Pent-up demand for cars now over; growth will be only 3-4%: Maruti Chairman

Bhargava discusses the reasons for the slowdown and their strategy in the EV market

Last week, Maruti Suzuki launched the e Vitara in Milan, heralding its entry into the electric vehicle space, even as overall domestic market sales were muted after a two-year dream run. R C Bhargava, chairman of the company, discusses the reasons for the slowdown and their strategy in the EV market in an interview with Surajeet Das Gupta in New Delhi. Edited excerpts:

 

Passenger car sales this year have been muted after two years of high growth. Why is the slowdown happening when overall economic growth is in line with expectations?

 

It is true that while gross domestic product growth is expected to be over 7 per cent this year, the car market is not following suit. The pent-up demand for cars that emerged post-pandemic, combined with supply constraints like the non-availability of semiconductors affecting production, has now dissipated. This year, we are seeing negative growth in the sub-Rs 10 lakh car segment, which represents two-thirds of the market. Only the over-Rs 10 lakh segment is growing, so overall growth is muted. Clearly, a 7 per cent growth rate cannot be sustained when one-third of the market is growing while two-thirds is shrinking.

 

But what is the reason for the shrinking of sales in the lower end of the market?

 

The country decided to upgrade its safety and environmental standards to be on a par with Europe. However, implementing these standards costs money, and it has led to a 60 per cent increase in production costs for lower-priced cars since 2019. The burden of this increase is proportionately much higher on small cars than on cars priced over Rs 10 lakh. So, a car priced at Rs 6 lakh now costs Rs 10 lakh, while salaries have not risen in similar proportions. Perhaps this is why two-wheeler sales have been doing well in recent years — consumers are not upgrading to cars, but are upgrading within the two-wheeler segment.

 

So, what are your growth projections for passenger cars in India?

 

I think growth will not exceed 3-4 per cent for a few years until economic growth helps bridge the affordability gap in the lower end of the market. So, the 7-8 per cent per annum growth will take a while to return — I don’t know exactly how long.

 

You have just announced your first electric car, the Maruti Suzuki Vitara, which will be exported initially. Why have you not chosen to launch it in the domestic market first?

 

The midsized EV will be priced at Rs 20 lakh plus in India, so the volumes will be very small in the country. Therefore, we decided to build volumes by exporting it to Europe and Japan with both Suzuki and Toyota and then launch it in India sometime in May or June 2025. The volumes will help us reduce production costs.

 

Will you benefit from the production-linked incentive (PLI) scheme for the electric car, for which you are eligible?

No, we won’t, because under the PLI scheme, the EV has to have a localisation of 50 per cent to be eligible for incentives, and we have not reached that threshold. However, we will receive a duty drawback on imports of components in the export market, so that’s fine. We are importing the battery to ensure the vehicle’s safety.

 

Do you see a sub-Rs 10 lakh electric car coming from Maruti Suzuki soon?

 

To achieve that, we would need much higher levels of localisation. We also have to rethink the specifications of the electric car for India, which differ from those in the US or Europe. For instance, in the US and Europe, cars are used a lot for intercity travel. But in India, with the railways upgrading their trains, it’s often easier and sometimes faster to take a train for intercity travel.

 

So, what does this mean in terms of redesigning the electric car?

 

I see a large market for an electric-powered city car, where you don’t need a large battery with a range of 500-600 kilometres, which is required in the US and Europe. This means designing a smaller car with less weight and smaller batteries. It could mean designing different models for different markets — one for Europe and Japan, and another for India. It’s a decision we’ll have to make.

 

There has been a vigorous push on exports by Maruti Suzuki. What is the reason for this new focus?

 

It’s clear that the passenger car market in India won’t grow very fast, so we need to focus on exports. We are tapping into markets like South America, South Africa, West Asia, and East Africa, among others. We are also starting with EVs and see a good market in Europe, although we don’t think Japan will be very big for us. The fact is, very few companies are making small internal combustion engine (ICE) cars now, but there is still a market for them.

 

Do you see tough competition from Chinese joint ventures in the Indian market, as they have in other global markets?

 

They are tough competitors, but I don’t think they will be able to manufacture cars at the same cost in India as they do in China, especially in the EV sector. They haven’t been able to do so in ICE-powered cars either. However, they have a big advantage in access to the best battery technology.

 

You have just announced your first electric car, the Maruti Suzuki Vitara, which will be exported initially. Why have you not chosen to launch it in the domestic market first?

 

The midsized EV will be priced at Rs 20 lakh plus in India, so the volumes will be very small in the country. Therefore, we decided to build volumes by exporting it to Europe and Japan with both Suzuki and Toyota and then launch it in India sometime in May or June 2025. The volumes will help us reduce production costs.

 

Will you benefit from the production-linked incentive (PLI) scheme for the electric car, for which you are eligible?

 

No, we won’t, because under the PLI scheme, the EV has to have a localisation of 50 per cent to be eligible for incentives, and we have not reached that threshold. However, we will receive a duty drawback on imports of components in the export market, so that’s fine. We are importing the battery to ensure the vehicle’s safety.

 

Do you see a sub-Rs 10 lakh electric car coming from Maruti Suzuki soon?

 

To achieve that, we would need much higher levels of localisation. We also have to rethink the specifications of the electric car for India, which differ from those in the US or Europe. For instance, in the US and Europe, cars are used a lot for intercity travel. But in India, with the railways upgrading their trains, it’s often easier and sometimes faster to take a train for intercity travel.

 

So, what does this mean in terms of redesigning the electric car?

 

I see a large market for an electric-powered city car, where you don’t need a large battery with a range of 500-600 kilometres, which is required in the US and Europe. This means designing a smaller car with less weight and smaller batteries. It could mean designing different models for different markets — one for Europe and Japan, and another for India. It’s a decision we’ll have to make.

 

There has been a vigorous push on exports by Maruti Suzuki. What is the reason for this new focus?

 

It’s clear that the passenger car market in India won’t grow very fast, so we need to focus on exports. We are tapping into markets like South America, South Africa, West Asia, and East Africa, among others. We are also starting with EVs and see a good market in Europe, although we don’t think Japan will be very big for us. The fact is, very few companies are making small internal combustion engine (ICE) cars now, but there is still a market for them.

 

Do you see tough competition from Chinese joint ventures in the Indian market, as they have in other global markets?

 

They are tough competitors, but I don’t think they will be able to manufacture cars at the same cost in India as they do in China, especially in the EV sector. They haven’t been able to do so in ICE-powered cars either. However, they have a big advantage in access to the best battery technology.