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Semiconductor crisis may ease by next year: Maruti Suzuki Chairman

The car company, which has factories in Gurgaon and Manesar in Haryana, now plans to build its third plant in the state

May 20, 2022 / 04:03 PM IST
Maruti Suzuki Chairman R.C. Bhargava

Maruti Suzuki Chairman R.C. Bhargava

Maruti Suzuki India, which commands an over 40 percent share in India’s domestic passenger vehicle market, is investing Rs 18,000 crore in a new manufacturing facility in Haryana’s Sonepat district. The company's chairman RC Bhargava spoke to Moneycontrol about the upcoming plant, the semiconductor chip supply crunch and electric vehicles. Edited excerpts:

What will Maruti Suzuki make at its third major facility in Haryana? Also, why did you decide to stay in Haryana and not set up in another state?

This plant is extremely important for us in the long term. This would be the biggest investment by us, not just in a state, but by any car company anywhere in the country. It will cater to both the domestic and overseas markets and is not specifically earmarked for any segment of vehicles. Subject to market conditions, we will be able to reach a peak production capacity of 1 million units in eight years.

We looked at all the other options and found greater advantages of being close to our Gurgaon facility, where most of our vendors are based. We have a common supply infrastructure and know-how to work here (in Haryana). Our logistics are also worked out here. Going to a new place would mean starting everything from scratch. Just because some states are inviting us to set up our plant does not necessarily mean there are better alternatives elsewhere.

You were quoted as saying the small car market, which has been Maruti’s ‘bread-and-butter’ segment, is shrinking. Is it in terminal decline?

Close

I hope it is not in terminal decline. This is because the bulk of the people in India need small cars. There are close to 230-250 million two-wheeler owners who are aspirants for small cars. If we leave this market out and maintain that cars are only meant for those who are at the top of the pyramid, that will mean much smaller growth and smaller volumes. Employment generation and economic development were happening because we were selling 75 percent of the cars in the small car segment. That has come down to 45 percent now. Look at the setback it will cause to the economy as a whole. I hope the government will understand this at some point of time.

Are you lobbying with the government to bring down duties on small cars?

Car manufacturers always keep making representations. The government has its own limitations in terms of tax revenues, budget deficit, and other programmes. So they also have to see what they can and should do. It is not that if I ask for reduction, they have to oblige. They have to balance the whole situation.

The government has mandated six airbags as the standard offering in a passenger vehicle. Will that impact small car volumes?

I am not even sure if six airbags will fit in a small car. But putting four extra airbags (in addition to two currently) will certainly cause a further setback in the sales of small cars.

You have maintained that hybrid vehicles are ideal to boost sustainable mobility. Why do you think so?

Hybrids will improve fuel consumption by 30-35 percent, which means the carbon content also comes down to that extent. I am not sure of the figures, but I don’t think that with the current energy supply in India, even EVs will lower it by 35 percent because of the thermal energy consumption. The government has given all kinds of incentives for electric cars but nothing for hybrids or CNG-powered vehicles. Thanks to some advisers, the government is convinced that electric cars are the best answer for India, which is not the case. We have not been able to convince the government to bring down the current tax rate, which stands at 43 percent and is equivalent to what is charged for traditional vehicles.

Maruti has said it will roll out its maiden EV by 2025. Will that be a gamechanger in terms of pricing?

Yes, we will have our maiden EV in the next three years but I cannot say if it will be a gamechanger because the market will determine what percentage of my production it will be.

The paucity of semiconductors impacted the auto and other industries. When do you see the crisis abating?

Yes, the semiconductor shortage did affect production and eventually resulted in delayed dispatch of vehicles to customers. However, the chip-supply constraints have gradually improved over the last few months. It is improving steadily at the moment. This year will be better than last year and I would hope that next year would be substantially better again. This means the crisis will be more or less over.

What is your outlook for this year?

There was a projected outlook shared by the industry body this year, but I am not sure how the recent inflationary trends will affect those projections.
Avishek Banerjee
first published: May 20, 2022 04:03 pm
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