Why Maruti Suzuki is not charged up about India's electric car race

Carmakers are rushing to make electric vehicles (EV), but not Maruti. The company's sense of the Indian market was vindicated more than a decade ago when it decided not to follow Tata Motors and make a small, cheap car. Maruti believes electric cars won't make business sense in India till battery technology, charging infrastructure and financing improve. Sure, it has an electric version of the WagonR but that is for the aggregator market. Tata Motors, in contrast, has a range of EVs. Will Maruti's EV bet work out, asks Surajeet Das Gupta.

Surajeet Das Gupta, Business Standard
17th March

More than a decade ago, India’s two leading automakers differed on expanding business. Tata Motors planned a small car for Rs 1 lakh, attracting consumers who used two-wheelers or didn’t own a vehicle. Maruti Suzuki, the world’s most proficient small carmaker, pointed out that a company couldn’t afford a product that cheap because of the bill for materials and taxes. The rest is history: the Tata Nano didn't succeed as a mass, cheap car. Maruti was vindicated.

It’s 2020 and the two companies again view the future differently. This time the debate is about electric cars--whether it’s time to invest and launch or wait for a few years when technology advances and the price of such vehicles come down.

Maruti will wait. At the recent Auto Expo in Delhi, the company surprised everyone when it announced that it wouldn’t bring out an electric car because it believes high costs deter buyers. In contrast, Tata Motors is bullish about electric vehicles (EV) and has a line-up of offerings. It has announced an EV version of the Tigor car for an ex showroom price of Rs 9.44 lakh, adding to electric versions of Nexon, concept SUV Sierra and Altroz.

Business sense in battery tech

When carmakers across the world are moving towards EV, why is Maruti sceptical? The answer lies in the nature of the Indian market, dominated by small cars and affordability. According to Maruti, a small electric car would have to be priced at Rs 7 lakh-8 lakh for volumes and viability. A small petrol car costs around Rs 5 lakh, but customers may choose an electric one priced higher because maintaining it would be cheaper.

However, current battery technology doesn’t allow that price point. A lithium ion battery forms 50 per cent of the cost of an electric car, making Maruti calculate that such a vehicle would have to be priced at more than Rs 10 lakh. With only 20 per cent of the sales of cars in India at over the Rs 7 lakh-Rs 8 lakh mark, the company sees little possibility in volumes for a small electric car. Why would a customer pay the price of a premium car and get a small one, Maruti calculates.

Maruti announced the Maruti WagonR electric in February 2020, but the car will be for the aggregator market, will have an annual production of 5,000 and it will cost more than Rs 10 lakh, making it unappealing for individual consumers looking at both the petrol and EV versions of WagonR.

As most people take loans to buy cars, Maruti sees that as a challenge for buyers and banks. Customers typically pay 20 per cent of a vehicle’s cost from their own pockets, but for an EV they will have to shell out more. Banks may have to extend loan tenures to make EVs affordable

So when will Maruti look at a small electric car for India? Maruti chairman R C Bhargava has said battery costs have to reduce to 25 per cent of a small electric car for the business be viable. He argues that battery technology now does not meet customer expectations on charging time and affordability. He expects that it will take 5 to 8 years before a breakthrough like solid-state lithium batteries or those made of other materials. Besides, India doesn’t have an extensive charger infrastructure --and that is a serious obstacle, Bhargava believes.

He has a point: globally, manufacturers agree that electric car prices will reach parity with regular cars if battery cost falls below $100. Opinion on when that will happen is divided: some say by 2021 and others peg it at 2025. Analysts predict batteries could become 25 per cent of the total cost of an electric car by 2023, though for small cars it could take a bit longer. Maruti, therefore, need not rush.

Bhargava has said that in order to reach reasonable volumes in manufacturing EVs, batteries will have to be manufactured in India and not imported.

Niti Aayog has proposed a plan to call bids for setting up 10 large lithium-based battery plants in India. Manufactures will get subsidies to put in 50 gigawatts of capacity in 10 years, according to the plan, which would need the union cabinet’s approval. But government officials say the plan may be too ambitious, as it would require investments of more than $5 billion—an amount that’s justified only when one has large volumes which can only come from the sale of small electric cars.

Maruti has set up a joint venture With Toshiba and Denso to manufacture lithium ion batteries but it is a small operation limited to serving 20,000 hybrid cars annually. The battery in hybrid cars has a different chemical composition than that in EV lithium.

Is there is no space for EVs at all in India then? As is the trend globally, India will find it easier to convert premium-priced cars towards electrification. Well-heeled customers have the infrastructure and space to charge at home and they can afford a large, expensive electric car, helped by the reduction in Goods and Services Tax. That is the space where most foreign car companies are looking in India for EV sales.

The government is aware of the challenges in selling electric cars and therefore has been nudging two-wheeler manufacturers to come out with EV products that will help the environment and reduce India’s oil import bill. After all, according to a study by The Energy and Resources

Institute (TERI) cars contribute to only 2 per cent-3 per cent of vehicular pollution in Indian cities and they consume half the petrol than two wheelers.

Enough reasons for Maruti to prepare for the EV future at its own pace.

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