own and operate batteries for electric cars.
Source: Sustainability Outlook
NOTES: What the costs capture: a) the cost of one battery or battery service over 4 years and b) cost of petrol (@current prices). Maintenance costs of all vehicles not included. Note that users of Reva report that electric cars have minimal engine maintenance costs compared to petrol vehicles in India.
In addition to reducing the purchase price for their electric car, Mahindra has also launched 2 new service innovations to ease customer concerns around electric charging. Mahindra has offered an energy service scheme, called “Goodbye Fuel, Hello Electric”, for a usage of 800km per month for Rs.2599 or Rs. 2999 for 5 years – effectively locking in fuels costs for Indians against future inflation.
This energy service takes the hassle of charging away from the customer under a ‘Quick2Charge’ variant. Here, DC fast charging ports are used to reduce charging time dramatically. Mahindra’s Quick2Charge technology can deliver 100km per 1 hour of charge, rather than taking 4-5 hours to charge a battery. These steps are aimed at addressing key pain-points of potential EV customers.
Source: Sustainability Outlook analysis
At these pricing points, and with faster inflation of the cost of vehicle fuels relative to the cost of electricity, it may mean that Mahindra is the best placed in the Indian market to set up a complete electrified transport service for customers that is relatively independent of government support. We will wait to see if this converts into sales over the next few months.
Further, each Quick2Charge charging station will take Rs. 3.5 lakhs to set up – this is not an obscenely high capital cost. In fact, the cost of a charging station could be recovered through premiums embedded in Mahindra’s Energy service.
More support for electric vehicles may also be on the horizon.
Last week, it was reported that the Ministry of Heavy Industries and the Auto Industry will present a case for renewing subsidies for electric vehicles. According to reports, the subsidy will aim to fully pay the 30% purchase price cost differential between petrol/diesel cars, and provide further support for electric buses and other vehicles. The assumption here is again that electric vehicles will have lowering running costs (i.e. the relative inflation in cost of petrol/diesel per km will rise faster than the cost of electricity per km) and people will opt to choose electric counterparts in similar vehicle size / functionality categories.
However, as our earlier analysis on electric vehicles points out, charging infrastructure ideally need to be powered by renewable energy. If electricity for charging these vehicles is generated mostly through coal burning, electric vehicles will not have a net positive economic and environmental impact in India.
We will continue to track the extent to which Mahindra’s price adjustments and charging services stimulates sales in the coming months.
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