Mahindra and Mahindra Ltd introduced its four-seater e2o compact electric car on Monday, the first to be developed by it after the purchase of electric vehicle maker Reva Electric Car Co. in 2010.

Mahindra expects to sell as many as 500 units of the car per month, which is priced at Rs.5.96 lakh in Delhi. Initially, the car will only be available in Delhi, Chandigarh, Ahmedabad, Mumbai, Pune, Kochi, Hyderabad and Bangalore. The Delhi price is likely to be the lowest because of a 29% state government tax subsidy. Karnataka and Maharashtra governments also provide a similar subsidy, but prices in other cities could be as high as Rs.8 lakh. Mahindra invested Rs.100 crore in the project.

“Not in the West, but the tipping point for electric vehicles will come in countries like India because of the population pressure. It will be niche but not fanciful and in India, you can make these bets in a much more economical way because the cost of innovation is low,” said Anand Mahindra, chairman and managing director of Mahindra and Mahindra.

Outside India, Nissan Motor Co. Ltd’s Leaf and General Motor Co.’s Chevrolet Volt have failed to attract enough customers because of high vehicle costs.

Mahindra stopped selling its two-seater electric car Reva after sales dropped to just one unit a month after subsidies provided by the ministry of new and renewable energy ended last year.

Under the subsidy scheme announced in November 2010, the government set up a Rs.95-crore corpus to provide incentives of as much as 20% on ex-factory prices of vehicles, subject to a maximum limit. The cap on the incentive stood at Rs.4,000 for low-speed electric two-wheelers, Rs.5,000 for high-speed electric two-wheelers and Rs.1 lakh for electric cars. Under the programme, the manufacturer would pass on the benefits to customers, while claiming a refund from the government later.

Mahindra said the operating cost of the e2o is 50 paise per km compared with Rs.5-6 per km for a petrol car. If a customer drives an average of 1,200 km every month, the saving would amount to Rs.75,000 a year, said Pawan Goenka, chairman, Mahindra Reva Electric Vehicles Pvt. Ltd.

“We have to count on a bit of desire to buy electric vehicles from the people and one has to start first – either the infrastructure comes first or the cars. In a way, we are the first and if it takes off, we’ll have an advantage over others,” he said.

Mahindra Reva sold 4,700 units of the previous Reva model – 1,500 units in India and the rest overseas.

Mahindra may still need incentives from the government to boost sales of e2o model.

“If the incentives, as outlined by the government under the National Electric Mobility Mission Plan, had come through, it would have given a push to sales of electric vehicles,” Anand Mahindra said.

To make such vehicles popular, the central government had proposed to offer subsidies to customers under the National Electric Mobility Mission Plan. The initiative was first announced in the February 2011 budget. It was formally unveiled by Prime Minister Manmohan Singh in January this year, but the final contours of the scheme are still awaited.

To reduce dependence on fossil fuels, India plans to spend at least Rs.22,500 crore over the next eight years to promote electric and hybrid vehicles. Of this the government will provide Rs.13,000- Rs.14,000 crore, and the remaining amount will be invested by the auto industry in research and development, according to the national mission plan.

India hopes to have 7 million electric vehicles on the roads by 2020, according to a previously released statement of the government.

Mint on 3 January reported that the government was planning to provide subsidies of up to Rs.1.5 lakh on electric cars and Rs.50,000 on electric two-wheelers. While the planned subsidies are yet to be implemented, Delhi chief minister Sheila Dixit said the state government would offer additional incentives to women buyers. She did not give details.