Daybreak - EVs aren’t everybody's cup of tea. Maruti-Toyota are making the most of it.

Episode Date: June 4, 2024

Since 2021, Toyota and Maruti have been engaged in somewhat of a marriage of convenience. The terms were pretty simple. Toyota would share its hybrid technology with Maruti Suzuki. In exchange, Toyota would get to re-enter the pocket-friendly segment. So what this meant was that the non-premium Toyota cars sold were actually built by Maruti. And the fully hybrid cars sold under the Maruti label were built by Toyota. This arrangement has worked well for both companies for multiple reasons. The biggest of which is the growing popularity of hybrid vehicles in India in the recent past. But in the process, EV makers seem to be losing big time. Tune in.P.S. While you are here, why don't you check out the latest episode of The First Two Years, The Ken's early careers podcast. It's a good one! Akshaya talks about how to network without seeming desperate. Check it out here. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Back in 2023, India's largest car maker Maruti Suzuki did something pretty unexpected. It launched its most expensive car yet. This was a 7-seater hybrid multi-utility vehicle called Invicto. But it wasn't the price point of the Invicto that makes it an unusual choice for Maruti.

If you've seen this car, it's pretty hard to miss the glaring resemblance to the Inova High Cross, another hybrid MUV by Maruti's rival automaker Toyota. The two cars are practically identical. And back in 2021, Toyota pulled a similar stunt. It re-entered the economy segment with a more affordable hatchback called Glanza. Now, here's what's interesting. This car was also a hybrid and happened to be identical to Maruti's Bellino. Now, like you've probably guessed, none of this was a coincidence.

Both the Invicto and the Glanza were the result of a partnership between the two automakers. Since 2021, Toyota and Maruti have been engaged in somewhat of a marriage of convenience. The terms are pretty simple. Toyota would share its hybrid technology with Maruti Suzuki. In exchange, Toyota would get to re-enter the pocket-friendly segment. So what this meant was that the non-premium Toyota cars sold were actually built by Maruti. And the fully hybrid cars sold under the Maruti label were built by Toyota. And so far, this arrangement has worked well for both companies, for multiple reasons.

The biggest of which is the growing popularity of hybrid vehicles in the world. India in the recent past. These are basically a crossover between your conventional petrol or diesel vehicle and an electric vehicle or EV. Okay, let me explain. Unlike full-blown electric vehicles, you can't plug in and charge a hybrid. It has a battery that is charged through regenerative braking and an internal combustion engine. Basically, every time you break a hybrid vehicle, it captures the kinetic energy and turns it

into electrical power that charges the car's battery. Okay, now that that mini science lesson is out of the way, let's get back to the Maruti-Tayota partnership and India's adoption of hybrid vehicles. You see, data shows that most well-to-do folks in India are just not ready to fully commit to EVs. But a lot of them are willing to consider buying the best of both worlds hybrid car instead.

This consumer preference is reflected in car registration trends too. In fact, just this year, hybrid car registrations in India were almost four times that of EVs. Here's where Toyota and Maruti come in. Through their partnership, the two companies have been the biggest beneficiaries of this shift to hybrids. But in the process, EV makers seem to be losing big time. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Rahil Filippos, and I'll be joining Snigda every week. to bring you one business story that is worth understanding and worth your time.

Today is Tuesday, the 4th of June. Back in the 80s when the iconic Maruti 800 was launched, it very quickly replaced the trusty Bajar scooter to become the middle-class family's dream vehicle. It was a pretty revolutionary moment because finally, owning a car was no longer a luxury. The people's car was here and the automotive industry in India was never quite the same. All thanks to Maruti and that little navy blue hatchback. Now, all these years later, Maruti is still the go-to automaker for anyone looking to buy a reliable, and more importantly, an affordable car. But the downside of being the middle-class family's first choice is that it's really hard to be seen as anything more than just that.

So when the automaker tried testing the waters by launching slightly more premium models of its cars, there were very few takers. Meanwhile, Toyota was dealing with the opposite problem. The Indian arm of Toyota Motor Corp, Toyota Kirloskar Motor, was in crisis mode for quite some time. In fact, the year it launched the Glanza, it had just about 3% market share in the Indian automobile space. So it was hanging by a thread.

An employee of Maruti told the Ken reporter Nathan Nardde that the company was in a Ford-like situation. Remember, business got so bad for Ford that in 2021, it decided to leave India. So the company's partnership with Maruti came at just the right time. The company's survival in India depended on it. And for Maruti, it meant a much-needed makeover. Finally, Toyota was able to sell good cars in the lower-priced economy segment and Mar-Uti was able to venture successfully into the premium segment.

And everyone seems to be winning. At one point last year, 43% of all Toyota cars were actually built by Maruti. Meanwhile, Maruti gets to leverage Toyota's tried and tested in-house hybrid technology and sell more premium vehicles. Before this, Maruti had a poor track record when it came to building hybrid technology. So this works out well for the company. And it isn't just Maruti and Toyota's Indian businesses.

even Suzuki, Maruti's Japanese partner, is winning in the process. For the longest time, Suzuki had been trying to find a suitable match for a hybrid tech share. It tried partnerships with Volkswagen and General Motors over time, but industry insiders told the ken that it never really worked out. Toyota is proving to be the partner Maruti has always needed, all thanks to its technology and hybrid engines. Okay, so now that we've understood what the two companies are up to, Let's turn the lens on us.

The customers. Why is it that the Maruti-Ti-Tiyota marriage has thrived so much because of its hybrid cars? What happened to the EVs? More on that in the next segment. Hi, I'm Akshire. I host an early career's podcast from the Ken's Newsroom, the first two years. If you're in the first few years of your career, this is a podcast for you. Here's what I do.

Every week, one of our listeners talks to me about something that's really keeping them up at night. How do I quit my job without burning bridges? How do I recover from a huge mistake at work? How do I find a mentor when I've only just started working? How do I get my manager to understand what I need? You see when I'm going with this? So I take that question out into the wild and make it my mission to find an answer. I speak to founders, C-suite executives, industry experts, HR consultants, anybody I can to find an answer to questions that they can't get out of their heads. And that's just what I did when last week a listener asked me, how do I network in a way that actually succeeds and isn't awkward or cringe or literally

just useless? And I think we've actually figured that out. This is what I talk about in the latest episode of the first two years, which is dropped today. Click on the link in the show notes or simply just type in the first two years wherever you get your podcast. You don't want to miss this episode and now back to Dahi. When the Kent spoke to sales reps at both Toyota and Maruti dealerships in Bangal,

they said that for car buyers, the top most concern is price. Now, this doesn't really come as a surprise because we all know that India is a pretty price-sensitive market on the whole. Now, with cars, it isn't just how much you're shelling out at the dealership that matters. You're also thinking about resale value. And this is still murky territory for EVs and hybrids since they haven't been around for quite as long as your conventional petrol and diesel vehicles. In fact, IIT Kanpur carried out a price sensitivity analysis to understand the total cost of ownership for EVs and hybrids. Basically, total cost of ownership or TCO is the estimated price of a product or service, in this case a car, through its entire life cycle. So IAT Kanpur chose three different cars for this study, and EVEV and a petrol variant of Tata's Nexon and a hybrid variant of Maruti's Grand Vitara.

And since subsidies are in place to incentivize EV adoption, they also considered a scenario in which these subsidies were absent. This is important because the existing subsidy called Fame is going to expire this July. Okay, so before we go over what they found, let me state the obvious. The more a car is driven, the more the TCO decreases. So given that, where do hybrid stand as compared to EVs? Well, the folks at IAT Kanpur found that in a situation where subsidy support continues, the TCO for EVs driven for 10,000 kilometres a year comes to around 25 rupees per kilometre. Without subsidies, it's about $30.

Meanwhile, the figure for hybrids driven for the same distance stands at around $26 per kilometer. The IIT Kanpur team also studied the impact of changing fuel and electricity prices on TCO. Leaving a little wiggle room for a 10% change in energy or fuel prices, the TCO results remain similar to when they were distance driven. So with the subsidy, EVs became pocket-friendly. Its absence, however, makes owning them 12 to 15% more expensive than a hybrid. So, hybrids seem to be kinder on the wallet. And even from an environmental sustainability point of view,

the conclusion they arrived at was that hybrids were still the better option. And this is a view that is shared by the man at the helm of Maruti, R.C. Bagawa. But not everyone agrees with that perspective. In fact, just last month, Tata Motor, his chief financial officer, P.B. Balaji, had dismissed hybrids as being used more as tax breaks than actually getting into zero carbon emissions. Don't forget, this is the company that owns over 70% of the EV market's share here in India. Even a recent government report said that EVs reduce more net CO2 emissions than any other car does. But car companies are really

sticking to their strategies when it comes to EVs and hybrids. So Tata wants to maintain its EV-only stance, while Maruti wants to stay committed to the masses and is choosing not to be EV-only. But the bottom line is, Indian consumers are leaning towards hybrids. Hybrids have been consistently outperforming EVs in terms of sales. Now, could that change down the line? Well, perhaps. Pure EVs offered us a chance to eliminate air pollution from tailpipe emissions right now. And with the way things are going in some of India's biggest cities, it means. may just be the right time to jump at that opportunity. Even if it means our wallets being a little slimmer.

But unfortunately, that doesn't seem to be how things are playing out. Like Elon Musk, who gave his EV plans in India a miss for a variety of reasons, Indian consumers seem to be doing just the same. The only upside is that it seems to be working out pretty well for Maruti and Toyota. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras.

Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippo's produced by me, Snigda Sharma, and edited by Rajiv Sien.