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Maruti Suzuki is stuck in second gear

Maruti Suzuki is stuck in second gear

automakers face an uphill climb in slippery conditions.
finance
August 1, 2021
2 min read
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Maruti Suzuki is stuck in second gear

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Maruti Suzuki is stuck in second gear

India’s largest carmaker is kind of struggling. no, it really is. the global chip shortage keeps getting worse, its electric vehicle (EV) isn’t getting launched anytime soon, and now it has run into trouble for anti-competitive practices.

in March 2021, its Japanese parent Suzuki Motor Corporation made a big announcement. it was to invest 1 trillion yen over five years for electric vehicles. this led many to believe its Indian subsidiary would also shift to EVs in the near future.

but it appears Maruti Suzuki isn’t in a hurry to do that yet. its chairman RC Bhargava said that EVs have to be affordable for customers first. at a time when peers like Tata Motors and Hyundai have decided to double-down and go electric, it is worried about possible operating losses.

what happens now?

the carmaker has had to change plans often with no EVs coming in for now and existing production facing cuts due to the chip shortage. this means that festive sales could go for a toss this year.

to be fair, they are not the only automobile company facing the chip crisis. for example, Tata Motors was also hit but for them raw material costs are the biggest concern right now. 

compared to 2020, things are far better for Maruti though. it posted a 37% increase in domestic sales in July. it also snatched the top exporter crown from Hyundai.

the topline and bottomline have seen improvements, though below analyst expectations. the company posted a Q1 net profit of ₹441 crore against a ₹249 crore loss last year. revenue jumped more than four times to ₹17,771 crore.

but tax?

cars are still considered a luxury product in India with total taxes going up to 36%. the company’s chairman has pressed for tax cuts time and again but none have been announced yet. sales aren’t likely to pick up unless there is a GST cut.

now to top it all, Maruti Suzuki has been slapped with a ₹200 crore fine for penalising dealers offering additional discounts. this affected its stock price; which has slipped 7% YoY as of August 26.

what comes next?

brokerages have said that the near-term outlook is uncertain. till the semiconductor shortage and GST rates continue, it will be a tough market for Maruti Suzuki and its peers. hopes are high on aggressive buying during Diwali sales. if the company can make the Q3 revenues speak, things will start to look up.