M&M wants to merge EV tech arm with itself. Confusing.

As per newspaper report, M&M is seeking approval from National Company Law Tribunal for a merger of Mahindra Electric Mobility Ltd (MEML) with itself.

Rationale given

Consolidation of the complete value chain of Electric Vehicle (EV) development, manufacturing and sales.

  • MEML has expertise in EV technology while M&M has expertise in automotive design, engineering and manufacturing, sourcing network and sales, marketing & service channels.
  • M&M has significant plans for EVs and hence consolidation is important for a greater focus, economies and lower funding costs.

Next steps for the proposed merger

M&M will be holding a shareholders meeting in August 2022 to seek the requisite approval for the merger.

My take on the proposal

Prima facie it’s confusing.

Recently, in fact there were rumours of M&M exploring value unlocking by demerging different businesses including EVs and that did make sense given the recent industry trends (e.g., Tata’s separation of EVs).

With that background, this step of consolidation by M&M seems counter intuitive.

At the cost of speculation, this is what I believe is happening –

  • Subject consolidation is only a short term immediate step targeted towards something specific (that I have no clue about).
  • M&M is on the verge of launching EVs, though not being sure about the overall potential. It’s other products however continue to do very well and hence it might make sense to use those to cross subsidise the EV endeavours.
  • Parallely keep a close watch on the emerging situation in the EV segment, keep talking to the external investors and go for the big bang demerger at the right time.
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