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Maruti Suzuki hits the ignition on EVs

Maruti Suzuki hits the ignition on EVs

is this a lucrative proposition for the automaker and its investors?
March 24, 2022
3 min read
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is this a lucrative proposition for the automaker and its investors?

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on March 21, even as benchmark indices showed weakness, the share price of Maruti Suzuki jumped over 3% in intraday trading. this was on the back of news from the previous day that Suzuki Motors Group, the majority stakeholder in the firm, had signed an MoU (memorandum of understanding) with the state of Gujarat to invest $1.4 billion (~Rs 10,400 crore) into the development of electric vehicles (EVs).

is this a good time for investors to climb aboard Maruti Suzuki’s sto

full circle

the move marks the first foray of Suzuki’s Indian arm (Suzuki Motors Gujarat) into EVs after it had scrapped similar plans in 2020 due to a lack of infrastructure. however, its delivery timeline is still the same with the launch of an EV scheduled for 2025. the announcement came just a day after Japan declared an investment target of $42 billion in India over the next five years during PM Fumio Kishida’s visit here.

as part of Suzuki’s MoU, it will invest Rs 7,300 crore for the construction of a battery plant near its existing automobile manufacturing unit by 2026. a smaller portion of the investment (Rs 3,100 crore) will be directed towards ramping up production capacity for EVs by 2025. meanwhile it will invest Rs 45 crore in the construction of a vehicle recycling plant by 2025, likely in Noida, through another subsidiary - Maruti Suzuki Toyota India

market speak

Suzuki’s entry into the EV market will no doubt spur positive sentiment, but the extended timeline means that there will be no immediate impact on cash flows from this move. the timeline by itself may also be an indicator of the ongoing global semiconductor chip crunch which is already hurting automakers but will be even more crucial to EVs. however, in the longer term, the narrative appears to be emerging that the battle for EV market share will be won or lost in the battery technology and charging mechanisms. it is perhaps a good sign that a large chunk of Suzuki’s investment is going in that direction.

also, at present, Tata Motors appears to be virtually the only EV car-manufacturer that is finding any traction in the market, with a 96% share of unit sales in February. here, Suzuki runs the risk of letting others capture the market but at the same time might find it advantageous to roll out its EV after a pathway for EV adoption has already been paved.

thus while the announcement is definitely a positive note for investors in the long term, the current global scenario indicates that auto stocks may offer better valuations to those who hold their patience in the short term.