Why did Maini give control of Reva Motors to M&M

The early part of Chetan Maini’s rise as India’s fabled electric-car maker was supported, in part, by two companies – Detroit’s General Motors and Silicon Valley VC fund Draper Fisher Jurvetson (DFJ).

As a mechanical engineering student at the University of Michigan in 1991, Maini led a team in a competition to build a solar-powered car. Maini won the top prize that was sponsored by GM. That opened the doors for him to visit GM’s car plants during his vacations and learn commercial car making.

Almost two decades later, he met GM India’s president and managing director Karl Slym at Bangalore’s Cubbon park, took him for a spin in a Chevrolet Spark that had been fitted with Reva’s electric power train, and clinched a strategic alliance. The tie-up, the first in which an Indian company would provide technology to one of America’s largest car makers, forced the world to take note of Maini.

Similarly, Maini has known legendary Silicon Valley VC Tim Draper, from his youth. He had made an enthusiastic pitch for an investment from DFJ in his early days as an entrepreneur. At that time, Draper, whose grandfather was the Valley’s first venture capitalist, had already invested in and profited from legendary companies like Hotmail, and Skype. Draper didn’t invest in Reva right away.
Maini went ahead and floated Reva in the mid-nineties and launched the first electric car by the same name in 2001, but he needed more capital to grow. In late 2006, Draper, along with the Global Environment Fund, eventually invested $20 million in Reva Motors in late 2006. That took Reva to the top gear.

But now, Maini has lost ties with both his key supporters and has given up control of the company that he so passionately and doggedly built. He will remain on its rolls, as its technology and strategy head and also be on the board of the new joint venture Mahindra Reva, where the Maini family will have two seats. But why did Maini sell out to M&M? And, what role will he find in the new scheme of things in the Mahindra world?

Twenty-four hours after going public with the deal, Maini is sitting at Reva’s factory, a little distance away from Electronics City in South Bangalore. The trigger for the sale, he says, was the recent dramatic developments seen in the electric vehicle (EV) space.

“The business gain I have seen in the past one year is much more than what I have seen in the past 15.” Maini first started noticing the changes at the many EV conferences he would attend. He saw Warren Buffet invest $200 million in an EV company. He saw global majors Bosch and Samsung invest in developing batteries for electric cars for the first time ever. General Motors, pumped in millions to ensure that its EV Volt hit the market as planned, even though its finances were in a desperate state. “At Copenhagen, I saw every CEO making sure that he was driving an electric car,” recalls Maini.
Maini believes the game is now changing. The days of surviving as an innovative, niche and entrepreneurial company or even as a VC-funded firm are over. EV is now mainstream and it is now a space where only big companies could survive. “I didn’t want to have a long-term (capital) limitation,” he says.

He started looking for a big brother who could take Reva to the next level. Reva and M&M have had explored alliance possibilities several times in the past few years. The Maini and the Mahindra families have a warm relationship spanning two generations. “We have been looking at the possibility of doing things at a technology level for several years. But this never took off,” recalls Maini. Things started to move late last year when Anand Mahindra started looking at the EV space.

Six months ago Pawan Goenka, M&M’s president, automotive sector, first saw the NXG, the new electric hatchback from the Reva stable, and he was impressed. The initial conversations were around licensing Reva technology for M&M vehicles. But soon they started talking the buyout language. A few months later, Maini and his elder brother Sandeep met Anand Mahindra. The deal was pretty much closed in that meeting. “The comfort level I got from Anand and his vision helped me get over the emotional hump,” Maini recalls.

But this new alliance came at the expense of two old, and equally cherished relationships.

Hours after Maini and M&M’s Goenka announced the deal to the world, GM India snapped all ties with Reva. “With M&M buying into Reva, we see no particular value in the partnership,” GM India president and MD Karl Slym told the media.Earlier, GM was working overtime to roll out the electric Chevrolet Spark, powered by Reva technology, by the year-end. It was testing 15 prototypes of the EV Spark. Slym has terminated these tests with immediate effect. “We will develop the technology on our own. We will use all options to develop electric cars including our Chinese joint-venture partner SAIC,” he said.

Both GM and Reva have invested a significant amount of time, energy and resources in each other. Maini is distraught at GM’s decision. “We (him and Slym) have a very good relationship. We would like to keep this relationship,” he says hopefully. “We were anyway talking to several partners in the technology licensing space. I don’t think this (the M&M deal) would have hurt anything. But I can’t comment on their decision. All I can say is that we respect it,” he adds.

Multiple partners are fairly common in the automotive industry, even more so in the EV space. Maini points out that a lot of partnerships have been formed in the past six months — Tesla and Toyota, Tesla and Mercedes, Suzuki, Mitsubishi — they are all looking at EV technology. They are all non-exclusive partnerships, Maini argues.

This is not the only relationship that he has lost.
Late last year, as Maini began noticing the big changes in the EV space, he realised that Reva will need a lot of capital going forward. He felt that DFJ and Global Environment Fund, his existing investors, may not be able to come up with that kind of money. Getting newer investors would only mean incremental fund infusion. He wanted to make exponential progress. In January this year, Maini took a fairly large loan to buy back the equity holding DFJ and the Global Environment Fund had invested in Reva. The value of this deal has not been disclosed. This equity holding has now been sold to M&M, which will also infuse Rs 45 crore or around $10 million as fresh equity investment. This will give M&M a 55.2% stake in Reva. Maini maintains that the promoter family which owns a 31% share in the new company has not profited from this transaction.

Such instances, where a promoter buys back the investments made by an investor are a rarity. When such buybacks do happen, it is often because of differences between the promoter and the investor.

“We were looking at a larger PE (private equity) fund or a strategic partner. And both of those or either would have wanted a substantial equity holding. So we decided to buy back the existing investors... it was good for all three of us. It may not make sense to you as an outsider,” Maini said in defense of his decision to take a loan to buy out existing investors.

Maini dismisses speculation that he had differences with his investors and insists that he still has a great relationship with DFJ. The Silicon-Valley fund did not respond to repeated phone calls and did not reply to a detailed email questionnaire sent by ET. “I am not aware of any funding issues Reva may have had with DFJ. We stepped in because we thought it was right,” said Mr Goenka.

M&M knows what it takes to acquire entrepreneur-led companies and to take them to the next level. In 2004, it acquired 51% stake in one such firm — Rajkot-based gear manufacturing company — SAR Transmission. “This is nothing new to us,” says Goenka. “M&M always retains the entrepreneurial vision and spirit and also most of the employees. We never force M&M on the new company,” he adds. M&M will also infuse funds that will help Reva scale up capacity ten times in the next five years, Goenka said.

Sulajja F Motwani, managing director, Kinetic Motors, concurs. “Anand and I are good friends,” says Ms Motwani. She sold the two-wheeler business of Kinetic Motors to M&M in November 2008. “The transition process has been smooth. There have been no conflicts of interests. The R&D and the operating team still functions from the Kinetic campus,” she adds.

After Kinetic sold the two-wheeler assets to M&M, a new company was formed and the Kinetic group retains 20% stake in it, just like the Mainis will retain 31% in Reva. “We were clear that we did not want to be involved in the day-to-day management of the company and did not want to report to another management,” she adds. Post M&M’s entry, the two wheeler business volumes have grown to an average 10,000 to 12,000 units a month from as low as 2000-3000.
Maini will now walk the road Sulajja has just travelled. It won’t be easy. He has been very hands on in running Reva, not just in the board room but also in the shop floor. He would often spend time at the factory working on the cars there. “My wife hated it that I’d go back and throw my ruined shirt because I forgot to wear a jacket while working on a car,” he recalls. Even though his designation is vice chairman and CTO, Maini admits he was running the business on a day-to-day basis. That won’t be the case anymore. It’s over to the Mahindras now.

General Motors ended partnership with Indian electric car company Reva

Some statements

GM India vice-president P Balendran Statement

GM India vice-president P Balendran has expressed that they may not continue with the Spark E program with Reva after the development and may pursue their own electric vehicle program.

M&M president Pawan Goenka

M&M president Pawan Goenka expressed that GM can their own decision and they have no problem with GM continuing with the partnership with Reva

Reva Chandramouli, president of sales statements

R Chandramouli, president of sales and marketing, Reva, “The GM project is important and we are open to licensing agreement with the company. But all depends on what they want

At last General Motors has ended a partnership with Indian firm Reva to produce electric cars and will now develop the vehicle in its home town of Detroit, the head of its Indian operations said on Thursday.

The announcement follows Mahindra & Mahindra's deal on Wednesday to acquire a 55 percent stake in Reva Electric Car Company.

GM India, which had originally planned to launch an electric version of the Chevrolet Spark, will now showcase the hybrid electric vehicle Chevrolet Volt in the fourth quarter of 2010, after its global launch in November, Karl Slym said. He did not give a time frame for the introduction of full-fledged electric vehicles in the Indian market. Slym said the decision to end the agreement with Reva was taken around two months ago as GM had a parallel programme to develop electric vehicles globally.