Electric Cars story for Knowledge @Wharton

Electric Cars in India: Why So Few?
Published: October 08, 2009 in India Knowledge@Wharton

With the rise of environmentalism and the high cost of gasoline, it would seem that the electric car would take off. Not so fast, says Bangalore-based writer Shoba Narayan in this opinion piece. Although companies like the Reva Electric Car Company are advancing the cause and major auto makers are likely to follow suit, Indian consumers need to be convinced they will achieve substantial savings and that there is enough infrastructure in place to support electric vehicles before they will be willing to open their wallets.

India has millions of people to house, power grids to expand and factories to fuel. They all involve hydrocarbons. How, then, is a developing economy to grow sustainably? One answer may lie in a small electric car being manufactured right here in Bangalore.

The Reva Electric Car Company (RECC) just announced a plan to build its second manufacturing unit, which some say will be the largest such facility in the world. Naturally, the new factory will meet LEED (Leadership in Energy and Environmental Design) ratings standards, with rainwater harvesting, solar power and natural ventilation. With a capacity for 30,000 cars, the facility will be operational in two years, according to the company. RECC also plans to develop a larger sedan that will comfortably seat four, compared to its zippy but tiny current model. More importantly, the new Reva L-ion will have a range of 120 kilometers compared to the current model’s 80 kilometers per charge. While the current car battery takes a few hours to charge, the new model will achieve 90% of its charge in an hour using a fast-charge port option. All very good — but why aren’t customers lining up?

I wanted to buy a Reva. My husband and I fit its target customer profile: educated, well-travelled, passionate environmentalists. One morning a couple of years ago, we went to the showroom — just off tony Lavelle Road in Bangalore — to check out the models. Contrary to common belief, these tiny cars are not lightweight. With a solid frame and heavy doors, Reva’s bulky body comforts just as much as it small interior constrains. To my husband, a firm believer of free markets, it all boiled down to numbers: Why weren’t more Revas plying Indian roads? There must be something wrong with the car if more people aren’t buying it, he said. Numbers never lie.

Value Conscious Consumers

The answer, I found out, lies in the axis between economics, politics and old-fashioned marketing. Mohanjit Jolly, executive director of venture capital firm Draper Fisher Jurvetson (DFJ) India moved to Bangalore two years ago. DFJ plans to invest US$75 million in India out of its US$600 million DFJ IX Fund. The company is an early investor in RECC, and Jolly is on its board. I cornered him one morning and asked him the question that had been bugging me: Why didn’t I buy a Reva? In other words, why was the car such a hard sell to Indian consumers?

“India is a very finicky market,” said Jolly. “Often, decisions are made, not based on the overall total cost of ownership but rather the upfront cost of the vehicle.” According to Jolly, the fact that Reva will save them a ton of money in fuel costs is often lost on consumers. “The Indian consumer is extremely value conscious and often equates size with price. So, if another vehicle of equal size is available for a lower upfront price from a known manufacturer, why would he or she buy a Reva?”

Why indeed? My sister-in-law owns a Reva, but for the most pragmatic of reasons. Trained as a driver in the U.K., she wanted a car with automatic gear shift and the Reva fit. She, too, is an environmentalist, which played into the choice but wasn’t the prime motivation. The automatic gear-shift and the car’s inherent stylishness was. I drive her Reva around Bangalore and pretend to be cool.

Several environmentally inclined Indians I know considered the Reva before buying other cars for all the reasons Jolly mentioned and then some. Many in Mumbai live in high-rises without convenient plug points to charge an electric car in their basement parking garage. Mothers wondered if the Reva’s small size would be safe for travelling with babies. Also, what if they ran out of charge while on the highway? Families with live-in grandparents couldn’t fit into the Reva. India’s skewed taxes also added to the problem. Road taxes, fuel surcharges and others led to differential pricing. Chandigarh and Delhi had significant subsidies for electric cars, while Maharashtra had none — so that a Reva that cost under Rs. 3 lakhs in Delhi was sold in Bombay for more than Rs. 4 lakhs. One friend contemplated buying a Reva in Delhi and driving it down to Bombay, but plotting his itinerary to accommodate electric plug points drove him nuts, he said.

RECC’s next model will address most of these issues about comfort, safety, range, speed, carrying capacity, time to charge and others, Jolly says. “To address the price sensitive, value conscious consumer, Reva is coming up with a flexible business model whereby the price of the battery will be removed from the upfront price of the car, and the customer can choose to lease the battery on a monthly basis. That will provide an apples-to-apples comparison in terms of the battery cost versus fuel cost.”

Solar Beginnings

The man behind the Reva is a tall, strapping 39-year-old who was named by Businessweek in 2009 as one of India’s 50 most powerful people. With his goatee and glasses, Chetan Kumar Maini, deputy chairman and chief technological officer (CTO) of RECC looks like a Silicon Valley professor but he is in fact an outdoorsman who rides mountain- and motor-bikes in his spare time. As a child, Maini used to take apart and build cars. He received a Master’s degree in hybrid electric technology from Stanford, but the real “turning point,” he says, happened while he was an undergraduate student at the University of Michigan, when he got involved in a solar car project and subsequent solar car race. His team built and raced a solar car in the U.S. — and, as it happened, came in first. Later that year, in 1990, General Motors sponsored the team to race in the World Solar Challenge in Australia where they came in third. Their vehicle, called “Sunrunner,” beat many of the big American auto companies. The average age of the Sunrunner team: 21. “The fact that we could cross a continent [more than 3000 km] purely on the sun’s energy really got me thinking of the potential of electric vehicle technology, especially in a country like India,” says Maini. “And when I came back to Bangalore that summer and saw the pollution and traffic, it started to dawn on me that getting this kind of technology into places like India was exactly what was needed.”

The Maini Group — Chetan is the youngest of three sons — was already involved in a variety of businesses, from building materials to precision components. The Reva Electric Car Company is Chetan Maini’s brainchild, named after his mother. Reva, appropriately enough, means “one that moves” in Sanskrit. Some say that it means “a new beginning.” According to news reports, ex-U.S. Ambassador Frank Wisner suggested using Maini’s mother’s name because it had the letters “EV” (for “electric vehicle”) in it.

According to Maini, forming the company was happenstance. “A few of us friends talked about building a company in the electric vehicle space. My friends’ father was planning to start a company in California [AEV LLC] based on new technologies and liked our idea, and I started to work for that company. Later, that company and Maini Group joined hands to develop electric vehicles.”

Maini also worked with a friend of his father’s, Lon Bell, the U.S. inventor who is listed on RECC’s site as a company co-founder and member of the board. “Technology and transportation excite me,” says Maini. The fact that EVs provide a solution to mitigate climate change has got me even more involved. This also makes business sense as solutions for climate change and energy security are going to be the challenges for the next decade.”

The Reva is currently being sold in United Kingdom, Italy, Malta, Cyprus, Norway, Spain, Ireland, Japan and Srilanka, and being test marketed in Australia, Switzerland, Germany, Austria and Nepal. Of all the markets, it is popular in Bangalore, London and Oslo, according to Maini.

In Oslo, it is a popular choice for its environmental credentials but also because it gets tax breaks. “However, the main reason for its popularity in Oslo is that in a Reva, you get to drive in the bus lanes, which for commuters means at least an extra half-hour’s sleep every Monday to Friday,” Maini notes. “To nudge motorists’ behavior, you need a combination of environmental credentials and fiscal incentives — the two are definitely needed to kick start the market.”

London has kick-started the market through tax incentives. The Reva is marketed in London under the G-Wiz brand and exempt from the London Congestion Charge. Riders of G-Wiz in London can park and charge for free, which adds to its image as a “cool commuting” car popularized by celebrities and media people. This past April, the UK government also unveiled a plan which gave carbon discounts to Electric Vehicles. It wasn’t negligible, either: 5,000 pounds, to be exact. “Here’s 5,000 pounds. Go buy an electric car,” said British headlines.

Why wasn’t India offering carbon discounts? Why had the Reva sold only 3,000 cars since 2001 to a nation of one billion, with at least one million car owners?

‘For Electric Cars, You Need Electricity’

That question led me to India’s Minister of State for Environment and Forests, Jairam Ramesh. Ramesh is the sort of minister you wouldn’t mind having a drink with. He spent five years in the U.S. without owning a car, and is a huge believer in public transportation. I cold-emailed him asking for an interview. A short while later came the reply: “Sure, give me a number.” Indian netas (politicians) aren’t this responsive. Usually, there are several layers of buffers — peons, bureaucrats, personal assistants. But Ramesh isn’t your average minister. He is, according to bureaucrats, “incorruptible.” So we spoke about sustainability, India and carbon discounts.

Why, I asked, weren’t electric cars popular in India? “For electric cars, you need electricity, yaar,” Ramesh replied, using the casual verbal tic that everyone from corporate CEOs to Mumbai cab drivers use. Yaar means “friend,” but it is the verbal equivalent of, say, “dude.” It is what important people who don’t take themselves too seriously say to inquisitive journalists. Ramesh then proceeded to tell me about fuel cells and hydrogen cars. He wants to make all government vehicles electric. “You know, the government uses a lot of cars and most are gas-spewing Ambassadors,” he said. He wants to get the gas-electric hybrid Toyota Prius into India by January 2010, plans to purchase an electric vehicle (the Tata Indica) for himself soon, and hopes to convert all government vehicles into more sustainable ones. The problem– and I say this with my tongue only partly in my cheek (and certainly I didn’t tell Ramesh this) — is that most politicians and their accompanying entourage won’t fit into a Reva. Certainly, Jayalalithaa, the corpulent erstwhile chief minister (governor) of my home-state, Tamilnadu, won’t. But electric cars aren’t the main thrust of Ramesh’s sustainability solutions; public transport is. The cabinet approved a biofuel policy, he tells me. “But private transport is a recipe for disaster. We need a huge investment in public transport. An urban renewal mission, almost.”

Today, many Indian cities are moving towards public transport. Delhi has a world-class metro and Bangalore is building one. Mumbai has its train system, and second-tier cities are exploring options. But when all is said and done, India is an aspirational developing economy. Owning a car, for many, indicates that they have arrived. The Tata Nano might be an environmental disaster by making cars even more accessible, but it has also (forgive me) electrified the auto world. Even Maini appreciates the Nano for its “innovation in auto engineering.” Ramesh says that the Nano will give “mobility to the masses,” and so it will. “The Nano is a phenomenal achievement by any means,” says DFR’s Jolly. “Quite honestly, it’s a matter of time before most, if not all, vehicles become all electric or hybrids. The Nano, I am sure, will follow that path. I also wouldn’t be surprised if Tata is already working on it, and there have been some rumors about that recently as well.”

No rumor. Tata company’s chairman, Ratan Tata, has, on two occasions spoken about his company’s plans to develop an electric car. At the company’s annual meeting last year, he said that they were developing one. In June 2009, at the Cornell Global Forum on Sustainable Global Enterprise, Tata mentioned that his company’s electric car would be in the market by fall of 2009. Tata’s distribution network would give its electric car an immediate fillip. Mahindra & Mahindra is also planning a four-seater electric car in 2010. Tara Tiny, an EV from India’s Tara International and China’s Aucma, plans to retail at Rs. 99,000 — lower than the Tata Nano. The Ajanta group, which specializes in clock making, also plans to release its low-cost EV — the Oreva Super, priced below Rs. 1 lakh. The Tamilnadu government just alloted 100 acres of land to Bavina, a Chennai-based company that plans to produce 25,000 units in partnership with American electric car specialist, Velozzi SpA.

An Unsure Bet

The key for Reva, according to Jolly, will be to differentiate based on a broader and deeper knowledge of electric vehicles than any company globally. He is biased, of course, being on its board and all, but his view is that the Reva, with its revamped product design and marketing savvy, can make a dent in the minds of the Indian auto customer. “With scale, the cost will also reduce which will make it possible for Reva to provide better value for the money than any of its competitors globally,” he says.

Still, electric vehicles are an unsure bet in India. The average Indian environmentalist is a pastiche of fervid idealism and ruthless pragmatism. What opens wallets, in the end, is demonstrable savings. Solar water heaters, for instance, are a big hit, even among older conservative Indians. My octogenarian uncle just got several solar panels installed in his Bangalore bungalow using infallible logic: “I am 80 now. Even if I live for three more years, the Rs. 500 I save per month in electricity bills is worth this Rs. 15,000 investment.”

Cars cost more than Rs. 15,000, which is part of the problem. The other issue is the tangled Indian bureaucracy with different tax rates for different states. One thing that Ramesh and other government officials could do to help — and I know that this is easier said than done — is streamline auto taxes. Why have different tax structures in different states? With each change in government, policies change. India has no coherent, long-reaching environmental policy that can develop incrementally, regardless of which party is in power. “When we launched in 2001, the taxes for automobiles were doubled,” says Maini. “At one point, the subsidies for alternate energy vehicles were completely removed as the Government had a lot of difficulties in comprehending such an innovative product from India.”

RECC ended up working with multiple agencies, both in India and abroad, on formulating regulations and policies for electric vehicles. Today, some governments are proactive. Delhi, for instance, under Sheila Dixit, has come up with several incentives for customers who buy a Reva. Simply put, buying a Reva in Delhi is Rs. 1.5 lakhs cheaper than anywhere else (where the car retails for Rs. 4.5 lakhs).

Another unresolved concern has to do with infrastructure: plug points for electric vehicles. Ideally, these would be standardized and widely available so that a driver who owns a Tara Tiny or a Reva could charge their cars using the same plug point. RECC is working on rapid recharging stations where a Reva can be driven to what looks like a diesel or petrol pump and get a decent charge in about five to 10 minutes — about the time it takes to fill your car with gas. Charge points are already available in Bangalore’s Garuda Mall and other parking spaces. Over time, dedicated electric vehicle parking spots — which double as charging stations — need to be created.

The bottom line, as Jolly says, is that “people need to see more and more Revas on the road. Once they do, at least the consumer-led issues will be put to rest.”

There is a certain inevitability to the development of electric vehicles. With research on the hydrogen fuel cell, lithium ion batteries and sophisticated hybrids, electric vehicles are part of our collective future. Even General Motors, perceived by many as an aging behemoth “who killed the electric car,” according to a 2006 documentary, is coming up with the Chevrolet Volt which is expected to achieve 230 miles per gallon in the city through a mixture of lithium ion battery and gas. As Jolly says, “Initially, they may be the second- or third- [choice] car for short hops, but eventually as technology gets better and people simply start getting more comfortable with the concept, it will indeed be mainstream, not an exception. And that time is not decades, but years away.”

The challenge for Reva and other EV companies is to stay ahead of the curve with respect to technology. More importantly, they have to coax warring state governments into offering subsidies to dithering customers who will then get off the fence and commit to an electric car. If this happens, it is not just good for the individual car companies involved; it is great for India and indeed, the planet.