Japan’s Suzuki Motor owns 100% stake in Suzuki Motor Gujarat (SMG), which supplies its entire production to Maruti Suzuki. Maruti Suzuki’s board on Monday approved the termination of the contract-manufacturing agreement with SMG and the acquisition of the entire stake in the production unit, the company said.
Suzuki Motor in 2014 decided to set up a separate manufacturing facility in Gujarat as its wholly owned subsidiary. SMG produced 750,000 units annually.
While the method of purchase is yet to be determined and approved by the board, the contract manufacturing agreement has a provision for the sale of the unit on book value in event of termination of the arrangement, Maruti Suzuki chairman RC Bhargava said. The last known book value of SMG was Rs 12,755 crore.
The carmaker expects to conclude the transaction by the end of the ongoing financial year.
Bhargava said the car industry in India has changed substantially since 2014.With the growth of the Indian car market and export potential, Maruti Suzuki would need to increase its production capacity to about 4 million units per annum by 2030-31, almost double from current levels. The company has commenced work to set up its largest manufacturing facility with a total installed capacity of 1 million units at Kharkhoda, Haryana. Work is ongoing also to identify the location for an additional factory of similar size.Bhargava said: “Given the carbon-neutrality requirements, several powertrain technologies like EVs, hybrids, CNG and ethanol will co-exist for a reasonably long period of time. Managing this scale and complexity of production with multiple powertrains, under different managements, would pose several challenges.”
The board considered this, Maruti Suzuki said, and decided that for the purpose of efficiency in production and supply chain, it is best to bring all production-related activities under it.
In terms of actual production, logistics, sales and the cost thereof, there will be no change as the cars earlier supplied by SMG as a contract manufacturer, will continue to be supplied as before from the facility.
Bhargava said: “One benefit which we will get in due course is that EV production will be done by MSIL (Maruti Suzuki), not SMG. In 3-4 years, the team here will gain much more knowledge and expertise in this area.”
Maruti Suzuki plans to drive in six EVs in the local market by 2030.
The acquisition will not impact in any manner Suzuki Motor’s investments for setting up the battery manufacturing facility and an independent research and development centre in India, Bhargava said.
Separately, the board also approved the appointment of Yukihiro Yamashita as a director and designated as joint managing director with effect August 1 for three years.