Maruti-Toyota tie-up: Analysts seek clarity from Suzuki arm

Analysts have raised concerns over Maruti Suzuki not disclosing more details pertaining to the partnership with Toyota, saying that there is a lack of communication and the company needs to be more open about the collaboration and its implications in the medium and near term.

In a letter to Maruti Suzuki CEO Kenichi Ayukawa, investment management and research firm Sanford Bernstein asked for clarity on what is Maruti offering Toyota in terms of pricing arrangements, who manufactures which model eventually and what kind of manufacturing margins will Maruti earn. “The challenge that we see is the lack of communication beyond one-page press releases on the fine print of the agreement,” the firm wrote.

As per the agreement, while Maruti will supply its four models — Baleno, Ciaz, Ertiga and Vitara Brezza — to Toyota, the latter will share its hybrid and electric vehicle (EV) technologies, besides its sedan Corolla, to Maruti. The two carmakers will also jointly develop a new Toyota C-segment multi purpose vehicle (MPV) that will be supplied to Suzuki.

However, Toyota has reportedly dropped plans to upgrade its sedan Corolla beyond 2020 for BS-VI emission standards, which implies that the rebadged version of the mid-sized sedan meant for Maruti Suzuki is unlikely to happen. The country’s largest carmaker has so far not informed as to what would be the alternate option if Corolla is not shared.

In a recent interaction with FE, Toyota Kirloskar Motor deputy managing director N Raja said the details regarding upgrading Corolla is still under consideration and the headquarters will take a call on that. “In any case, if we don’t upgrade it, we have an agreement to develop a multi-purpose vehicle together,” he said.

In its letter Sanford Bernstein has also asked for an alternative if the rebadged versions of Toyota do not manage to garner sufficient share. Other concerns raised by the firm were the cost savings that Maruti Suzuki is envisaging through the transfer of hybrids and EV technology by Toyota and through cost-sharing of EV battery manufacturing capacity.

Analysts said that Maruti’s management in the investor calls has shared very minute details which are insignificant for the stakeholders.

Experts are of the opinion that the collaboration may have a negative impact on Maruti Suzuki’s volume growth, given that it is sharing its best-selling models with Toyota. Maruti has already shared its compact car Baleno with Toyota, which the latter launched after rebadging and naming it Glanza.

“While we believe this alliance addresses the long-term sustainability issues of Maruti by getting access to EV and hybrid technologies of Toyota, cross-badging of best-selling models of Maruti creates uncertainty due to possibility of cannibalisation,” analysts at Motilal Oswal had earlier said.

As part of the cross-badging exercising, companies sell vehicles under different brand names with some cosmetic changes. Maruti’s models will also be sold by Toyota in the African market. The four models mentioned above contribute nearly 28% of Maruti Suzuki’s domestic volumes.

Analysts said the tie-up would have an incremental negative impact from Maruti’s perspective as it is sharing its models starting this year, while the technology shared by Toyota will start showing results at least after 4-5 years, as initially EVs won’t garner volumes due to lack of infrastructure. “Access to Toyota’s technology will be key to future-proof Maruti’s long-term prospects, particularly in the electric vehicles segment. However, quid pro quo will inevitably mean concessions by Maruti, in various forms, which investors need to factor in,” analysts at Jefferies have said.