Maruti Suzuki’s Board of Directors has greenlit the termination of the contract manufacturing agreement with Suzuki Motor Gujarat (SMG), a subsidiary wholly owned by Suzuki Motor Corporation (SMC) based in Japan. The move marks a strategic decision to enhance production efficiency and streamline the supply chain by consolidating all production-related operations under Maruti Suzuki India (MSIL).
To achieve this, MSIL plans to acquire the entire 100% equity capital of SMG from its parent company, SMC. The acquisition, constituting a related party transaction, is expected to be finalized by the end of FY24, pending compliance with legal and regulatory requirements, including approval from minority shareholders.
The management clarified during an investor call that this acquisition will not impact any existing agreements with Toyota or Suzuki’s India expansion plans, including the establishment of a battery plant.
Maruti Suzuki’s decision aligns with its vision to cater to the growing demand in the Indian car market and leverage export opportunities. As part of its long-term strategy, MSIL aims to increase its production capacity to approximately 4 million cars annually by 2030-31, nearly double the current levels. This expansion will likely be distributed across various locations, some of which have already been identified, while others are still under evaluation.
Furthermore, considering the increasing focus on carbon neutrality, the automotive industry is set to witness a coexistence of multiple powertrain technologies such as electric vehicles (EVs), hybrids, compressed natural gas (CNG), and ethanol-powered vehicles for a considerable period. Managing the complex production scale involving different powertrains under separate managements would present significant challenges in terms of production logistics, sales, and associated costs.
However, in terms of the actual production process and logistics, there will be no immediate changes. The cars that were previously manufactured by SMG as a contract manufacturer will continue to be supplied without disruption.
The details of the mode of acquisition and the consideration to be paid to SMC will be decided in a subsequent Board Meeting, and MSIL is committed to ensuring all necessary compliances are met for a smooth execution of the transaction. With this strategic move, Maruti Suzuki aims to strengthen its position in the market, prepare for future demands, and navigate the evolving landscape of powertrain technologies to remain a leading player in the automotive industry.
