'It's the last mile customer who is leading India's EV revolution'

Suman Mishra, the dynamic CEO and MD of Mahindra Last Mile Mobility, is on a mission to electrify the roads of India, one three-wheeler at a time. Highlighting the impressive growth of EV penetration in the L5 three-wheeler category, she attributes this success to a compelling total cost of ownership, accessible financing, and easy charging solutions.

Mishra emphasises the importance of subsidies for sustained demand, acknowledging the industry's heavy reliance on them, and advocates for a gradual transition towards self-sustainability. Mishra's strategy is not just about building electric vehicles; it's about building an ecosystem – expanding Mahindra's EV portfolio, enhancing charging infrastructure, and making green mobility more accessible and affordable for everyone.

The three-wheeler last-mile mobility segment has been one of the most remarkable growth stories, and arguably the only EV segment consistently showing strong signs of expansion. What, in your view, has driven such impressive performance in this space?

If you look at the L5 three-wheeler category, it is now at 22% EV penetration. It's the highest in the country across any segment. It was at 7% or 8% two years ago. So, clearly it is scaling up very fast, and it continues to grow. The root cause behind it is that the customer can now see the value proposition from the total cost of ownership perspective. If he buys an EV vehicle, his income increases by about 20%. So, if he is seeing this benefit on a daily basis, then as the vehicles start reaching some critical mass in those cities, it explodes. The customer now understands the value proposition of the vehicle and therefore realises that this product is going to be beneficial in the long term. 

Now, the reason why the value proposition is so good is firstly due to the subsidy. There is a price differential between ICE and EV, but because of the FAME II subsidy, it comes down quite significantly. The cost per kilometre is very good for the customer. Then the charging of three-wheelers is very easy. It doesn't need those high-voltage chargers. It can be charged at home with just a 16-amp socket, or at a park and charge – those kinds of setups are now available in many Indian towns. It's easy to charge these vehicles, and that's the second reason. One of the other factors that has helped, but is still a constraint, is financing.

Two years ago, it was worse. There were hardly any NBFCs doing this. But today, at least there are many more NBFCs, many more micro-financiers, many more new-age green financiers – which is good. But it is still not enough to push us to the next level of electrification. So, financing has been a big enabler, but it is also a big challenge as we move forward. I think the total cost of ownership, affordable financing and ease of charging have been the key enablers for the industry. These are the three drivers which have allowed the increase in electrification to the highest levels in India across any category.

So this category at 20% means you can now see that 30% is not a big deal. We should be talking of 100% by 2030.

For this customer base, achieving price parity is crucial. Could you elaborate on the key factors and developments that made this possible?

It's not price parity, it's the total cost of ownership, and the cost per kilometre has attracted the customer. EVs have better cost per kilometre compared to an ICE vehicle. There's also a factor of EV vehicles giving higher range. And because of scale, technology has improved. What was earlier giving 80-90 kilometres now gives us 150-plus kilometre range with the Treo Plus. But not that much increase in pricing has occurred. Now all the OEMs are in place [in the EV market].

With more players entering the market, how do you see the competitive landscape evolving in this segment?

Supply is abundant and choice is available. Demand is spurred by attractive value proposition. Everybody is now working to expand the pie. It's different when it’s a small pie and you're trying to steal a share. But when you're growing the pie, there is no doubt that with more competition, with more availability, better pricing and better technology, people are switching [to EVs]. Our vehicles have been on the road for three years in several markets. People are confident now of the technology.

And this is pretty remarkable because, for a three-wheeler customer to be the earliest adopter of a technology revolution in the automotive industry is in itself a remarkable achievement. This customer who has no access to finance, and money is hand-to-mouth every day. The automotive industry went through a big technology shift from ICE to EV, and this is the customer who has grabbed it with open hands. And that is the main thing that just keeps me going in this category.

But it is also true that the segment still relies heavily on subsidies. How do you plan to reach a point where the industry becomes self-sustaining, with genuine demand even beyond the subsidies?

The subsidy was cut in half in March, yet the demand has continued to grow. And today, we are not in a place where we can absorb any further subsidy cut. If the subsidy goes away tomorrow, it will lead to significantly sharp de-growth in the market. It will hit the market because nobody has that kind of margin now to absorb [such a hit]. What happened with the first subsidy cut is that most of the OEMs absorbed the cut.

There is no more room for that kind of thing now. We need to be at the current subsidy level for a couple of years. Why I say a couple of years is because once the demand is at scale, we can start seeing scale benefits. The operating efficiencies will come when you are selling an adequate number of vehicles every month. So, the sales structure, the dealer structure, also needs to get the operating economics in place.

That should come two years from now. Subsidies are imperative for the growth to continue, but I also don't think it should be forever. If it's only there for a couple of years alongside the PLI, it's fine because we are all investing in high-scale products now. Alongside the PLI, we will have a situation where we will have enough demand and enough throughput that we will be able to then make the products far cheaper, and the operating economics far more attractive.

We need subsidies for at least two years, and then a staggered reduction is fine. I think, by that time, because of the PLI, we will have already invested significantly in the capacities, and will start getting operating benefits. So that's what we expect to see, and it has to be a delicate and gradual transition.

Just dropping the ball suddenly in the middle of this kind of evolution will become a problem. It's also a customer category that grapples with poor financing terms. They are paying 22-24% IRR, whereas we pay 10% on a home loan. The cost of financing is that expensive, so until that comes down, we need government support so that the demand can scale up for a couple of years.

The second requirement would be [giving this] priority sector lending [status]. If you give priority sector lending [status], especially for this backward socio-economic class, then with the cost of financing coming down, the demand will reach the type of scale that will be subsidy resilient.

Globally, many OEMs have recognised the initial hype around EVs, and some of them are recalibrating their future plans. Given that the three-wheeler segment is unique to the Indian market, are you seeing a similar reassessment or slowdown in your sector?

Globally, there are different reasons. China has a different story playing out. In India, many different sectors have different stories. They have been seeing a slowdown for 6-8 months. We have only seen growth. There is no reason for me to believe that there will be a slowdown in this category because the fundamental value proposition can only get better as the scale increases. So, the products obviously will become more and more efficient.

The ranges will continue to increase. The customer is just going to get more and more money because of driving this. Many countries have had big growth because they have reached certain levels of electrification. But here, in this last-mile mobility, it's only driven inside a city location. So, range anxiety is not a problem. Charge anxiety is not a problem. Major roadblocks for other segments do not exist in this segment.

If you remove these factors from the equation, you can see why growth will not stop. I don't see any fundamental shift. But if financing became cheaper and more available, that would really help us grow faster. But that would obviously require more public-private partnership kinds of schemes and other new industries and startups getting into the financing part of it.

If the availability of finance is better, then the upfront cost is no longer a barrier. If one can finance it, then it's enough. We don't need a whole lot more. So to me, there are some other pockets where electrification can increase, which is, let's say, the big metro cities. There, electrification is lower because mostly parking is not available. If you can create more parking plus charging solutions in those places, that will also help.

And how big of a problem is the initial cost of ownership for your customer base?

At this point, because it's a price-sensitive consumer and you're not targeting a premium consumer, you're not charging a very huge margin for it. It's a very utilitarian kind of customer. The cost of acquisition for them is very critical. The total cost of ownership is great.

They understand it. But if they're not able to give you the down-payment, then they cannot acquire it. So that is one of the biggest challenges, that's why we're requesting all the government agencies to help make the financing more affordable.

Everybody is pricing tightly and focusing on just giving the best value to the customer. The only thing is, if the affordability of financing became better, then it would help everyone.

How do you see the move towards localisation in battery pack manufacturing impacting the industry? Do you believe this is the way forward for sustainable growth in the sector?

We are already PLI approved. So, we actually make our battery packs here in India. The cells are imported, but most of what could be made in India in the three-wheeler category is now made in India. There are only a few parts like the semiconductor parts and the cells that are coming from outside and maybe one or two other things that are not yet developed here.

For the cells, there are a lot of players who have already started putting up the capacities. What it will do is that, whether or not they can reach price parity, it will definitely help protect us from geopolitics and geopolitical risk.

Today, imports are great, but we are completely dependent on another country to give us the cells. We are seeing several suppliers who are starting to make cells in India. If they can scale up properly, then it will give us supply assurance and supply security, which will be good for the sector overall.

Achieving sustained profitability and growth is crucial for companies, especially as we transition out of the early adopter phase. How vital do you consider these factors to be, and what strategies are you implementing to ensure long-term viability in this business?

Anything that is 50% of a very large market will find a way to make itself viable. It is only about scale at this point – it will become viable. Now, we are heavily dependent again on PLI to support us, but it will become viable because what are the units that we are doing? We are not doing adequate units. We're doing 20%, but the market is very large. When you are talking of, let's say, 80% electrification, then it has become extremely viable because it's a very cost-efficient model, especially for three-wheelers.

Once you put up the CapEx, once you put up the channel, you can churn. You need demand for the churn. So I think it will become viable in the medium term. As we are able to scale up efficiencies, it will make it viable. There is still organic demand without the subsidy because there is a vehicle at Rs 3 lakhs and there is a vehicle at Rs 3.50 lakhs in the market today.

People are still buying the Rs 3.50 lakhs product. So, it's not that there is no demand. ICE vehicles would be around Rs 2.80 lakhs. So even today, it is not that the customer is not paying a premium. He's paying anything between Rs 50,000-60,000 premium to buy that vehicle. So this itself explains that there will be a premium because it gives better cost efficiency. It is only about affording the upfront cost.

What other areas do you believe need improvement?

One other area that we must all solve is recycling. Once the sales come back, how do we close the loop? We have already started multiple pilots. We have tied up with players. We've already started this process, but that has to scale up. I think that's another important area. When you're talking about 50% electrification, you need to solve for second life. These batteries, when they come out after 4-5 years of usage, have a lot of life left in secondary applications. They can be used to power generators, solar farms, anything stationary. So to enable that, there needs to be an ecosystem. That is one big area that we as OEMs, along with ecosystem partners, should work on.

So, four things, i.e. park and charge facility, financing, second life, and recycling will definitely aid in closing the loop and making the electrification sustainable at a 60% or higher percentage. I think it will happen whenever the industry reaches critical mass. Everybody has entered this space for good reason, because they see that there is opportunity here. So when we reach critical mass in electrification and you see growth, then all the adjacent problems get solved, because there are enough players who are interested in this now.

And where do you think the next phase of growth will come from?

The biggest cities of India today have very low electrification. The other [smaller] cities have high electrification. So, we will have to work aggressively with state and municipal authorities to promote green energy. And they are the ones who need it most because that is where the pollution is the highest, the tailpipe emissions are the highest, and the noise pollution is also the highest.

For that, we will have to work with the state, and I hope the states are more progressive towards this and enable the ecosystem to do it. Wherever there is a market, industry players will come and solve the problem. Currently, the North and the East are big markets, whereas the South and the West are growing. Electrification is not uniform – in different pockets, there are different levels of electrification.