Maruti Suzuki gets lion’s share of Suzuki R&D budget

New Delhi: Most of the $1.5 billion allocated by Suzuki Motor Corp. for its research and development (R&D) activities will be spent on its most profitable unit Maruti Suzuki and help the Indian firm maintain its 50% market share amid increasing competition from European and Korean manufacturers.

The money will be used to upgrade Maruti Suzuki’s existing models to Bharat Stage VI emission norms—most stringent globally—by 2019, to develop an entire range of hybrid vehicles and other alternative technologies, two people aware of the matter said.

Reuters on 10 May reported that Osamu Suzuki, chairman, Suzuki Motor Corp., in a post-earnings conference call said the company needs to find ways to maintain its current market share in India till 2030 when the Indian passenger vehicle market is tipped to touch the 10-million mark annually.

According to one person aware of the matter, Maruti Suzuki has a huge task at hand in upgrading its existing 14 models to comply with the BS-VI emission norms, which will takes effect on 1 April 2020.

A full range of hybrid vehicles—from the current SHVS or mild hybrid, to full hybrid and plug-in ones—will also be developed by the company in association with Toyota.

“The company will focus on making the full range of hybrids as meeting the CAFE (corporate average fuel efficiency) norms will be impossible without hybrids,” said this person.

The new spends on R&D will take a toll on Suzuki’s earnings (and of Maruti Suzuki to an extent) for the financial year ending 31 March 2019.

The operating income of the company would decrease by 9.1% to 340 billion yen as a consequence of higher research and development expenses and appreciation of yen against the dollar. The net income or the net profit of the company would decrease by 5% to 205 billion yen, Suzuki said in a forecast.

In FY18, Suzuki’s net sales grew by 18% to 3757.2 billion yen, while operating profit jumped by 40% to 374.2 billion yen. Consequently, net income increased by 34.9% to 215.7 billion—the highest since 1977—on the back of surging sales in India and recovery in European markets.

The company would also invest in developing electric vehicles and related infrastructure like charging stations and making other components of electric vehicles. The development of more fuel efficient gasoline engines is also on the cards, said the second person.

In a first, Suzuki has also tweaked its organization structure globally to include a new department to develop electric vehicles.

“Suzuki has the technology, but it is not adequate enough to meet the competition. Hence, investment needs to be there. New technologies have to be developed as the government of India is very serious about it,” R.C. Bhargava, chairman, Maruti Suzuki, said.

The Indian government initially planned to promote only electric vehicles and wanted to shift 30% of the total vehicles on the road to electric by 2030.

“Developing these technologies is not a one-day affair and it takes a long time. The company will have to work on these things for a long time now. By 2030, if 20%-30% vehicles shift to electric then the rest 70% will leave a huge opportunity for hybrids to grow as they will pollute less,” said the second person.