Maruti production cost has remained constant for years: R C Bhargava

Maruti Suzuki has been able to keep the cost of production of like-to-like vehicles pegged at nearly the same levels for years due its aggressive cost reductions.

“A study conducted by the company has shown that in like-to-like vehicles (taking out any additional costs due to value addition or new regulations on, say, emissions), our cost of production has remained constant for years,” said Maruti Suzuki chairman R C Bhargava. 

“That is because, through our comprehensive cost reduction programme, we have been able to save enough to neutralise the impact of the increase in input prices like materials and others which go into the making of the car.”

Bhargava says that each year the company, based on workers’ suggestions, has saved around Rs 300 crore in costs. Component vendors also contribute by improving processes. The third component of the cost reduction is enhanced employee productivity year-on-year.

Asked whether Maruti Suzuki is being left behind with the Tatas recently offering an electric car at sub -Rs 10 lakh, Bhargava says he is not worried and that the volumes are still very small — a mere 1 per cent of all private vehicle sales.

He points out that an internal study of electric car buyers has shown that virtually all of them have their own dedicated charging facility. Until charging stations become easily available across the country, this will remain a major stumbling block for EV penetration, he said. For this reason, he added, Maruti Suzuki has taken a different route. It wants electric cars which are made in India to have a high level of localisation. That is why the company has entered into a joint venture to manufacture cells as well as lithium ion batteries at an investment of Rs 7300 crore in Gujarat. These account for the bulk of the cost of producing an electric passenger car. (The cells are currently mostly imported by electric vehicle players). The joint venture will mean that Maruti Suzuki’s electric vehicles will start with substantially high localisation. The precise level can be gauged from the fact that 40 per cent of the cost of the vehicle is due to the battery and cells account for 60-70 per cent of the cost. Bhargava approved of the government’s Production Linked Incentive (PLI) scheme across various sectors, including autos and auto components.

“When you are making a product indigenously,  you will be losing money initially as the cost of the components made in India would be higher  from imported ones,” he said. He added that imposing high duties on such components to protect local production will always face opposition from other players and will not make the Indian products competitive.

So, the PLI scheme essentially reduces the cost disadvantage that manufacturers in India face vis-a-vis imports for a limited period of time until the Indian supply chain becomes competitive.