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Asia300

Slapped with 43% GST, Mahindra may pull brakes on hybrids

Government signals shift to electric vehicles

MUMBAI -- Mahindra & Mahindra, a champion of green vehicles in India, is likely to phase out its hybrid portfolio, in anticipation of a drop in demand for such cars after a 43% goods and services tax was slapped on them.

The company said it would keep investing in new hybrid technology such as the 48-volt mild hybrid, which is popular in Europe, but launches in the segment will depend on whether the government amends GST.

Mahindra & Mahindra Managing Director Pawan Goenka told reporters Thursday that the company had asked the government to reconsider the tax on hybrid vehicles without any success.

"We don't think that if we were too pass on the full GST increase to the customer, we will be able to sell any hybrid vehicles. Therefore, for the time being we have passed on a minor increase," Goenka said. "We will very soon be coming out with a non-hybrid version of Scorpio and then we will see what kind of demand we have for hybrid and hybrid might get phased out."

Hybrid models now attract a 43% tax, up substantially from 30.3% before.

Some of the company's popular sports vehicles such as Scorpio, KUV1OO, TUV 3OO, and XUV 5OO use micro-hybrid technology.

After the launch of the GST on July 1, the country's largest sports vehicle maker slashed prices across the board by an average of 7%, but hiked prices of hybrid cars marginally.

Mahindra & Mahindra is not alone. Maruti Suzuki, which makes the hybrid Ciaz and Ertiga, too increased prices of these models by up to 100,000 rupee ($1,545) owing to the "withdrawal of tax concessions."

According to media reports, Toyota Kirloskar Motor's Camry and Prius hybrids cars too will cost up to 500,000 rupees more.

IHS Automotive principal analyst Anil Sharma reckons that more automakers may follow Mahindra & Mahindra and rethink their hybrid strategy.

"Hybrid cars are going to become more expensive now," said Sharma. "I don't think automakers will have any incentive to dedicate dealer space to less competitive vehicles. Even if some automakers want to go ahead and invest, the return will be very small. However, the clarity on electric vehicles (tax) may give automakers an incentive to ditch hybrids and go for electric vehicles."

The government's move to increase taxes on hybrid cars is being read by experts as clear indication that it wants to shift focus to electric cars. India has set for itself an "ambitious" target to make electricity the main fuel for all its vehicles by 2030 to cut oil imports and pollution.

Mahindra & Mahindra is the only automaker to have announced a strategy for electric cars. It said in May that it plans to double output capacity for electric vehicles within three months from the current 400--500 it produces monthly. Sales so far for the company have not been very encouraging in the domestic market, forcing the company to seek opportunities in America and Europe.

Meanwhile, U.S.-based electric car maker Tesla is "in discussions with the government of India requesting temporary relief on import penalties/restrictions until a local factory is built," founder and Chief Executive Elon Musk wrote on Twitter.

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