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No bar on Maruti to make electric vehicles: Chairman R C Bhargava

Bhargava says fears over Suzuki's MoU with Gujarat unfounded

R C Bhargava
R C Bhargava, chairman, Maruti Suzuki
Surajeet Das Gupta New Delhi
3 min read Last Updated : Mar 24 2022 | 6:10 AM IST
Maruti Suzuki India (MSIL) Chairman R C Bhargava on Wednesday made it clear that the announcement by Suzuki Motor Corporation (SMC) on Sunday about investing 150 billion yen (or Rs 10,445 crore) by 2026 for indigenous manufacturing of battery electric vehicles (BEV) and BEV batteries in Gujarat does not restrict the listed MSIL from making electric vehicles (EVs). 

He said the fears stoked by proxy advisors that the move might not be beneficial to shareholders or that the company could become simply a distributor of products of Suzuki Motor Gujarat (SMG) — a wholly owned subsidiary of SMC — are ‘unfounded’.  

“There is no bar on MSIL to manufacture EVs. The demand for EVs is currently low and not enough for installing two plants right now. Back in 2014, proxy advisors had said a 100 per cent Suzuki subsidiary would be detrimental to MSIL shareholders. That was unfounded. The performance and growth profitability of MSIL in all these years are for all to see,” said Bhargava.

Proxy advisor Institutional Investor Advisory Services has raised some key issues in its report about the memorandum of understanding signed by SMC on March 20 under which it will make a total investment of Rs 10,445 crore.    

It points out that the decision brings to the fore the inherent conflict of interest between owning a 100 per cent subsidiary and having a listed company in the same market.

“These structures make it easier for the multinational company to hollow out the listed subsidiary and reduce its value,” observed IiAS.

It argues that MSIL’s future might be at stake as it needs to define its role in the EV venture.

The Gujarat factory has the wherewithal to manufacture 750,000 internal combustion engine (ICE)-powered vehicles per annum at the three plants; MSIL has a capacity of 1.5 million per annum.   

The proxy advisory says it reprises 2014, when MSIL abruptly announced that SMC would set up a 100 per cent subsidiary in Gujarat. There was significant push-back from MSIL investors, saying this would have made Maruti merely a distributor of Suzuki products. After several discussions with investors and stakeholders, the earlier deal was altered and MSIL managed to assuage the fears of investors.       

Bhargava said the company does not have information as yet on the EV pipeline that will be produced in Gujarat. While there is a market for bigger EVs, in the long term, however, the bulk of the EV market will be in the small segment, replicating the ICE model, he added.  

Topics :RC BhargavaMaruti SuzukiElectric Vehicles

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