Davos WEF 2022 | Mahindra Aims Leadership In Electric SUVs With New Launches, Says Anish Shah

Anish Shah: This alliance of climate change CEOs has been set up for India is really to translate commitments into actions. There have been a lot of commitments made over the past few years. There have been actions taken by many companies as well. But it's not about individual action anymore. It's about what we can do collectively to make a real difference. So, while we talk about net zero by 2040 or 2050 Today, technologies don't exist to allow us to get there and if we don't address it collectively, we are not going to get that. So, what this alliance will do is bring together companies that can talk about what actions can we take and that will give examples of that. At Mahindra, what we are doing right now with a set of three things. First is greening ourselves. We have been doing that for the last 15 years and I won't go into specific detail. We have talked about that. But the second one, and more importantly, is playing a role to partner with others to decarbonise our industries and one example I will give there, is the launch of a residential complex, that's a net zero complex, which we just launched two months ago in Bengaluru. It was sold out in three days because consumers are starting to feel the need and the importance for this. But how can we take this and how can we decarbonise the real estate industry. What can we do for the auto industry, which is going to be tougher.

So, this is knowledge sharing, plus we will start getting commitments to outcomes. But let me also say this is one part of the overall picture, what the World Economic Forum has done also in partnership with a couple of others and John Kerry has been a big part of it, is set up First Movers Coalition and Mahindra was a founding member of the First Movers Coalition, and there we are setting specific targets for companies to procure green materials and those are things that we need to fulfil in the next 2-3-4 years, not wait for 2030 or 2040 to do so and similarly that will flow into our alliances for India as well. So, we're going to bring in a large number of companies in India, share information with them we have done 2,000 projects on greening ourselves. We got a return on investment for many of the projects. So, what has worked, why it has worked, how other companies can do it is information we are happy to share with everyone.

So, to start with, we have got about 12 to 13 companies that are part of it, but we will expand on that, it's starting with the companies that are closely associated with the World Economic Forum. But this is one where our government has been very keen to do a lot more as well and I was in a conversation with our Minister of Commerce Piyush Goyal yesterday and he's been looking to push a lot of companies to become a part of it, because India, as you know, has made significant commitments on climate change. We need to work together with the government to be able to deliver on this conference.

It should, but let me break it down. It is complex for certain but it's definitely feasible. So, when we look at real actions, putting in a captive solar plant that provides renewable electricity to a manufacturing plant is something that can actually give us a better return on investment. We have done it in numerous areas.

That is a low hanging fruit but start with that. There are lots of companies who can do that.

From what we see right now because if you look at it, the low hanging fruit is still left out there. It needs to be picked. So, there's a lot of outcomes that we can deliver just by doing that, then you move to the next step of renewable energy, there we got very strong momentum. Then you move to the third step of material greening. That will require a lot more effort and you are right -- investment, new technologies, all of that. So that's where it's not just the India CEO forum, it's also about the First Movers Coalition, because they are actively looking at that and finding ways to seek investment to create the new technologies that will make it happen.

The automobile industry does tend to be worse hit because it takes a long time to recreate a part that doesn't have the right chip because of the testing involved and everything else. So, the lead times are much longer. What this has done for us, is really made us a lot more resilient because our supply chain teams are now looking at various scenarios and planning for various scenarios and it has eased significantly versus what it was during the Covid timeframe. But I continue to expect shocks that will be seen, as the world is a very different place today and we have to be ready for that. So, the resilience that has been built in, by some of these issues we have gone through will see us going forward.

So, let me explain first what happened. A specific plant in Malaysia that's owned by ST Microeletronics, made chips that went into some of the key components that we buy from one of the global suppliers. That plant was shut down because of Covid. So, any automotive supplier around the world who bought from that plant did not have supply for two or three months. So therefore, it's a problem that in a sense hit randomly in one place or the other. What our supply chain teams are doing now is to look at how you can solve for that in advance, there's a higher cost to it and which is why we have been in a mode of just in time inventory. We have been in the mode of single source to lower costs. Now all of these things have been re- looked at and saying how do we plan for eventualities? Looking at various what-if scenarios, and how do we address all of them.

We will see some impact on costs because having what-if scenarios addressed effectively means that you need backups in place, a backup will have some cost and therefore, that's something that companies do have to plan for, and they have got to get much smarter at trying to assess what the optionality plays in a sense? So how much can I put in to buy an option with maybe a low cost? But if that scenario comes in, then I can put in more money to exercise that option. So, I think of it from that financial standpoint.

So, for us, we've actually been in a very fortunate position because we've seen poor blockbuster launches, XUV700 at 50,000 cars in the first three hours. So, we haven't felt that lack of demand, in fact we have seen a lot more demand than we had expected.

So, April numbers we've announced we had 11,000 bookings for our XUV700 and a continuing 11,000 number is a very significant number in this space and that's again, a testament to the vehicles that have been launched. So, for us, therefore we have been in a very fortunate position where we haven't seen any slackening of demand and we are just trying to find a way to ramp up capacity to meet this additional demand because wait times have gone higher and that's something that we're concerned about in terms of meeting customer demand. So, our challenge right now is ramp up faster to meet the demand.

For the XUV700, a year and a half and longer.

So, I think a lot will depend on what happens to commodity prices.

I would say at this stage, we have done what's needed but at the same time we will have to continue monitoring the situation. We are very conscious of the fact that we would like to pass on as little as possible and to the extent we see commodity prices coming down, we will not pass on something in the short term. So, we are conscious of that from the consumer angle. But a lot of it is based on where commodity prices will go in future.

I would say it is difficult to commit anything on that front because there is a very volatile environment out there. So, I would not make any commitment on that front.

If you look at all our key models, XUV700 is picked up as soon as it goes on there the Thar is picked up as soon as it goes off, the Bolero...so all of those and there are plenty of others.

For tractors what we saw, I would first go back to last year, was a tale of two halves. The first half last year was extremely bullish, and we had growth in many months that was 20% higher than the previous year. At that point we had projected more or less a flat year and I remember a question from an analyst once who said, you know, are you sure you are not sort of being too conservative and as we saw the second half, we saw significant decline versus the previous year and there were some months that were 30% lower than the previous year. So, we ended the year sort of more or less flat. April that we saw for the industry was 50% higher than the prior year. Now we're not going to expect this level of demand to continue. Not just comparison versus prior year. Even if you look at the numbers we have reported, our April number was 40,000 tractors that we sold and that compares to roughly 25-26,000 over the last few months, 26,000 something last year. So, numbers wise also it's very good, sequentially is very good. I think a key factor is going to be the monsoon when it comes to rural sentiment around terms of freight, which is what farmers will see what they get versus the inflation on their input costs and that is what will define the tractor industry going forward. So, I think it will moderate obviously from the 50% higher in April. My sense is it will still be a single digit growth for the year. But it's too early to say. I think once we see the impact of these two factors play out in the next two or three months, we will get a sense of where the tractor industry will go this year.

So, I would say a couple of things that matter, first is the plan that we have on EVs is something that gives me a lot of confidence that we will take back leadership in the EV space for SUVs. We have got a very good range of products that will come out that are born electric and therefore will likely see the kind of demand we have seen for recent models with consumers. In terms of any more details, we will have to wait till August because we are doing a big reveal at that point in time in the July-August timeframe and we'll come back with all the details at that point.

So, what we are estimating at this point is by 2030 we will get 20 to 30% EV, there are three factors that will drive it cost of ownership, being able to address range anxiety and infrastructure. So therefore, it's tougher to estimate it at a given point in time, two years or three years or four years from now, because a lot will depend on how all of those, we are playing in. We are getting going to get a much better set of EVs in India from all manufacturers and that will start creating a demand for it from the consumer standpoint. But the consumer will ask these questions. Am I paying a lot more? Do I have enough range? Can I charge it easily somewhere else and the faster we can develop the ecosystem to do that, the faster we will see EV adoption.

We have done that for three wheelers and for four wheelers that will happen as we go forward. But with the Volkswagen deal, I think we have got a very good set of components that will go into a powertrain, that we feel is among the highest quality in the world and that will help us again on our EV journey.

So that agenda is over. We have announced all the exits from C already, over the last three to four quarters the businesses we had said were A, that would have a path to profitability, have been showing good profitability that we have announced as well. So that agenda is over. The 18% RoE has been on track faster than we had expected. We had talked about 18% in three years, but we'd be there much faster than that, based on the results we have seen in the last three quarters. So, from all those perspectives, we feel very good. The agenda now for us is growth, accelerate growth and scale our businesses.

This is something first I would say is we are a federation of companies and the difference between a federation and a conglomerate is the freedom is given to the companies and the ability for the companies to start leveraging the parent brand to scale up much faster. So, the businesses we have today are very well positioned in their industries. What we have to do is find a way to scale them at a much more rapid pace. If we can leverage the Mahindra brand in a much bigger way, the talent that will move across the group, the synergies that we have, that allows these businesses to grow much faster. Take for example a real estate business. If you look at Mahindra real estate business, it generates a lot of trust for consumers, and we need to do more to scale it up. But, the ability or the real estate business will have as part of the Mahindra group to scale, is far greater than if it's an independent business on its own and there are many other examples I can give. So, for us right now is a very sharp focus on accelerating growth across these businesses and that's where the power of a federation really lies.

So, I would look at it as a strategy person in the following ways. The first question is, what is our right to win in every industry that we are in and how can we enhance that by leveraging synergies across the group. The second question is how we can create more value by scaling these businesses and that's really the set of questions to answer. Sructuring it, in a sense comes after that and I know there's been a lot of speculation on how we structure etc.

Because there have been a lot of folks saying that we are spinning off the tractor business, we are not spinning off the tractor business.

If we can create more shareholder value by creating a stronger right to win for those businesses. That's what our investors are interested in.

But if you have an auto company that has created a set of companies that have created a lot more value, then as an investor that's actually a positive.

Correct.