Mahindra War Room 2017 Automotive Business Caselet

MAHINDRA AUTOMOTIVE BUSINESS:

RIDE SHARING BUSINESS MODEL USING ELECTRIC CARS

Mahindras entry into the automotive business started with an accidental meeting of Mr.
JC Mahindra with Mr. Delmar Barney Roos, the inventor of Jeep, back in 1946. The
two hit it off well, and soon Mahindra started assembling Jeeps in India, under license
from Willys of USA. Over time, the Jeep brand in India along with its rugged and bare
essentials look became to typify the Mahindra brand for many years. Mahindra
subsequently expanded into light commercial vehicles and tractors, attaining world
leadership by volume in the latter.

In the early 1990s, Mahindra evolved the design of Jeep to create the Armada. While
retaining the ruggedness and low maintenance cost of the Jeep, Armada offered more
safety and comfort with an all steel body, immediately gaining popularity across India.
This was the era of the state sponsored and regulated industry time. Indian Automotive
brands like Hindustan motors, Premier Automotive and Mahindra were all existing, but
there was a big disruption looming on the horizon, which was the advent of the MNCs
on the horizon.

It all started with the advent of Maruti that revolutinalized Indian Automotive the industry.
Soon many players followed and competition heated up. Mahindra had through these
times developed a USP for being were rugged, reliable and affordable. It now had to
reinvent itself. The company transformed both internally through extensive Business
Process Reengineering, investments in Product development and People development
and externally through investments in Brand building and by focusing on Customer
centricity. These Hormises decisions worked really well for Mahindra that grew in leaps
and bounds while the other legacy companies like premier Auto and Hindustan motors
fell behind, almost to disappear today.

The first real blockbuster product from Mahindra in this new era was the Mahindra
Bolero. From then until now, Mahindra Bolero has been the de-facto UV for rural and
semi-urban India, with unmatched ease of maintenance and maneuverability in adverse
road conditions. It has been the category leader more almost two decades now, but
Mahindra did not get comfortable with its success.

Leveraging on these successes, Mr. Anand Mahindra, the then vice-chairman of

Mahindra Group, held talks with the Ford Motor Company of USA with a proposal to

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Mahindra War Room 2017 Automotive Business Caselet

jointly research and develop an SUV for India, under their Mahindra Ford JV which was
already operational in Chennai. Dr. Pawan Goenka, an automotive veteran with a PhD
& General Motors experience was already into the Mahindra Group for more than 5
years then, and would be the Director of the Program. Ford was not sure on the
possibility of working it out in such a meagre cost structure and expressed that it is not
possible to build a world class SUV in India at an investment of less than USD. 1 Billion.
Mahindra believed that the same could be achieved in USD. 120 Million, using
principles of frugal engineering. Mahindra took a monumental decision, with remarkable
foresight - they decided to invest USD 120 Million - an amount equivalent to 3 years of
Profit after Tax - on developing the platform and technology for a single project - the
Mahindra Scorpio. It was a decision fraught with risk - failure in the project may have
meant the end of the Group, almost, but the belief in the company was to build a never
before seen positive asymmetry from this leap of faith.

The Scorpio was launched in August 2002. So conscious was Mahindra about its rural
brand image that the Scorpio vehicles just carried the Scorpio mark with the Mahindra
oval symbol - the word Mahindra was avoided in the car, to help transition the brand
from rural to urban mind spaces. In just 18 months, over 35,000 Scorpios sold, creating
a huge fillip for Mahindra's in Utility Vehicles. Mahindra has ever since maintained a
dominant leadership position in the Utility Vehicle segment for over 15 years now having
sold over a million Scorpios globally. This was clear asymmetric gain which took
Mahindra into the next decade. It followed this with the addition of XUV 5OO to their
portfolio, where Mahindra changed the whole game play of premium SUVs. All along
the company has been extremely conscious of the treadmill effect that can occur on the
customer side, and has been the pioneer of disruptive innovation in the Automobile
space.

Since then the organization has been expanding the product line to include an array of
commercial vehicles, sedans, electric cars, utility vehicles, trucks and buses. The focus
on a Global footprint has resulted in the successful acquisition and integration of
SsangYong Motor Company of South Korea. With this, Mahindra has expanded the
footprint to 90 countries worldwide. To just recount the journey in a single phrase, it
would be apt to note that over the past two decades the R & D spends of the company
have increased over 26 times with a neural network of innovation across the world.

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Mahindra War Room 2017 Automotive Business Caselet

LIVE CHALLENGE: RIDE SHARING BUSINESS MODEL USING ELECTRIC CARS

The Automotive Industry is one of Indias critical industries, accounting for 45% of the
manufacturing GDP and 7.1% of National GDP, employing 19 million people directly and
indirectly. By 2020, over 6 million vehicles are estimated to be sold in India. And such a
crucial industry is at the threshold of a Revolution. Mahindra has always been a
company which was the delight of the investors and the envy of competition with a
majority market share in the UV space, both in the passenger and the commercial, but
now there are a host of factors combining together to change the very rules of the
game.

There used to be a perception globally that the real answer to survival in the auto
industry was scale. The automobile has traditionally been sold as an aspirational
product, rather than just an object of mobility. The arrival of automotive aggregators,
and that too so rapidly over the last decade has dramatically shattered all these beliefs
and predictions. Between 2007 and 2017, companies like Uber, Ola, Didi Chuxing
attained rapid scale through venture investments, discouraging ownership and
promoting on-demand access to the automobile. As people got used to aggregators,
they are questioning if they should invest their precious life savings into owning an
automobile, instead they simply hail a cab through their smartphone when they need
one. The Millennial is relooking at the asset ownership paradigm and problems like city
traffic, parking spaces, and maintenance issues only compound the issue.

No one is saying that customers will stop buying cars but Mahindra sees the industry
split on the two polarities of - the Automobile as an Object of Desire, and the Automobile
as an Object of Mobility. Having been hugely successful in the Object of Desire space,
Mahindra is also focusing on the mobility space. This paradigm gets a whole new spin if
we overlay on this the concern for Sustainability where there is a play on both ends; a
Tesla like car in the Object of desire space and a Mahindra E2O on the mobility side, so
today as the rules of the game are being re-written Mahindra is at a strategic cross-
road. It has to build optionality in its business to be able to ace this next challenge and
this case is most definitely that.

India imports crude oil worth over INR. 7 lakh crore every year. Replacing fossil fuel
vehicles with Electric, Ethanol, Bio Diesel and Bio CNG import substitutes could reduce
Indias crude oil import bill and create a pollution free atmosphere. At current oil prices,

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Mahindra War Room 2017 Automotive Business Caselet

this could be a saving of approximately INR. 3.9 Lakh crore per annum by 2030. To
promote this the Government of India announced the Faster Adoption & Manufacturing
of Electric Vehicles (FAME) scheme in 2015 - under this scheme, electric and hybrid
vehicles can gain incentives of up to INR. 29,000 for bikes and INR. 1.38 Lacs for cars
respectively. Also, the Government has set the GST levy for Electric cars at 12%, with
an intention to push its adoption. Inspite of pushing some subsidies for electric vehicles
India has a very different stand on the subsidy angle.

Unlike the Scandinavian countries of Norway and Sweden the Indian government holds
the belief that scale will drive cost economies in India. It sees this industry similar to the
LED revolution where increase in scale brought down costs and thereby accelerated
adoption. So the only avenue for India to grow is through adoption of Electric mass
mobility solutions. Once cost economies are in-place; penetrate into the consumer
ecosystem, which sees lower asset utilizations and hence longer payback periods on
the vehicles.

In May this year, Mahindra piloted an Electric Mass Mobility program in collaboration
with Ola, where over 200 electric vehicles were deployed as Ola Cabs, with a charging
infrastructure of 50 points across 4 strategic locations in Nagpur.

This experiment is watched with keen interest across the automobile industry
worldwide. The Minister of Road Transport, Highways & Shipping Mr. Nitin Gadkari, and
the Chief Minister of Maharashtra, Mr. Devendra Fadnavis flagged of the event and
hailed it as the harbinger of transformational change across India. The Maharashtra

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Mahindra War Room 2017 Automotive Business Caselet

Government has waived the VAT, Road Tax and Registration of all electric vehicles in
the state, in order to hasten the adoption.

So the question everyone is asking is how can this ride sharing model based on
the electric USP be made successful and scalable across India?

In the Ride Sharing space, 3 types of business models exist - the RadioCab
model followed by companies like Ola, the Corporate Lease Model, followed by
companies like Nithyam, and the Self Driving Rental Model, followed by
companies like Zoomcar. Can Mahindra ride a new wave of Electric Mobility in
India, by putting together a Ride Sharing Business Model using only Electric
Cars? Which of the above models should Mahindra adopt - or should it be a
hybrid of these models, or all of them?

Develop a comprehensive strategy and business model for Mahindra to create a

successful Ride Sharing Business solely using Electric Cars.

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