Davos WEF 2022 | Mahindra's Anish Shah Says There Will Be A Cost To Reconfiguring Supply Chains

The chip shortage will continue to impact the auto industry but will make Mahindra & Mahindra Ltd.'s supply chain resilient, according to Anish Shah. That, however, will come at a cost.

The automobile industry does tend to be worst-hit because it takes time to recreate an unavailable part, the managing director of Mahindra Group told BQ Prime’s Menaka Doshi on the sidelines of the World Economic Forum summit at Davos.

“This has made us a lot more resilient, because our supply-chain teams are now planning for various scenarios. The challenges have eased significantly since Covid, but we continue to expect shocks.”

The company, he said, is now looking at solving it. “[But] There’s a higher cost to it. We’ve been in a mode of just-in-time inventory, moving from single source to lower cost and planning for eventualities.”

Having back-ups, Shah said, would have an impact on the company’s costs. Which is why, the company is opting to go for an “optionality play”. “We’re looking at how much can we put in to buy an option which may be low-cost, but if a scenario comes in, we can put in more money to exercise that option.”

The automaker, Shah said, has not felt a lack in demand. “In fact, we’re seeing a lot more demand than we expected actually.”

That’s evident from the bookings for its sport utility vehicle—XUV700. “We had 11,000 bookings for XUV700 [only in April]. We’re trying to find a way to ramp up capacity because wait times have gone higher. For the XUV, it’s about 18 months.”

On potential price hikes, Shah said the company has done what it needs to for the time being, but it will have to “continue monitoring, based on where commodity prices are going.” “It’s difficult to commit on upcoming price hikes right now.”

M&M’s plans, Shah said, give him confidence that it will “take back leadership in the electric vehicle space for SUVs”.

“We have a good range of products in the space that will come out. They are born electric and therefore will likely see the kind of demand we’ve seen for our other models.”

The company plans on doing a big reveal in July-August.

Shah also said the company is forecasting see a 20-30% contribution by EVs to its top line by 2030. “The uptake will depend on three factors—cost of ownership, addressing range anxiety and infrastructure.”

The group’s pruning of businesses, which Shah announced last year while taking over as its MD, is mostly complete.

The company had listed out three classifications of its entities—category A were businesses with a path to 18% return-on-investment, category B were businesses where return ratios needed to be improved, and C were businesses where there was no rationale for the group to be invested in.

That agenda, Shah said, is over. “We have announced all exits from C already. Over the last three-four quarters, A businesses have been showing good profitability as well. Our agenda now is growth.”

Would growth and valuation be easier to come by if M&M was to become a pure play auto company with holdings in other group companies, from tech to real estate, held by a separate entity?

According to Shah, that is not under consideration as Mahindra Group is a federation, not a conglomerate. “The difference is about the freedom given to the companies and the ability of the companies to start leveraging the parent brand to scale up faster. The businesses we have today are well positioned in their industries. What we have to do is find a way to scale them at a much more rapid pace.”

Watch the full interview here:

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