As a bellwether Indian automobile company, Maruti Suzuki has ruled the local market for decades. But, the company is conscious of the tectonic shift that the industry is undergoing in the wake of India’s COP26 emission targets. With investment requirements worth billions of dollars building up, the ecosystem is facing an existential threat against the backdrop of price hikes, semiconductor shortage and a lack of income growth that has soaked out the demand for cars in the country. In an interview with Outlook Business, Shashank Srivastava, Senior Executive Director—Marketing & Sales, Maruti Suzuki India, talks about the challenges the industry faces and the way to deal with it over the next decade. Edited excerpts from the interview:
What is the biggest challenge for the automobile industry in today’s fast-changing technological milieu?
India is a growing economy and we are expected to grow at a CAGR of 7-8% in the next decade. This will ensure a healthy demand in the future as India reaps the benefit of its demographic dividend in the coming years. The low (rate of) car penetration offers a big growth potential. However, for the industry, regulation is a big challenge and we have seen how changes in regulations have led to an increase in vehicle cost. While we need to invest in new technologies to meet the emission targets, we also need to be careful about the affordability factor as India is a highly price-sensitive market.
Research indicates that the auto industry will see growth in the Connected, Autonomous, Shared and Electric Mobility (CASE) space. This brings the auto industry to the cusp of a large change that happens once in a lifetime. As we transition to new technologies, the corresponding infrastructure also needs to be strengthened. Overall, the government has done a fantastic job. The auto industry will be more confident with a clear long-term regulatory roadmap.
Why do you think the overall demand for cars in the last decade was tepid? Is there any policy support that the government can extend to boost demand?
If people’s income does not grow, it impacts demand. In the last decade, the cost of cars has gone up due to various factors, including the adoption of the Bharat-VI emission norms, road tax, one-time payment of three-year insurance and so on. However, the income levels did not keep pace with it. The equation between regulations, cost and demand needs a fine balance because it impacts the volume growth in the automobile industry. Growth in domestic demand will bring economies of scale and competitive manufacturing. This will help in domestic sales as well as exports.
The industry is divided on the issue of a rebate for clean technology. Currently, only EVs are eligible for 5% GST as against other technologies that are taxed at 43%. Shouldn’t all players come together and agree on one particular technology to seek incentives from the government?
It is important for the government to be technology agnostic while trying to reduce emissions from cars. Different players are working on different technologies and while all of us are investing in cleantech, we also need intermediary tech that allows the transition from internal combustion engines (ICEs) to EVs or maybe fuel cell electric vehicles (FCEVs).
Several technologies are available to meet the dual targets of lower emissions and reduction of the oil import bill. These technologies include strong hybrids, mild hybrids, fuel cells and even CNG. The government can set the reduction targets and leave it to players to achieve it with their technology. We believe that the transition towards electric would be graded over a long period.
Considering excess demand and geopolitical issues, what challenges do the rising costs of semiconductors and lithium pose?
Semiconductors are becoming important and so are lithium-ion batteries. But, there is research happening on non-lithium batteries. We are aware that lithium is available only in a particular geographical area and there are geopolitical challenges to its sourcing in the long run. Government’s PLI scheme for battery and electronic components will help India become self-dependent. It is relevant to mention that our parent company, Suzuki, has established a joint venture with Toshiba and Denso to manufacture lithium-ion battery cells with cell-level localisation.
Legacy automobile companies are facing existential threat from startups like Ola, Ather, Tesla, among others. Do you think some of them may eventually lose out?
The automobile sector is at that time of history where we will see large changes in terms of technology. Such changes will bring opportunities as well as threats. For legacy players, the challenge is to quickly adapt to the changes around and maintain their lead. This is part of a business cycle in every sector and it will play out in the automobile sector as well.
Is it not possible for the OEMs to come together, pool their resources and share the cost of investment in clean technologies?
Collaborations have always been there within the industry. Given the current technology shift, it is very much possible for OEMs to collaborate to develop common technologies for mutual benefit.