Maruti Suzuki India (NSE: MARUTI)is the one entity that seems to be missing from the EV bandwagon in India. In today's article let's look at the reason why Maruti Suzuki India (MSI) is holding back, What is their roadmap for Electric Vehicle (EV), Will it beat the existing players in this space? and so on...
The Reason for Hold-up
MSI, an iconic carmaker, is holding because it thinks that the market and infrastructure in India are not yet ready for EVs. Also, the regulations are not quite in place yet, possible that the company thinks it will just burn cash if it enters the market at this stage.
Fair enough if you ask the right person, but that doesn't mean that they are completely sitting idle, while the likes of Mahindra and Tata are capturing the market.
The Roadmap
They have been making big moves. Over the next few years, INR 10,400 crores will go into strengthening their EV department, of which INR 3,100 crores will go into a new plant for manufacturing EVs and the rest will go into manufacturing and R&D for EV batteries.
Bit unusual to look at the first time, but EV batteries can sometimes take up to 50% of the EV cost due to the fact that they require rare earth metals like lithium and of course R&D to make it work.
Also, the company knows that to capture the EV market in India, they need to target the "Under 10L" budget category. Currently, the only vehicle that serves this market is Mahindra's E20.
To bring the cost down, they need a lot of R&D, and that's why this kind of investment is necessary rather than just setting a new line on EV in a current plant.
Competition
Now if there is one competitor that MSI is worried about, it is Tata. The Reason? is their synergy - I have a whole article on this topic.
Tata has been at the forefront of the EV race in India.
In February this year, they sold 2,264 EVs out of the total 2,352 Evs sold. They have over 1,000 electric vehicle charging stations across 180 cities. They have their own plans of investing around INR 15,000 crores.
By 2025, when MSI plans to enter the market, it is possible that it may be too late if Tata continues to grow at this pace.
The Problem
Tata's aren't the only entry barrier for MSI.
Investments made to date are not made by MSI, but by a subsidiary of the parent Japanese company Suzuki Motors Corporation (SMC) - Suzuki Motors Gujarat (SMG). SMG is the one making all the investments. Once SMG starts producing cars, it will transfer to MSI at cost, after which they can mark up, market the cars, sell and pocket the difference.
What does it matter? Remember, MSI is a partnership of Maruti and Suzuki, given that SMG is a subsidiary of SMC, if the partnership goes side-ways, it won't be good for Maruti.
Conclusion
The agreement looks fair and square, but what is left to see that how Maruti and Suzuki will make it work for their own good. However, a question that comes to mind - Why Suzuki invested in EV through another subsidiary and not MSI itself?
Do let us know your thoughts on the above topic in the comment section and let a healthy conversation begin.
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Disclaimer
The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.
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