JSW MG Motor’s innovative Battery-as-a-Service threatens to create major disruption in the Indian electric car market by reducing the upfront price of an EV car by around 40%.
29 Sep 2024 | 1159 Views | By Prerna Lidhoo
As electric vehicles (EVs) begin to capture the imagination of Indian car buyers, automakers are faced with a critical challenge: how to make EVs more affordable and practical in a cost-sensitive market. One potential solution is the Battery-as-a-Service (BaaS) model, which separates the cost of the battery from the vehicle, ...
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As electric vehicles (EVs) begin to capture the imagination of Indian car buyers, automakers are faced with a critical challenge: how to make EVs more affordable and practical in a cost-sensitive market. One potential solution is the Battery-as-a-Service (BaaS) model, which separates the cost of the battery from the vehicle, allowing consumers to pay for battery usage on a subscription basis or per kilometre driven. It is in this context that JSW MG Motor has become the first major car brand in India to offer battery as a service; but will it work?
In conventional EVs, the battery is a core component, often accounting for a large share of the vehicle's price. The BaaS model changes this dynamic by allowing buyers to own the car without purchasing the battery outright. One of the primary barriers to EV adoption in India is the high purchase price, with the battery alone accounting for around 30-40% of the total cost.
For budget-conscious Indian consumers, BaaS can make electric vehicles more affordable by significantly lowering the upfront cost, as buyers don’t need to purchase the expensive battery outright. This is how, by separating the battery cost from the vehicle, MG Motor was able to price its latest launch the Windsor EV at Rs 9.99 lakh and undercut primary rival Tata Punch EV. The MG Windsor also comes with a lifetime warranty on the battery for customers and a 60% assured buyback value after three years for those who buy a three-year maintenance plan with the car.
“For a Rs 9 lakh car, the monthly expenditure including fuel and servicing is around Rs 38,000. In comparison, the Rs 9.99 lakh Windsor EV, with its battery-as-a-service plan, would cost approximately Rs 29,500 in EMI and Rs 6,750 in running costs, totalling about Rs 36,250 per month,” Parth Jindal, director, JSW MG Motor India explains. He added that the company wants to bust the myth that EVs are expensive. “With BaaS, we have managed to reduce the cost of acquisition of an EV lower than an ICE vehicle. BaaS has the power to increase EV adoption,” he adds.
This, experts point out, eliminates concerns about expensive battery replacements, while also allowing customers to upgrade to newer battery technology as and when it becomes available.
Puneet Gupta, Director, India and ASEAN Automotive Market, S&P Global Mobility, said the strategy seems to be paying off for JSW MG Motor. "The company is seeing impressive booking numbers,” he said, calling it a ‘masterstroke’ that showcases their foresight based on their global experience. He said other players are likely to adopt the strategy as well.
"Such innovative concepts will help consumers to make a smoother transition from petrol, as powertrain pluralism is already creating a lot of confusion in the minds of customers," he added.
MG Motor, which reported a 52% surge in EV sales during the first seven months of the year, is targeting more than half of its total sales to come from EVs after the launch of the Windsor EV. The first owner also enjoys the added perk of free charging for one year at any of MG’s e-Hubs, significantly lowering the running costs to just the battery subscription fee during this period. Without this benefit, charging costs typically range from Rs 8-10 per kWh for slow or home charging, and up to Rs 22 per kWh at fast-charging stations.
The company's Chief Business Officer, Satinder Singh Bajwa explains that providing BaaS has reduced the acquisition cost of the car significantly. “The customer can take the battery on rental and pay as he/she drives, and the rental cost of the battery is Rs 3.5/km.
With the help of connected car features, the total number of kilometres travelled will be calculated every month, and the customer will have to pay the amount to the financiers. On average, the monthly running cost should be more affordable than an ICE vehicle," he said.
“When purchasing the MG Windsor EV, you're entering into two separate agreements: one for the cost of the vehicle itself (which can be financed through EMI), and another for a battery lease, where you pay for the battery usage on a subscription basis,” Bajwa said.
Battery longevity is another concern EV buyers have. The prospect of battery degradation over time and the high cost of replacement can deter potential buyers. Under the BaaS model, these concerns are also alleviated since customers do not own the battery and can swap to a fresh one whenever needed.
If the base usage is 1,500 km per month, the customer will be paying Rs. 5,250/month to use the battery of the Windsor EV, making the annual battery rental expense Rs 63,000. If the customer uses the EV for more than 1,500 km a month, they have to pay Rs 3.5 for every kilometre.
This is excluding the cost of charging, which is an additional expense. Bajwa added that finance providers, including Bajaj Finance Ltd and Hero FinCorp, have partnered with MG to provide the BaaS facility. Financing options include EMI plans with different terms and interest rates depending on the finance provider. Also, there will be an option to foreclose or exit the BaaS program before the completion of the tenure, Bajwa adds.
Consumer Skepticism
BaaS is a relatively new concept in India, and Indian consumers are traditionally more inclined to own their assets outright, including the battery. Convincing buyers to adopt a subscription-based service for something as critical as their vehicle's battery may face resistance. Moreover, concerns over the long-term costs of battery subscriptions could discourage adoption, as consumers may perceive the model as an additional financial burden over time.
Another key question remains: what happens to the resale value of a vehicle when its most vital component—the battery—isn't included? This ambiguity has raised concerns about long-term value and has been a stumbling block for wider adoption globally.
In China, though, BaaS is a fairly successful model. EV car startup NIO, for example, allows customers to purchase vehicles without the battery and opt for a battery subscription plan, paying a monthly fee. Batteries can be swapped at NIO Power Swap Stations in a few minutes.
However, the model hasn’t seen much success in the western world. Renault, in Europe, had introduced a version of the BaaS model with its Zoe EV. Customers could buy the car without the battery and lease the battery separately, paying based on usage but Renault had to phase out this model in some regions.
MG’s parent company SAIC, too, introduced budget-friendly electric vehicles like the Baojun E100 and E200 through a joint venture between SAIC, General Motors, and Liuzhou. While the primary focus was on affordable EVs, the company is working on battery leasing and swapping to further lower the cost of EV adoption for consumers.
Globally, some users have criticized the ongoing subscription fees associated with BaaS, arguing that over time, these fees could outweigh the benefits of reduced upfront costs. The monthly payments can be seen as an additional burden, especially in regions where vehicle ownership costs are already high.
The challenge for India, however, remains that since India is still at a very nascent stage of EV adoption, getting used to BaaS will take time. While challenges around battery swapping infrastructure, resale value and consumer education need to be addressed for the model to thrive, BaaS has the potential to become a game-changer for JSW MG Motor in the Indian market.