By 26 May, 2010

Automobile major Mahindra and Mahindra (M&M) has acquired 55.2% stake in electric car manufacturer REVA electric Car Company--a joint venture between the Maini Group and California-based AEV LLC--through a combination of equity purchase from the promoters and a fresh capital infusion of Rs 45 crore ($10 million) into the company. The Bangalore-based REVA will be renamed Mahindra REVA Electric Vehicle Co Ltd. 

VCCircle first broke this story on the possible change in ownership at Reva on May 17. Pawan Goenka, president automotive sector and farm equipment sector, M&M, will be the chairman of the new company while Chetan Maini, promoter of Reva, will be its chief of technology and strategy. REVA currently sells its electric car in 24 countries and has sold about 3,500 vehicles globally till date.

The Maini Group-led company is backed by venture funds Global Environment Fund (GEF) and Draper Fisher Jurvetson (DFJ), who together hold a large minority stake, estimated at around 47%, after having invested $10 million each.  The promoters of Reva are the Maini Group, which also runs auto component businesses, and California-based AEV LLC. The new board of Mahindra Reva will have five nominees from M&M, two from Reva's founder the Maini family and one from California-based AEV LLC, Reva's co-founder.

Goenka said, "This is a key strategic acquisition for Mahindra in its march towards sustainable mobility. Mahindra and REVA bring together complementary strengths. With Mahindra's vehicle engineering expertise, global distribution network, sourcing clout and financing support, REVA's vehicles have a potential to significantly gain in market penetration." 

Chetan Maini said, "The EV market is poised to grow significantly and we conclude that in order to seize the opportunity, we needed the resources and experience of a major automotive manufacturer."

Vaishali Jajoo, Auto Analyst, Angel broking, said, ""There is tremendous growing popularity for the electronic/green technology vehicles in Europe and the US and through the Reva buyout, M&M can gain a better position abroad in electronic vehicles segment. Right now in India, there are not many electronics cars that are sold. However, 4-5 years down the line, there would be more potential in the sector in India. In that sense, in the long-run, M&M can gain an upperhand in the Indian electronic vehicle market."

Although transport sector globally has been the chief contributor to environmental pollution, the adoption of greener options by consumers has not been very proactive in terms of sales numbers. Take, for instance, this study by Deloitte Consulting, as reported by Reuters recently, which says that high cost and limited performance will keep the number of electric cars at only 2-5% of the US market a decade from now. “The auto purchase decision in the United States is very much a brand purchase. People tend to affiliate with automotive brands," said Robert Hill of Deloitte, in the report.

The firm, which was targeting a breakeven in the current fiscal, had, in a landmark deal, signed up with General Motors to electrify the entire Spark range of vehicles for the Indian market. Besides, Reva was also in advanced stages of talks with US-based Bannon Auto to manufacture Reva locally as part of its licensed manufacturing business. Reva also recently entered into an agreement with Northern Lights Energy (NLE), an Icelandic investment company, to market its products in Iceland. As part of the agreement, NLE will have an exclusive distribution right for the newly launched model of Reva car – NXR.

The company is currently in the midst of putting together its new plant, which should be operational by the end of the current fiscal, with a capacity of 30,000 vehicles at an investment of Rs 30 crore. It is also preparing to launch NXR, the family car platform, sometime this year.

The M&M scrip touched intra-day high of Rs 538 is being traded at Rs 529 around noon.

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