M&M faces $290 millon lawsuit by Reva ally in New York

Mahindra & Mahindra’s (M&M) plans to launch the electric car Reva in the US faces delay as its partner in New York, Bannon Automotive. moved court seeking $290 million (over Rs1,300 crore) in financial damages on alleged breach of contract.

Bannon said it was forced to file a lawsuit after it emerged that M&M planned to launch the electric vehicle on its own or through some third player, in violation of the agreement which made it the sole manufacturer and distributor of Reva Electric Car in the US and Caribbean.

“We have worked very closely with Reva for 24 months and we reached a point when we realised the agreement we had with them was not being honoured. So taking the legal recourse was the only option left,” Bannon CEO Paul Wimer, told DNA.

Wimer said the lawsuit would stall Mahindra’s plan of an early launch of Reva in the US. “We have asked for a permanent injunction,” he said.

M&M bought a 55% stake in the Bangalore-based Reva Electric Car Company in May this year and renamed the company Mahindra Reva Electric Vehicle Co.

M&M said it is yet to receive the legal notice and would respond as and when it hears from its US partner.

R Chandramouli, Mahindra Reva’s chief of operations, said in an email response, “Mahindra Reva has just learned of this lawsuit. We have not received any formal communication from Bannon or its lawyers. Once we receive it and are able to review the matter, we will respond appropriately.”

The suit comes as double whammy for M&M, which has been unable to launch its pick-up truck in North America after a dealer, Global Vehicles, moved to court in June this year.

Mahindra was to launch the truck, based on its sports utility vehicle Scorpio, but inordinate delays forced the automaker’s exclusive American distributor slap a lawsuit against the company.

In October 2009, Bannon and Reva signed a memorandum of understanding under which both companies were to form a joint venture that would manufacture and sell the car in the US.

Reva was to hold a 52.5% equity stake and was to carry out the design and engineering work, while Bannon with a 47.5% equity stake was to raise the initial capitalisation for the joint venture.

Under the terms of the deal, Bannon was to assemble Reva’s three-door plug-in electric hatchback at its plant near Syracuse, New York.

According to Bannon, in addition to securing $8 million from the state of New York, the company also got $6.7 million in grants and other incentives for setting up the plant.

The company claims it is also in “final stages of securing a $1.5 million grant from the New York Star Energy Research and Development Authority”.

US is the world’s largest market for electric vehicles.

“This market is expected to grow between 15% and 20% by 2020, depending on the incentives provided by the government. It is not substantial but players like General Motors and Nissan have already entered this segment hoping to grab the share of growing market,” said Vikas Sehgal, partner at Booz & Co, the Chicago-based global consultant.
Reva is currently marketing its products in 24 countries across Europe, Asia and Central and South America.

Since its launch in 2001, Reva has brought to market at least two vehicles, Reva-i and Reva L-ion and sold worldwide. It is in the process of bringing to market NXG (a two seater) and NXR (two seater) electric vehicles. The NXR can travel up to 120 miles on a single charge.