BT500: Can R.C. Bhargava steer Maruti Suzuki’s EV gamble to secure its market dominance?

Maruti has managed to hold on to its leadership position by jumping on the SUV (sports utility vehicle) bandwagon and increasing its offerings across powertrains as it seeks to consolidate its leadership position.

Besides, it has also segmented its customers through its Arena and Nexa dealerships to better cater to varied customer tastes. “By segmenting customers based on premium and market preferences, Maruti has maximised customer acquisition. Nexa attracts higher-income, urban customers, while Arena appeals to the value-focussed, semi-urban demographic. Together, they account for over 80% of Maruti’s distribution network,” notes Harshvardhan Sharma, analyst at think tank Nomura Research Institute. Between 2017 and 2024, the company added approximately 3,069 Arena outlets and over 500 Nexa showrooms across India.

At the other end, the Nexa showrooms have also started pulling their weight. “Nexa’s contribution has increased to over 25% of total sales. Premium models sold under Nexa have higher margins, boosting profitability and subsequently contributing to the growth. Nexa has elevated Maruti’s brand perception among urban buyers, especially in the SUV and compact SUV segments,” adds Sharma. 

RURAL COMFORT  

In the first half of 2024-25 (H1FY25), rural sales, which account for 46% of total sales, grew 8% even as urban sales declined 2%. But, unlike its peers, Maruti Suzuki remained unfazed.

“This year, rural has been growing faster than urban. We are expanding our reach in the upcountry markets. But there’s a kind of convergence happening. Rural buying behaviour is becoming closer to urban,” says Partho Banerjee, Head of Marketing and Sales of MSIL.

The company is certainly taking heart from the rural revival, as it has a strong foothold in the semi-urban and rural markets. “The company recorded a 12-15% increase in domestic passenger vehicle sales last year, largely due to demand revival in semi-urban and rural areas, where Maruti has a strong foothold,” says Nomura’s Sharma. 

SUV PORTFOLIO  

Though Maruti Suzuki was a late entrant in the SUV space, it has managed to corner a 21% market share in terms of volumes as of the September quarter of FY25, according to the Society of Indian Automobile Manufacturers. Maruti Suzuki SUVs account for 27% of its total sales.

According to Nomura’s Sharma, the company’s focus on expanding its SUV portfolio is a big reason for the surge in market cap. “Maruti’s focus on the SUV segment has paid off, with models like the Brezza and Grand Vitara contributing significantly to its volumes. SUV sales surged by nearly 40%, aligning with India’s broader consumer shift towards SUVs,” notes Sharma. For Maruti Suzuki, 39% of SUV customers are first-time buyers. 

To capitalise on the shift in customer preference, the company is introducing new SUV models. “At present, the demand has been skewed towards SUVs, and hence the company’s focus will be towards introducing more SUVs in the domestic market,” Hisashi Takeuchi, Managing Director and Chief Executive Officer of MSIL, said at a recent press conference.

While the company’s SUV portfolio has been thriving, the passenger car segment has been a pain point for Maruti Suzuki. It witnessed a 13.3% decline YoY in the first half of 2024 in the passenger cars segment, which it dominates. The company’s mini and compact sedan and hatchback portfolios declined 12.8% in the first half of 2024-25. For Maruti Suzuki, the sedan segment accounts for 10% of its sales, whereas hatchbacks account for 31% of its total sales.

A worried R.C. Bhargava, Chairman of MSIL, told reporters recently that the sub-Rs 10 lakh segment, which contributes 18-19% of sales, is witnessing a decline. 

As the market leader, Maruti Suzuki accounts for 50% of total domestic sedan sales. It is attempting to revive the sedan segment, which accounts for 8% of sales, by introducing the fourth-generation Dzire with an investment of Rs 1,000 crore. 

POWERTRAIN PUSH

Another key piece of the Maruti Suzuki strategy is the options it provides prospective buyers in terms of powertrains—petrol, CNG, hybrid, and soon electric.

“We decided to adopt a more diversified approach to meeting national objectives and did not want to put all our eggs in one basket,” Bhargava had said at the 43rd annual general meeting in August. 

At present, CNG cars account for more than 30% of Maruti Suzuki’s sales. “Maruti’s CNG vehicles have consistently dominated this segment, contributing to around 15-20% of total sales. With rising fuel prices, CNG options have allowed Maruti to continue to attract cost-conscious customers,” notes Sharma of Nomura. 

Meanwhile, the company has also remained bullish on its hybrid portfolio, which accounts for about 16% of sales.

“We are seeing reasonably good growth in hybrid vehicles. We are almost going at a growth rate of 30% this year with strong hybrids,” says Banerjee. 

Meanwhile, the company remains committed to introducing its first EV model, the eVX, in January. It is looking to have 15% penetration by 2030. 

According to Bhargava, the recent slowdown in EVs in both the global and domestic markets is a blip. “These are new vehicles that people have yet to adjust to and understand and see how best to use them. So some kind of fluctuation in demand is not totally unexpected,” Bhargava said at the AGM. 

According to Nomura’s Sharma, with an initial expected price advantage, Maruti’s EV can target the budget-sensitive segment, potentially capturing sizeable market share. “Maruti plans to leverage its expertise in cost-effective small-car manufacturing, providing affordable EV options in a segment underserved by competitors. This can drive further sales growth, cementing its leadership in a market transitioning towards electric mobility,” says Sharma. 

EXPANSION PLANS

In FY24, the company became the largest automobile exporter for the third consecutive year. It exported about 280,000 units in FY24. In the first half of FY25, the company’s exports surged 11.8% to 148,276 units as against 132,542 units in the corresponding period in FY24. In FY25, the company is targeting sales of 300,000 units.  Analysts observe that Maruti has a growing export base, with over 200,000 units shipped in 2023. “Expanded production capacity allows Maruti to target export markets more effectively, especially in regions like Africa and Latin America, contributing to overall revenue growth,” says Nomura’s Sharma. 

On the production front, the company’s plant in Kharkhoda, Gujarat, which has a capacity to produce 2 million units, will become operational early next year. It already has a production capacity of 2.25 million units at its plant in Manesar, Haryana, which it plans to increase to 4 million units by FY31. It is also scouting for land for a third plant.  Going ahead, Maruti Suzuki will hope that the increase in production, multiple powertrain strategy, and cost management will help it increase its market share, boost market capitalisation, and give investors more reason to cheer.         @OrielAstha11