India’s leading car manufacturer, Maruti Suzuki India Ltd, 40 years ago triggered an automobile revolution in the country by producing a hatchback, the Maruti 800, that was affordable, fuel-efficient and of a quality comparable to a Japanese car. Being the lowest-priced small car in the world, it brought car ownership within the reach of the urban salariat, including working women. Riding on the success of this hatchback—which was later replaced by the Alto—the company acquired a position of dominance in India’s car industry. However, growing competition and shifting demand for higher-end offerings, including urban sports utility vehicles, has squeezed the share of entry-level models and small cars. In recent years, there have also been new mobility solutions that have disrupted the auto industry. The notion of car ownership is itself being called into question with ride-hailing options. Electric mobility is in the ascendant. Maruti thus faces a serious existential threat to its dominance, with a diminishing market share, at 40.5% in Q1FY23 (down from 43% in FY22. This has been candidly acknowledged by its chairman, RC Bhargava, when he stated that “loss of market share is good for the company because it jolts us from our comfort zone”, adding that the biggest danger of being No 1 for long is complacency.

To shore up its dominance, Maruti Suzuki is rolling out fresh offerings, including an updated Alto launched earlier this month. Ahead of the festive season, it has also unveiled the Grand Vitara to cater to the growing demand for SUVs as the company did not have a second offering besides the Brezza. To enter the electric mobility space, its parent, Suzuki is investing Rs 10,400 crore for setting up EV capacities and manufacturing lithium-ion EV batteries in Gujarat. The first EV is expected to be rolled out in FY26. To be sure, it earlier did consider an electric version of its Wagon R model, which did not progress due to affordability considerations. Till the time it rolls out electric vehicles, Maruti Suzuki will sell hybrid cars—with a petrol engine and a battery—in partnership with the global auto giant, Toyota. Suzuki has also made an important decision to open a global R&D centre in the country to strengthen its capabilities and competitiveness in new fields of technologies.

Maruti Suzuki’s challenges in confronting the eroding demand for entry-level offerings also require a facilitative policy response. As an engine of growth, the auto industry is dismayed that vehicles are considered a luxury that only the rich can afford. Two-wheelers attract a Goods and Services Tax of 28% similar to luxury vehicles. Lowering the cost of ownership will help on the demand front. The market for small cars has been hit by surging input cost escalation on raw materials and freight. Meeting new regulatory norms has also led to rise in costs, all of which have disproportionately affected this segment, forcing potential buyers to postpone purchases and not graduate from two-wheelers. Although the government is pushing electric mobility, if these vehicles are not affordable, they, too, will face the demand constraint impacting small cars. For such reasons, India must learn from the example of Norway that has facilitated electric mobility through generous tax subsidies. To retain dominance in this extremely challenging and disruptive environment, Maruti Suzuki cannot afford complacency as Bhargava noted.