An ambitious new partnership between two Japanese carmakers could be the biggest disruption to hit India’s electric vehicles (EV) market.
On Nov. 17, Suzuki and Toyota announced that they will co-develop EVs for India, with their first car expected to roll out around 2020. “Specifically, Suzuki is to produce EVs for the Indian market and will supply some to Toyota, while Toyota is to provide technical support,” the two companies said in a statement.
This agreement marks the entry of Maruti Suzuki—India’s largest carmaker, majority-owned by Suzuki—into the EV ecosystem which the Narendra Modi government is trying hard to kickstart. By 2030, the government intends to stop selling conventional, gas-fuelled vehicles altogether, though the precise contours of the plan remain unclear. A new EV policy is expected to be unveiled by the end of the year.
For some months now, there has been speculation over—and concern about the tardiness of—Maruti Suzuki’s approach towards the fledgling EV market. “As the industry shifts towards EVs, when it comes to India, our volumes are so large that I worry that we could be caught flat-footed if there was a sudden shift towards electrification,” Toshihiro Suzuki, a member of the board of Maruti Suzuki, said earlier in November. After all, the company currently controls a little over 50% of India’s passenger car market.
And although the likes of Mahindra & Mahindra and Tata Motors are already making inroads, Maruti Suzuki’s belated entry into EVs is the one to watch out for. There are three main reasons:
Maruti Suzuki has the scale: EVs are unlikely to work in India unless they’re priced right, and cost can only be brought down by large volumes. ”They (EVs) are still terribly expensive to produce, which gets impacted positively as the volumes grow steadily,” explained Deepesh Rathore, co-founder of the automotive consultancy Emerging Markets Automotive Advisors (EMAA). And nobody does things at scale in India better than Maruti Suzuki, considering more than 150,000 vehicles come out of its facilities every month. Alongside, the carmaker has an unrivalled supply chain in India, which could allow it to develop world-class components locally at the best possible prices. “The two companies (Suzuki and Toyota) together are likely to have enough volumes in India and exports for high utilisation, which will bring down the overall cost per vehicle,” Nomura said in a report on Nov. 20. “Other OEMs (original equipment manufacturers) dependent on imports of components may find it difficult to compete on costs.”
The partnership has the tech: To complement Suzuki’s manufacturing prowess in India, Toyota will bring the technology to the table. The latter has been increasingly focused on upping its EV game, including forming a dedicated electric cars division last year, led by the Toyota’s president Akio Toyoda. In September, Toyota established a joint venture with another Japanese rival, Mazda, to develop affordable EV technology. The company also has two decades of experience in developing and marketing the Toyota Prius, the world’s best-selling hybrid car. Suzuki, though, isn’t sitting it out on the tech front entirely. The automobile major has already committed to invest over Rs1,150 crore (around $180 million) to build a lithium-ion battery factory in Gujarat. That’s significant since batteries alone typically comprise 50% of an EV’s total cost. “You can either wait for innovation to bring down the cost (of batteries), or you jump in yourself,” said Abdul Majeed, a partner at consultancy firm PwC, backing Suzuki’s intention to gets its hands dirty in the battery segment. “This is a do or die situation on the battery front and in the (overall) EV space.”
Nobody knows the market better: Even if the Suzuki-Toyota partnership is able to crack the technology and affordability puzzles, selling EVs in the subcontinent will still remain an uphill task. “For me, the challenge is only one: How to condition the consumer?” said EMAA’s Rathore. “How to condition the consumers between 2020 and 2030 by offering them choice, different price points, etc?” It will help that Maruti Suzuki, which has been selling cars here for over three decades, understands the Indian consumer and their demands perhaps better than any other carmaker. It will still take significant government support to create an environment supporting EVs, including help with setting up extensive charging infrastructure nationwide. And given Maruti Suzuki’s size and scale, there are few other carmakers that can prod the government into getting its act together.