India@75: A nation in the making

After years of staying away, Maruti Suzuki is now desperate for electric mobility play

India's largest carmaker has recently announced a staggering spend of Rs10,000 crore toward its electric car strategy, with plans to launch electric vehicles in three years, all of which implies an inevitable shake-up in the country's EV ecosystem

Published: Mar 21, 2022 04:42:19 PM IST
Updated: Mar 23, 2022 02:27:22 PM IST

After years of staying away, Maruti Suzuki is now desperate for electric mobility playKenichi Ayukawa, Managing Director & CEO and Shashank Srivastava, Sr Executive Director Marketing and Sales, Maruti Suzuki at the launch of New Age Baleno at Aero City, New Delhi on February 23, 2022. Photo by Vipin Kumar/Hindustan Times via Getty Images

For a very long time, Maruti Suzuki had been cautious about its electric vehicle plans.
 
Even as rivals such as Tata Motors and Mahindra announced their intention to focus on electric vehicles, and made significant foray into the segment, India’s largest carmaker had maintained a stoic silence over its electric vehicle play. That is perhaps why, rival Tata Motors today control about 75 percent of India’s electric car market, even as Maruti Suzuki remains India’s largest carmaker.
 
All that could possibly change soon. On March 19, the Gurugram-headquartered carmaker finally announced that it will spend a staggering Rs10,000 crore toward its electric car play, with plans to launch its electric vehicles in three years.
 

Under the new plan, Suzuki Motor Corporation's wholly-owned company Suzuki Motor Gujarat Pvt Ltd (SMG) will invest Rs7,300 crore for the construction of a battery plant near SMG’s automobile manufacturing unit by 2026. SMG will invest another Rs3,100 crore for ramping up production capacity for electric vehicles by 2025. The company is expected to launch its first electric vehicle by 2025.
 
The move assumes significance, especially since the carmaker has also been struggling for a few years in retaining its dominance largely as a result of missing the bus when it comes to foraying into India’s fast growing SUV segment. Through the course of the ongoing financial year, Maruti Suzuki has seen its market share dwindle with the company now accounting for about 43 percent of the market, compared to about 50 percent in recent years. In contrast, the likes of Kia Motors and Tata Motors have significantly improved their market share.
 
“Suzuki's future mission is to achieve carbon neutrality with small cars,” Toshihiro Suzuki, president of Suzuki Motor Corporation, said in a statement. “We will continue active investment in India to realize self-reliant India.” Another group company, Maruti Suzuki Toyotsu India Pvt Ltd, will invest Rs 45 crore in construction of vehicle recycling plant by 2025 as part of the company’s plan to capitalise on India’s recently unveiled vehicle scrappage policy.
 
Maruti’s foray into the electric vehicle play essentially changes its long-standing belief in the Indian electric vehicle segment, that it reckoned was not ready for a disruption, even as the Indian government had been giving a massive push towards electric mobility. India’s electric vehicle (EV) market is expected to have a compound annual growth rate (CAGR) of 90 percent in this decade to touch $150 billion by 2030, according to a report by consulting firm RBSA Advisors.
 
“For a long time, all eyes were on Maruti Suzuki when it comes to India’s electric vehicle play,” says Puneet Gupta, director for automotive forecasting at market research firm S&P Global Mobility. “And their absence was certainly worrisome for the ecosystem including suppliers. Now that they have given the green light, it will instil confidence in the sector.”
 
Over the past few years, despite not foraying into electric mobility, Maruti had turned its attention to other greener platforms, including CNG, as part of its diversification plans. Today, the company controls some 82 percent of the domestic CNG market. During the first half of the current financial year, sales of CNG cars totalled some 101,412 units, in comparison to 51,448 units in the year-ago period, indicating a 97 percent growth. CNG-based vehicles provide cheaper running costs, especially since fossil fuel prices have been on the rise in the country. A shortage of refuelling options, meanwhile, has been a deterrent toward mass adoption of these vehicles. Maruti Suzuki’s models such as Alto, S-Presso, Celerio, Wagon R, Dzire, Ertiga, and Eeco have all been equipped with a CNG option.  
 
“The US and Europe are different to India,” RC Bhargava, chairman of India’s largest car manufacturer, Maruti Suzuki, had told Forbes India earlier. “We cannot assume that if something works so well elsewhere, it will also work in India. India is different in its purchasing power, affordability criteria and overall thinking. All the talk about going electric can work in a rich country. But in a country where people are struggling to make a living, it is a difficult plan.”
 
Then there were also concerns surrounding the dependence on Lithium, the core component of batteries, where China accounts for more than 60 percent of production. “Unless the chemistry of the battery changes and the costs come down, or you find a material that is not anybody’s monopoly, we cannot talk of electrification in the country,” Bhargava had told Forbes India earlier.“You have an option in hydrogen.” India had also recently launched its National Hydrogen Energy Mission (NHEM) to promote the use of the natural gas. 

Maruti’s Big Play

Maruti’s decision to foray into the electric play comes a few years after the company had scrapped a plan to launch an electric version of the popular Wagon R car. Much of that was reportedly due to the realisation that the vehicle would eventually be expensive, making it unsuitable for the Indian market. Since then, the company hadn’t been aggressively pursuing electric ambitions, even as other carmakers have ramped up their play.
 
“Nobody knows for sure when the inflection point will happen in the Indian electric vehicle industry,” says Gupta of S&P Global Mobility. “But if that happens in three years from now, Maruti will be a big loser. It has already happened with their SUV play where they are missing from the high profit segment. That’s why it is important for them to be in the mix. They are also likely trying to make good use of the newly launched PLI scheme.”
 
From April this year, the Indian government had announced plans to roll out a production linked incentive scheme that proposes financial incentives to boost domestic manufacturing of Advanced Automotive Technology (AAT) products and attract investments in the automotive manufacturing value chain. The scheme has a budgetary outlay of Rs25,938 crore.
 
Gupta reckons Maruti will follow an approach where in the first phase, the company will look to develop batteries that will be used for export globally. In the second phase, the company could play a leading role in the domestic automobile industry as the sector potentially witnesses a transformation led by electric vehicles. “Maruti has always been a company that follows and never a frontrunner,” adds Gupta. “They will wait and see how the Indian electric vehicle industry evolves, and will hold the trump card with the current investments.”
 
Already, Tata Motors, which already sells the largest number of electric vehicles in India, has set up a subsidiary for its electric vehicle play and, in the process, became India’s most valuable EV company, after raising $1 billion from private equity major TPG Rise Climate. The deal values the yet-to-be operational subsidiary at over $9 billion and the capital infusion is expected around March.  
 
Tata Motors will invest $2 billion into the subsidiary over the next five years. The new company, Tata Motors believes, will leverage all the existing investments and capabilities of the parent company in addition to channelising all the future investments into electric vehicles and dedicated battery vehicle platforms and technologies, among others. Over the next five years, the company will also create a portfolio of 10 EVs while also partnering with Tata Power to create charging infrastructure to help with early adoption.
 
Already, Tata Motors corners some 85 percent of the domestic electric vehicle market, with its popular Nexon and Tigor. Similarly, Mahindra had, in May 2021, approved the merger of the EV subsidiary Mahindra Electric Mobility Ltd (MEML) with the company to consolidate operations, development, sourcing and manufacturing. It also set aside Rs3,000 crore for its EV plans, six of which will be launched by 2026.
 
“I think everybody realises that going forward, environment-friendly vehicles will be the requirement,” Shashank Srivastava, senior executive director, marketing & sales told Forbes India in December last year. “It will be mandated by governments across the world. So, the question about electric vehicles becoming mainstream is not so much doubtful. Going forward, ICE vehicles will increasingly become more expensive because you require to meet higher, tighter emission norms like BS6.”  
 
“Given the scale and size of Maruti’s operations, one may say that it is a systematically important OEM and has a direct correlation with national macroeconomics, and therefore a sustainable and yet scalable approach towards any market entry has to be there,” says Harshvardhan Sharma, head of auto retail practice at Nomura Research Institute. “With the recent apex decision, I am sure they will be able catch-up pretty soon. Also if we view the capabilities from the synergy point of view between Toyota and Suzuki, there is enough capability to achieve leadership to MSIL.”
 
For years now, India’s consumers have been wary of embracing EVs despite a mammoth push from the government. India is a signatory to the Paris Climate Agreement, which means that the country needs to reduce its carbon emissions by around 35 percent of its 2005 levels by 2030. The government has tried everything—from tax cuts to manufacturing incentives in the automobile sector—to kickstart an EV revolution in the country.
 
Yet, despite all the narrative around EVs, there haven’t been substantial gains. Last year, India sold some 325,000 units of EVs, of which 149,000 were two-wheelers and 157,000 were three-wheelers. In contrast, over 18 million vehicles that run on internal combustion engines (ICE) were sold in FY20, of which 15 million were two-wheelers. China sold some 3.3 million EVs in 2021, according to market research firm ZoZo Go, in a year marked by a pandemic.
 
“Most OEMs will like to continue to gear up for an assortment of fuels in line with India’s energy vision,” adds Sharma of Nomura. “Therefore, we may see a future with CNG, Ethanol Blending, Hybrids and EVs, there is enough room for all and frankly too risky to over index on any one fuel type especially in the wake of global events such as pandemic, semi-conductor issue and current geopolitical situation.”
 
After many years, India’s largest carmaker has made a firm commitment to India’s electric vehicle play. That means, a shake up in the sector is only inevitable.

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