Will Sajjan Jindal’s EV gamble pay off?

Sajjan Jindal, the chairman of JSW Group. EVs represent a disruptive trend in the automobile industry and provide a level playing field for a new entrant, he believes.
Sajjan Jindal, the chairman of JSW Group. EVs represent a disruptive trend in the automobile industry and provide a level playing field for a new entrant, he believes.


  • JSW Group has finally entered the auto sector through its tie-up with China’s SAIC. But the road ahead will be rough

NEW DELHI : JSW Group chairman Sajjan Jindal has always dreamt of making a car. Nevertheless, in August 2017, when the group announced its intention to enter the electric passenger vehicle market, it took everybody by surprise. The electric vehicle (EV) segment was at a very nascent stage at that time and none of the mass market carmakers had anything worthwhile to offer. But Jindal was dreaming big.

Under the aegis of JSW Energy, he earmarked an investment of up to $624 million to realize his automotive ambitions, with the aim of launching the company’s first vehicle by 2020. JSW even signed memoranda of understanding (MoUs) with Maharashtra and Gujarat for manufacturing units.

However, given that the group had no prior experience in automotive manufacturing, shareholders felt this was too big a leap into the unknown, and into an industry that was still evolving. Jindal decided to back off and, within two years, the plans were shelved.

“Given the higher-than-anticipated uncertainties associated with the EV business, the board has, after careful evaluation, decided not to pursue this business and maintain capital cushion for growth opportunities in power and other related businesses," JSW Energy had said in a notification to stock exchanges on 29 March 2019.

But the engineer in Jindal—he has a degree in mechanical engineering from Ramaiah Institute of Technology in Bengaluru—had not given up on his dream to make a car. On top of that, the businessman in him had identified a blind spot in the automotive industry to exploit.

“EVs represent a disruptive trend in the automobile industry and provide a level playing field for a new entrant such as JSW Energy since incumbents, saddled with their legacy business, are stripped of any advantage," he wrote in his annual message to shareholders in 2018.

As the pandemic subsided and EV sales began to take off, Jindal smelt blood again and revived the plan. This time, the group decided to structure it through a privately held group firm and not a publicly listed company such as JSW Energy or Steel. On 30 November, after months of painstaking negotiations, the Group finally closed the deal with China’s biggest vehicle maker, SAIC Motor, for a 35% stake in its Indian subsidiary, MG Motor. The tie-up gives Jindal a toehold in India’s growing passenger vehicle industry, while MG Motor gets some much needed capital to expand and scale up.

Sounds like a win-win? There are still many creases to be ironed out in the finer details of the deal, including the makeup of the board and other prickly issues such as the terms of technology transfer. In the past, Jindal has admitted he knows little about the automotive business but is eager to learn and adapt. Can he pull it off?

The big EV opportunity

The JSW Group, one of the largest business conglomerates in the country, has annual revenues of $23 billion. JSW Steel, its flagship, is India’s largest steelmaker, and Jindal certainly has the balance sheet muscle to diversify. Past diversifications into cement and paints have worked well but it is still unprecedented for a domestic business conglomerate to venture into the consumer facing passenger vehicle business.

It’s a diversification fraught with risks. The domestic passenger vehicle industry is notorious for its hostility to newcomers. Of the 16 players in the industry, the top six have cornered over 90% of the sales, and barring Kia Motors, there has been no new member in this coterie for decades. Not even global giants Renault Nissan, Volkswagen Group and Fiat Chrysler could break in. Indeed, American behemoths General Motors and Ford exited the country after unsuccessfully trying to crack the market for two decades.

The reset that electrification heralds does give newcomers a shot at success. For instance, in the two- and three-wheeler market, a host of startups has mushroomed, including Ola, Ather and Altigreen. But no one has ventured into the tougher passenger vehicle segment so far.

“In India, we don’t have a high-quality EV right now and the global majors are coming out with very (good) quality cars, therefore, that’s the segment where JSW Group can play an interesting role," Jindal told CNBCTV18 at Davos in January 2023.

“I want to bring a product Indians can feel proud of. And we will export it out of India to Europe and the most developed markets in the world. That is the idea. One can say it’s difficult to do a car project in India and export to Europe but that is my idea."

That is easier said than done but the opportunity is huge. While India is yet to officially spell out its electrification targets for 2030, NITI Aayog, the government’s primary think tank, has predicted that 70% of all commercial cars, 30% of private cars, 40% of buses, and 80% of two-wheeler (2W) and three-wheeler (3W) sales will be electric by the end of this decade.

According to Crisil, this amounts to an opportunity worth 22,500-27,500 crore for manufacturing companies in the passenger vehicle industry in the next five years alone.

“It is an opportunity for both existing and new industry participants to innovate and capitalize," says Jagannarayan Padmanabhan, director of Crisil.

With the other big business houses focused on sectors elsewhere, JSW believes it can play a role here.

“I feel that over the next seven to 10 years, electric vehicles are going to be the major mobility driver in the country. We want to be there when this idea or when this opportunity arises," Jindal said in Davos in January.

While the Group has limited experience in the automotive space, it is one of the largest domestic suppliers of auto-grade steel to carmakers in the country. Jindal has sought to highlight other allied areas where there are synergies.

“As part of our renewable industry journey, we are looking to manufacture batteries in India. That is a very large area and we are pretty organized to be in that sector," Jindal said on the sidelines of the World Entrepreneur of The Year–2023 event by Ernst & Young in Monte Carlo. “It is a sector which is up our alley, and we understand that business very well."

“There is no Indian startup in the EV four-wheeler space, so the potential to do something similar to two-wheeler EV OEMs is possible with an Indian JV. However, more will be needed—an after-sales network, price and feature competitiveness, depth and breadth of portfolio, etc—in order to gain market share in the fiercely competitive and price-sensitive market," said Ashim Sharma, senior partner and group head, Nomura Research Institute.

MG's strategy

The joint venture may or may not prove to be the springboard for Jindal’s successful diversification into the automotive business, but at least in the short term, it comes as a huge lifesaver for MG Motor.

The iconic British brand, which is owned by SAIC, entered India in 2017 and launched its first product in 2019. With its focus firmly on sports utility vehicles (SUVs) and EVs, MG hit the ground running and made a success out of its midsize SUV, Hector. The quick start was helped by the acquisition of General Motor’s old factory at Halol. MG was also lucky to have entered the market before bilateral relations between India and China deteriorated in the aftermath of the border clashes, at Galwan, in 2020.

After the border skirmish, India clamped down on investments from China, killing the ambitions of a number of Chinese automotive firms (among others), including Great Wall Motors, Foton and Changan. MG did not remain unscathed; after the initial investment of 4,000 crore, SAIC was lining up a similar corpus for the next round to scale up, but that foreign direct investment (FDI) proposal is now one of many from China awaiting government approval since 2020.

At the same time, like many other Chinese firms, including Xiaomi, Vivo and Oppo, MG has come under the radar of India’s tax sleuths. In November 2022, the income tax department carried out search-and-seizure operations at its corporate office in Gurgaon. This was after the Ministry of Corporate Affairs started probing MG for certain alleged audit deficiencies and invoicing fraud, and asked the top management to explain certain losses in its books of accounts.

With regulatory challenges such as these showing no signs of ebbing, MG realized the futility of waiting for the FDI proposal to come through. Increasingly starved of funds, it changed tack earlier this year and started reaching out to local investors for a strategic stake sale.

There are two parts to the strategy. One is to expand the current factory from 70,000 units to 120,000 units by 2025, more than double sales volumes to 100,000 units, and achieve outright profitability to enhance the company’s attractiveness to domestic investors. The second part is to use the money from the new investors to fund a second plant and expand overall capacity to 300,000 units. During this time, the company plans to launch 4-5 new products, which would see its overall sales skewing towards electric vehicles.

“We will launch 4-5 new cars, mostly EVs. Out of 300,000 cars, 65-75% will be EVs (against 30-35% today). We will also localize technology in India. We will assemble our EV batteries ourselves from next year in Halol, and we will explore technical or JV partnerships to produce EV cells and other critical electric vehicle components," Chaba said in May. “We can even supply other OEMs. Not only this, we feel hydrogen fuel cells will become a viable option in the next two-three years and here, too, we will look for JVs with Indian partners."

For all of this to work, getting investors on board is key and JSW was one of the first at the negotiating table. But while a deal has been clinched, it has not left either party entirely satisfied. MG was looking for a bigger stake sale and capital raise—it needs 5,000 crore for the scaleup. Whereas, with a 35% stake, it is not clear how much control JSW will wield in the boardroom.

MG Motor elevated Chaba as CEO emeritus earlier this year and has not appointed anybody as full-time CEO so far, indicating that an investor’s choice could fill that position. At the same time, JSW has sounded out headhunters to look for a CEO to head its automotive business vertical.

“On paper, there is nothing to not like about MG. Its parent SAIC has proven technology in EVs and, despite its Chinese origins, it has successfully made a name for itself in the domestic market," said a banker, who has seen MG’s pitch to investors. “The biggest unknown is whether the government will remain hostile to Chinese firms. In smartphones, there has been no change in stance but having a big Indian partner may help MG. Hope JSW has received blessings from the authorities before signing the deal."

Sources say the deal also took longer to close as the two parties were not in agreement on the valuation of the company. JSW is reportedly paying around 2,800 crore for the 35% stake, which values MG at around $1 billion ( 8,000 crore). This is lower than the $1.2-1.5 billion valuation that SAIC was seeking till a few months ago. In fact, The Economic Times had reported that it had initially wanted an even higher $8-10 billion valuation for the firm.

Now, after selling 35% to JSW, the Chinese company will still be on the lookout for another investor. There are also plans of an initial public offering by 2028.

“JSW’s entry would help them there," said the banker quoted above. “With one major domestic investor in, it becomes relatively easier to mop up another smaller investor."

The immediate benefit should go to MG Motor, which gets the backing of a prominent domestic manufacturing firm, and further investment on top of the free cash from the deal. In the midterm, JSW might be able to capitalize on the EV business for a green footprint and credits," said Nomura’s Sharma.

But will this be enough for JSW? Jindal has openly voiced his aspiration to launch cars under the JSW brand and it is not clear how that will play out alongside MG. He has also been in talks with other players from China, so the JV with MG is not the only bet he might be counting on. One thing is certain: JSW will have interesting times ahead after gatecrashing into the arena.

Both JSW and MG Motor did not speak to Mint for this story.


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