Maruti Suzuki to invest Rs 1.25 lakh crore till FY31

In a bold move to solidify its position as the country's largest car manufacturer by volume, Maruti Suzuki India Ltd. (MSIL) has announced its plans to ramp up its investments to a staggering Rs 1.25 lakh crore in capital expenditure (capex) over the next decade. 

The capex for FY23 at the company's existing plants in Gurgaon, Manesar, and Gujarat stood at Rs 7500 crore, it added. 

As part of its ambitious growth strategy, Maruti Suzuki aims to increase the number of models in its portfolio from the current 17 to a grand total of 28, out of which at least six are expected to be electric vehicles. These EVs will be produced at the Gujarat plant, with the first product likely to be rolled out in FY24–25, the company said in a presentation made to company shareholders and analysts.

Outlining its projections for the future, Maruti Suzuki is envisioning a substantial shift towards electric vehicles (EVs) by the years 2030–31. The company estimates that an impressive 15-20% of the cars it sells during this period will be EVs, reflecting the increasing demand for sustainable mobility solutions.In addition to EVs, Maruti Suzuki anticipates that another 25% of its car sales in 2030–31 could consist of hybrid models, while the rest would use ethanol, CNG, and possibly CBG. 

The company's top leadership highlighted that, in the rapidly evolving landscape of the automotive industry, technological breakthroughs and evolving customer preferences have the potential to significantly impact demand forecasts. As a result, it is imperative for production lines and support systems to possess the necessary flexibility to accommodate these changes. Failure to do so could lead to a misalignment between supply and demand, necessitating swift modifications to production plans and potential manpower adjustments. It may also become necessary to swiftly adjust production volumes between different units to meet the projected large increase in export volumes. 

The company estimates that approximately Rs 45,000 crores will be required to establish a capacity of 2 million units, a development that would nearly double domestic sales volumes.

Additionally, Maruti Suzuki continued that, in order to remain at the forefront of innovation, the company aims to undertake a majority of the development work related to internal combustion engine (ICE) cars in-house, necessitating additional outlays for R&D. This strategic focus on ICE cars is complemented by the need to develop 10–11 new models, each offering different fuel options and catering to the diverse needs and preferences of customers. Moreover, the production of electric vehicles (EVs) and sport utility vehicles (SUVs) will require substantial capital expenditure to meet the growing demand in these segments.

The auto giant has devised a comprehensive cash flow strategy that emphasises the importance of ensuring cash availability before making expenditures based on anticipated incomes. As the company prepares to add new capacities, it anticipates a subsequent influx of cash flows. However, there will be a time lag between the investments made and the actual realisation of income.

 Maruti Suzuki management anticipates that a payout of over Rs. 12,500 crore for Suzuki Motor Corporation (SMC) shares in Suzuki Motor Gujarat (SMG) raises concerns regarding its potential ramifications on various financial aspects. Apart from the expected reduction in profits, earnings per share (EPS), and dividend payments, this significant payout also has the potential to create a shortage of cash reserves. The company has another option that they think is better, which involves paying by issuing equity shares of Maruti Suzuki to Suzuki Motor Corporation on a preferential basis based on projected growth in eight years.