Why does Maruti Suzuki want to skip EV Race?
The EV Market is buzzing all over the world. As reported by RBSA Advisors, India’s EV Market is expected to grow at a CAGR of 90%, to reach $150 Billion by 2030. During the 2020-2021, EV has a penetration of around 1.3% in the total vehicle sales in India. Looking at this red hot market in India, businesses are trying to take advantage of it. But, India's biggest car maker seems to be missing this race.
Yes, India's biggest car manufacturer - Maruti Suzuki, seems to be shifting its focus away from EVs. Maruti Suzuki is a market leader and always has a competitive edge when it comes to new evolving technologies. But, this time the company is not much interested in gaining advantage in the EV segment. Indian players like Tata Motors (building a whole EV ecosystem), Mahindra & Mahindra, Hyundai, among others, are aggressively increasing their focus in this growing area.
The question that arises is why Maruti is not so keen about EV?
- Maruti launched its first CNG car, when the CNG segment was evolving in the country, having roughly less than 1% market share. This initiative by Maruti proved to be successful. Currently, Maruti has a monopoly in this segment, as it has a 85% share in the Indian CNG Segment. The company has a range of CNG cars which includes Alto, Wagon-R, Ertiga, Celerio, S-Presso among others.
- In today’s situation, where EV is gaining so much of attraction, Maruti is very bullish on the future CNG segment in India. During the Auto Expo 2020, Maruti Suzuki announced its Mission Green Million strategy, under which it is promoting CNG, hybrid cars. They also discontinued the diesel segment around April 2020, and the loss of that segment is expected to be covered by increasing the share of CNG sales.
- Maruti Suzuki India Marketing and Sales Executive Director Shashank Srivastava said “With the government's clear focus on expansion of CNG outlets in the country, we are confident of greater acceptance of factory-fitted CNG vehicles, even in challenging times.”
- The CNG sales in India witnessed a 49% Y-o-Y growth in FY2021, as compared to FY2020. The share of CNG segment in the Indian Vehicle Market increased from 4% in FY2020 to 6% in FY2021.
- From an economic viewpoint, Maruti’s strategy seems justifiable. The running cost of CNG cars tends to be around ₹1.6/km, while petrol/diesel cars have a running cost of more than ₹5/km. If people switch personal cars to CNG, India is estimated to save ₹2 lakh crores in oil imports.
- As EV infrastructure in India is still in the developing phase, CNG looks to be a prominent segment for auto-makers. But, once the EV ecosystem is functional in the country, it can become a huge threat to the CNG segment, as both are perceived as eco-friendly alternatives to petrol/diesel cars.
- Maruti is not against EV but they want to focus more on the CNG segment, while evaluating various factors associated with the EVs like battery manufacturing, mileage per hour.
Though, Maruti is successful in the CNG segment and also bullish on its future, investors will have to watch how the company handles this growing market opportunity