Categories Analysis, Industrials

Is Maruti no more India’s First Choice? The Potholes in the Road Ahead

So, what was your first car? Was it Suzuki Alto/Swift or Hyundai i10?

Well, we might not be very sure about it but one thing that we are quite certain is that the future of automobiles is Electric Vehicles. Recent showcase of the car “Avinya” by Tata highlights the future of the car we are entering into and Maruti Suzuki is nowhere to be found. The critical question that arises at this point is – Is Maruti diverting itself from entering the EV market or do they have any other set of action? Let’s start from complete scratch..

The humble beginnings of Maruti:

After nationalizing the assets of Maruti Motors Limited in 1981, Smt. Indira Gandhi formed a joint venture with Suzuki Motor corporation to realise her son Sanjay’s dream of making a small and affordable car in India. And hence Suzuki Limited rolled out its first version of M-800 for half a lakh rupees. The Maruti 800 became a huge success and outperformed both its competitors by selling almost 1 Lacs cars within five years of its launch. 

Interestingly, ever since liberalization, Maruti Suzuki has ruled the Indian roads with over 60% market share for more than 20 years. Now you might be wondering how is that possible?

How does Maruti Suzuki rule the Indian Automobile Market?  

Now many of you might argue that the mileage of Maruti’s cars is better than other car makers and hence it is able to embark its dictatorship in the Indian Auto industry but I would say that other car companies are also providing the same mileage. Some would say that its auto parts are easily available but so are others. Confused… Huh!

Well why do you fear when Alphastreet is here… Look pricing is the main part where Maruti plays its cards and by this para I would prove that the Indian automobile industry is the “Game of Taxations”.

The implications of GST:

We all know that India implemented Goods and Service Tax in 2017 and as per that Luxury items would attract a GST of 28% and guess what cars come under that segment. But this is not it, an additional tax is further implemented as Cess and this is where the entire ball game changes. 

Vehicle CategoryGST Rate
Passenger Vehicles (Petrol, Diesel, CNG, Electric Hybrid)/Commercial Vehicles/Three-wheelers/Two-wheelers)28%
Electric Vehicles5%
GST Tax Rate  
Vehicle CategoryCessTotal Tax (GST+Cess)
Passenger vehicles (petrol, CNG, LPG) <4m in length and <1200cc engine1%29%
Passenger vehicles (diesel) <4m in length and <1500cc engine3%
31%
Mid-size PVs (>4m in length with <1501cc engine)17%45%
Large PVs (>4m in length with >1500cc engine)20%
48%
SUVs (>4m in length with >1500cc engine & >169mm ground clearance)22%
50%
Hybrid vehicles (except small)15%43%
Total Tax on different vehicle types

Hence, high GST implemented with additional Cess makes premium vehicles like SUVs and high end sedans unaffordable for common people. Surprisingly, you would find a majority of Maruti Suzuki cars under 4 meter in length and less than 1200cc in engine and this is why Maruti Suzuki is an undisputed leader in the hatchback segment. This adds to the brand value of the car and thus being budget friendly, Maruti remains the first choice of people. Now, I know many questions are cluttering your mind. Let’s resolve them.       

Why don’t other brands make small cars to save on Taxations?  

The other brands like Ford, Toyota, Honda, Volkswagen never understood the Indian market completely. India is predominantly a small car market, these global brands instead, end up voting in favor of a larger platform which may suit developed markets but not India. Another side of this story is that these companies are often reluctant to bet on a small car. Globally, they are known for producing big cars that offer fat margins, but in India, the margin on a small car ranges between $500 and $1,000 per unit. The investment required in developing both big and small cars is somewhat the same. And hence, in lieu of earning fat margins these companies end up making bigger cars. But, Maruti on the other hand scripted its success with small cars, from the 800 it launched more than three decades ago to several versions of the Alto, WagonR, Swift and now the Grand Vitara. Though now the scenario has changed and other car companies like Hyundai with its i10, Renault with its Kwid and Kia with its Seltos are entering this segment and gaining good traction. And hence you would witness the market share of Maruti Suzuki falling.

Maruti Suzuki losing its Grip on the market:

Let’s look at the market share of various automobile companies over the years.

BrandsMS – FY22MS – FY21MS – FY20MS – FY19MS – FY18
Maruti Suzuki India43.65%47.72%51.00%51.22%51%
Hyundai Motors India15.78%17.39%17.50%16.14%16.2%
Tata Motors12.14%8.27%5.00%6.85%7.00%
Mahindra Motors7.40%5.80%6.74%7.53%7.3%
Kia Motors6.12%5.74%0.79%NANA
Toyota Kirloskar4.06%3.43%4.10%4.46%4.5%
Renault2.87%3.4%3.23%2.36%2.4%
Honda Cars India Ltd2.81%3.03%3.68%5.44%5.2%
Skoda and VW (Combined)2.16%1.17%1.44%1.52%NA
MG Motors1.32%1.31%0.79%NANA
Nissan Motors1.24%0.70%0.65%1.08%1.2%
Others0.46%2.04%5.10%3.39%NA
Market share of various car makers over the years

Now you would notice that the market share of our beloved car company Maruti Suzuki is falling drastically over and you might be wondering the reason behind it. Well, the disposable income among the Indian households have increased and due to this many of them are definitely shifting towards MUV’s, compact sedans and SUVs. By now we have realized the penetration of Maruti Suzuki in the SUV or sedan segment is way too less. Apart from Vitara Brezza in compact SUV and Swift Dzire in Sedan, can you name any other car, Maruti is famous for in these segments?

Also, when you sit in other brands like Mahindra, Hyundai or Honda , what do you notice? Isn’t it the world class interior that catches your attention? Henceforth, the new generation is choosing these brands over Maruti Suzuki and thus you would witness the market share of Maruti Suzuki falling over the years. But still it doesn’t answer our question of the presence of Maruti in the EV space.

The advent of EV in India:

After witnessing the success of Tesla in the USA and other developed nations, we are quite sure that EV is going to be the future of Automobile sector. The penetration of EV in India in 2019 was 0.4% while in 2021 it was close to 1.3% depicting a three fold growth in just two years.  

Infact, the Modi government has set a goal that 70% of all commercial cars, 30% of private cars, 40% of buses, and 80% of two-wheelers and three-wheelers sold in India by 2030 will be electric. To achieve the target, various states have also come up with EV policies of their own to provide additional benefits to EV manufacturers and customers. Not only this but to reduce the carbon footprints, the government is also providing various subsidies on purchase of EV’s. But the dream of EV in India is still far away. 

You see, If we look at the Indian market, almost 70% to 80% of the buyers buy vehicles which are below 10 lakh rupees, which speaks about the Indian buyers’ psyche and Maruti understands this very well. The situation is much different for EVs, which are usually priced at above Rs10 lakh. This is because of the scale and battery cost, which itself is up to 50% of the total EV price. 

What are the key players doing?

Tata is playing a different game altogether. Rather than setting up a new assembly line which would make it expensive and time consuming, it decided to pick an existing successful model and work on outfitting it with a battery pack. Tata Motors has also limited upfront investment by relying on Tata group companies for a range of EV components and infrastructure, and by choosing a cheaper battery chemistry type. 

With just the Nexon EV and one other model for fleet sales, Tata commands 90% of India’s electric car sales, giving it an all-important first-mover advantage even if EVs account for only 1% of the overall auto market. Not only this, Tata aggressively plans to launch 10 electric models by March 2026. This financial year alone, it wants to quadruple EV production to 80,000 cars. These ambitions attracted $1 billion in investment from U.S. private equity firm TPG, valuing its EV business at $9 billion – far below some EV startups but equivalent to 40% of Tata Motors market value.The company’s synergies are also playing a major part in its development.

Tata Power Company Ltd is setting up charging stations, Jaguar Land Rover contributes to design while Tata Chemicals Ltd has plans for battery recycling and local cell manufacturing.

Interestingly, when Tata began EV production in 2020, most parts were imported. Today, Tata AutoComp produces around 50% of the components in-house thereby reducing the costs.

Homegrown M&M so far has invested around Rs1,700 crore in the EV segment. That’s possible because the company has its own resources and institutions to support its EV ambitions and plans to launch its second EV car in 2023. Currently its playing majorly on three wheelers where its gaining a huge response. Meanwhile Hyundai, Kia and MG are also competing for a tough fight in the EV segment in India. 

It is believed that if any auto company can make EV batteries affordable, it has the potential to rule the market. 

But what is Maruti Suzuki doing?

It might seem like the future is slipping away from Maruti Suzuki, but that’s not the case. The carmaker has a uniquely different outlook on what the Indian Passenger Vehicle Market would look like in the future. They realize that the future is electric but they disagree with the timeline of it. While all other aspirational carmakers are onto the EV race, Maruti has decided to focus on CNG for the time being. When looked through the lenses of Maruti, it might seem that they have a point. 

The major chunk of petrol consumption in India comes from two wheelers and the government has rightly given priority to the two wheeler segment instead of four wheeler passenger vehicles. According to the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) Scheme – Phase I & II, the fund allocation towards two wheelers showcases as to where the government’s priorities lie. The government aims for FAME Phase 2 were as follows:

Furthermore, the per capita income of India is far lower than its European counterparts. This trend is reflected by a simple observation in India’s vehicle purchasing habits, where 77% of the cars sold in India are less than 4 meters in length. Sadly, the existing technology used in manufacturing EVs could not match the price points provided by these small cars. 

CNG on the other hand is a cheaper alternative. CNG cars have seen an increased demand of over 50% despite the fact that automobile demands have declined by nearly 8% in the FY 2020-21. The CNG model fits the needs of the common Indian man in terms of purchasing power and price points while being environmentally friendly. Maruti Suzuki has focused on capitalizing on this segment. Hyundai with its Aura, Santro, Xcent and Tata with its Tiago and Tiger are making a strong comeback in this niche as well. 

CNG ModelsApr – Sept 21Apr – Sept 20% change (YOY)
Maruti Wagon R3491316167116%
Maruti Ertiga2161010236111%
Maruti Eeco134505693136%
Hyundai Aura95782085359%
Hyundai i1071022133233%
Maruti Dzire5505284094%
Maruti Alto3483208967%
Maruti SPresso2502185735%
Hyundai Santro1890113167%
Maruti Celerio8886935-87%
Hyundai Xcent49128274%
Total1014125144897%

So what’s the verdict?

Maruti realizes that the shift to EVs is inevitable but it seems to believe that the immediate future of India will be CNG. The firm has plans in the future to shift to EVs and it has taken steps to promote that. We suppose that in the end, everybody in the market is making a gamble on their perceived future. We all know Tesla today is the leader because they started early, but India looked at EV very late and we are almost behind by a decade and have a lot of catching up to do. However, it does raise the question that assuming EVs are the future, won’t it be ‘too little, too late’ from Maruti by the time it completely enters the EV sphere when other players like Tata are playing so aggressively? 

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