Maruti Suzuki Plans to Invest $1.25 Billion to Hike EV, SUV Business

• Published On: 10 October 2023
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By 2030–2031, the business predicted that EV sales will account for 15–20% of total sales. The manufacturer reportedly has a solid cash reserve of close to INR 47,000 Crore, according to PTI.

In order to develop 10–11 new models, comprising Maruti six electric vehicles (EVs), and double its yearly production to 4 million units, Maruti Suzuki India Ltd. announced on Monday that it aims to invest up to 1.25 trillion by 2030–31. The largest automaker in the nation stated in a presentation that it intends to increase its presence in emerging vehicle sectors like electric, flex fuel, and hybrid, particularly in the sport utility vehicle (SUV) configuration.

By 2030–2031, the business predicted that EV sales will account for 15–20% of total sales. Another 25% might be hybrids, and the remaining vehicles would run on ethanol, CNG, and possibly CBG (compressed biogas), according to the report.

In July, Maruti Suzuki announced that it would issue preferred shares to acquire Suzuki Motor Gujarat (SMG), its contract manufacturer, from its Japanese parent company Suzuki Motor Corp. (SMC). The business claimed on Monday that doing so will help them preserve cash.

"Maruti Suzuki took about 40 years to reach a scale of about 2 million units, and it now plans to add a further two million units in just 7-8 years. Out of this 4 million volume, approximately 3 million units will be sold domestically, including to additional manufacturers of original equipment (Toyota), and 750,000 to 800,000 units will be exported. By 2030–2031, the domestic market is projected to reach 6 million units at a compound annual growth rate (CAGR) of about 6%. According to the presentation, the company is anticipated to develop faster than the industry.

The automaker is banking on its increased attention to SUVs to help it reclaim its market share, which peaked at 52% in 2018–19, and counteract the drop in small vehicle sales, which have been its mainstay.

"Money would be required to build the infrastructure for sales, service, and spare parts needed to virtually double domestic sales volumes. Additionally, the infrastructure for exporting significantly more cars will need to be improved. More capital expenditures will be required for the flexible reconfiguration of production lines. The majority of the internal combustion engine (ICE) car development work being done by Maruti Suzuki will require extra investments in R&D. During this time, Capex will be required to produce 10–11 new models with various fuel options. Larger capex will also be required for the production of EVs and SUVs, the presentation stated.

It further mentioned that the business might think about investing in the creation of CBG for both its own requirements as well as for sale as fuel. CBG is already being developed in India as an automobile fuel.

R.C. Bhargava, the business's chairman, stated at the annual general meeting of the company in August that the carmaker will require around 45,000 crore to develop a capacity of 2 million units.

"The current plants in Gujarat, Manesar, and Gurugram will continue to do regular capex. Around 7,500 crore was spent in 2022–2023. Up until 2030–2021, total capital expenditures may reach 1.25 trillion. There would be an increase in cash flows from the newly enhanced capacities, but there would be a delay between investments and income. According to the management, money should always be on hand and should not be spent in advance of receiving money. "Excess capital may be spent wisely, including raising the dividend payout band and paying greater dividends, at any time if there are no immediate investment demands, according to Maruti.

The automaker has a large financial cushion of over 47,000 crore. Compared to a cash transaction, which would have resulted in a loss of interest income, issuing shares in the Suzuki Motor Gujarat sale will have the least negative effect on earnings per share and profits, according to Maruti Suzuki.

In the future, Maruti's minority shareholders will vote on the proposal in an extraordinary general meeting, the firm said in a regulatory statement.

According to the company's projections, the share swap model will continuously increase net profit above a cash transaction. It anticipates that a share exchange would increase net profit in FY31 by 1,400 crores above a cash transaction. In addition, the share swap arrangement is expected to result in stronger earnings per share and dividend payments than a cash buyout.