Sample Management Paper on Should Maruti Suzuki Invest in Electric Cars?

  • Why does the Indian government want to phase out fossil fuel cars and replace them with e-cars?

Fossil fuel cars have two major drawbacks; global warming and high petroleum costs. Fossil fuel cars have engine combustion systems that burn fossil fuels like petrol, diesel, and gasoline. This combustion produces gases that rotate the wheels causing the cars to move. The combustion of fossil fuels also produces large volumes of dangerous carbon gases such as carbon dioxide which is a potent greenhouse gas (Sathre, 2014). These gases are responsible for causing global warming through two processes. The first is the depletion of the ozone layer which is responsible for keeping the sun’s dangerous ultra-violet gases away from the earth. Secondly, carbon gases prevent heat generated by extra-terrestrial radiation from escaping out of the atmosphere. They store these energies for long time periods and as such end up heating the atmosphere. The aforementioned reasons coupled with India’s already high and growing population creates a horrific situation if all citizens were to own conventional cars. The government, therefore, has to push for migration to electric cars.

Secondly, fossil fuel cars are both costly to manufacture and maintain. Most of these cars are made from steel or aluminum alloys with the former being hard to get considering that India does not have steel deposits. Although the country has aluminum-producing bauxite, the fuel costs cannot be ignored. Currently, India has a trade deficit that is primarily caused by fuel imports (Pailwar, 2018).  The fuel imported by the country is mostly used by conventional cars. The country cannot accommodate any increases in fuel imports for the purpose of meeting an increase in demand for conventional cars. As such, the only viable option remains to be a shift to electric cars. Unlike its shortage in fossil fuels which can only be mitigated by importing, the country can increase its supply of electricity sustainably by investing in renewable sources of energy. Through costly initially, this move is cheaper in the long run and easily sustainable. Lastly, the shift to electric cars is consistent with several international organizations in which India is a signatory. These include the United Nations, Global Environment Facility, and the Climate Action Network.

  1. Why is Maruti reluctant to immediately forge ahead in the e-car segment?

Maruti is an established leader in the Indian passenger car category. The company’s manufacturing ability tremendously grew to an all-time high of 1.5 million units in 2017 (Pailwar, 2018). These units comprised 15 different models with 150 variants (Pailwar, 2018). The company is hence reluctant to shift immediately to the electric car segment because of this accomplishment. Shifting to e-cars would mean a change in everything from raw materials, production, supply chain, and even marketing. Maruti would have to move to a market that is already dominated by Mahindra and Mahindra. The company would also require to set up new production points for the electric vehicles and start importing the expensive electric car batteries. This whole venture has an overwhelmingly huge cost implication that could adversely affect the company’s established conventional cars framework.

Secondly, Mahindra is reluctant to immediately forge ahead in the electric car segment because of the low demand for these cars at the moment. Most automobile companies that are shifting to the electric cars segment are doing so based on projections and forecasts but not real-time data. The problem with projections is that they may fail to actualize. It is not guaranteed that Indians will automatically jump into the electric cars wagon. Contrarily, these projections may end up being optimistic. Currently, conventional cars are easily available together with maintenance parts and professionals. The situation is different for electric cars. The cars can be made available in the country but the costs of maintenance and the availability of parts, especially, the batteries will continue to be scarce and costly. Charging points are also rare in the country thus making this shift to electric cars harder than it sounds. Consumers will always be sober and as such may opt for conventional cars or the improved hybrids as opposed to electric cars.

Lastly, if Maruti was to immediately shift to the production of electric cars it would have to start from a follower position since the leader in this sector is Mahindra and Mahindra. As such, the company will have to play second fiddle to the market leader. The electric cars sector is also very congested with the likes of Nissan, Tesla, Toyota, and Volkswagen being key players. Maruti will, therefore, have to contend with stiff competition from companies that are already way ahead in terms of research and development. The government incentives promised for electric car manufacturers are also unstable and not dependable. Maruti could end up finding itself in financial difficulties if it immediately jumped into the electric cars segment without first ascertaining the stability and sustainability of the promised government incentives.

  • Conduct a SWOT analysis of Maruti in the e-car segment. Based on the SWOT analysis, should Maruti enter the e-car market or wait?

Maruti should conduct a SWOT analysis so as to ascertain whether the decision to forge into the electric cars segment is valid or ill-informed. Maruti’s strengths include its leadership in the conventional passenger car segment, economies of scale, superior specifications, high resale value for their cars, performance efficacy, and environmental friendliness (Leykun, 2019). Other strengths include a strong brand name, diversified product range, and a well-established distribution network. The company’s weaknesses include the inability to capture market share in the SUV’s sector, the inability to penetrate into the international market, and the inability to capture high-end customers. Maruti’s opportunities include developing hybrid cars in the passenger car segment, growth in the SUV cars category, making products for the high-end clients, and government subsidies. Lastly, the company’s threats include global competition from renowned carmakers like Volkswagen, nullification of the Goods and Services Tax, and the ban on registration of new diesel vehicles in India’s capital, New Delhi.

Based on Maruti’s SWOT analysis, shifting into the electric car segment would be an ideal move. However, doing so immediately would be misinformed. The company should wait and while doing so conduct further research and development into the shift. Maruti is already an established maker of conventional cars, the right move would be to first move into the hybrid car segment before shifting to electric cars. The reason behind this is taking advantage of what the company does best. The company, unlike Mahindra and Mahindra, does not have a presence in the electric car segment. As such it should not rush into this market. In contrastingly, it should work on improving its identified weaknesses. The company also has profitable prospects in its opportunities as identified in the SWOT analysis. Maruti has other more profitable ventures that it should undertake immediately other than the shift to electric cars. Delaying this shift will give the company a good opportunity to finally enter the electric cars segment as a leader not only in the conventional passenger cars segment but also in the SUVs, Lorries, buses, and hybrid cars segment.

  • Based on the current business and economic environment in India, should Maruti enter the e-car segment? Use a game theory approach to answer this question. Identify the players, their strategies, and the appropriate game theory format to represent the conflicting situation. Provide appropriate justification and use your own payoffs for each strategy option selected by the players

Based on the current business and economic environment in India, Maruti should not enter the electric car segment. A better approach would be for Maruti to delay its entry given the uncertainty of government subsidies and demand for these automobiles. The major electric car players in India are Mahindra and Mahindra, Tata Motors, Ashok Leyland, Nissan, and Tesla. Mahindra and Mahindra is the best-positioned car maker in India to take advantage of the opportunity presented by e-cars. Mahindra’s strategy involves manufacturing vehicles that are innovative, technologically superior, and differentiated. The company ventured into the e-cars category even before the electric cars buzz started. As such it has already established its self in this segment with two e-cars manufacturing plants in Chakan and Nasik, in Maharashtra (Pailwar, 2018). Mahindra’s second strategy involves heavy investments in research and development (Pailwar, 2018). The company invested around 6 billion Rupees in the research and development of e-cars.

Tata Motors is another key player in the Indian electric cars segment. Although the company is not a leader in this segment like Mahindra, it signed an agreement with Europe’s biggest car manufacturer, Volkswagen, to develop e-cars components and new vehicles. Their strategy involved strategic partnerships since Volkswagen contained the financial and infrastructural resources to develop competitive e-cars. However, Tata Motors is yet to actively enter the e-cars market, and its two flagship products, the electric Nano and Tiago EV, were still in the concept stage (Pailwar, 2018). Ashok Leyland is still in the process of developing its flagship product in the electric cars segment, the circuit series electric buses. The company is a key player in the Indian Medium and Heavy Commercial Vehicles segment with Tata Motors being the only player with a bigger market share than it. Ashok Leyland strategy is specializing in its field of expertise, the Medium and Heavy Commercial Vehicles field. Nissan is another player in the Indian e-cars segment. The company is also a world leader in the e-cars segment with its flagship product, the Nissan Leaf, being the world’s bestselling e-car with around 280,000 units sold (Pailwar, 2018). Nissan was one of the first companies to move into the e-cars segment and has developed its product immensely over time. Tesla, has invested immensely into research and development over the years. It first manufactured an e-car in 2008. However, Tesla and Nissan do not have a physical presence in India at the moment making the active players in the e-cars segment Mahindra, Tata Motors, and Ashok Leyland.

The ensuing game theory to represent the entry strategies for Maruti, Tata Motors, and Ashok Leyland results in a conflicting outcome. Assume Maruti is player A, Tata Motors player B, and Ashok Leyland player C. The electric cars market in India is still developing with demand not matching supply. As such, the market cannot accommodate all players simultaneously at the moment. The payoffs for one player staying away alone is 1. The payoffs for staying away with one opponent is 2. Staying away with both opponents is 3. Entering with no opponent is 4. Entering with one opponent is 5. Entering with both opponents is 6. The most favorable outcome is entering alone with payoffs of 4 while the worst outcome is all three players enter with payoffs 6. One player’s act of entering will cause another player to enter. Assume A stays away but B enters alone, the payoffs would be 4. The effect of this would be any other player entering thus moving the payoffs to either 6 or 5. As such, one player’s move will have effects on the behavior of the other players. The Nash equilibrium point is when all players stay away. The entry of one player brews a conflicting situation as the two players that chose to stay away from will want to enter and enjoy the profits while avoiding the adverse outcome of having all players in the market.

  • If Maruti decides to enter the e-car market, what should be its mode of entry?

The best-suited mode of entry for Maruti would be partnerships and strategic alliances. Mahindra used acquisitions as its mode of entry and that proved to be an ideal decision given that Reva Electric Car Company was already an established e-car manufacturer in Bengaluru. The absence of another established e-car manufacturing firm leaves partnerships and strategic alliances as the best mode of entry for Maruti. Top players in the e-cars category such as Nissan and Tesla are yet to make their presence felt in the Indian market. The former is still in the process of assessing the local demand for its Nissan Leaf within firms in the private sector and the government. Moreover, it was also assessing the possibility of its e-cars being locally manufactured in India. Tesla, likewise, was considering setting up a local factory in India for meeting local demand for its products. However, it was being hindered by restrictions to imports of its products. These two companies provide a rare opportunity for Maruti to form a strategic alliance.

Both Tesla and Nissan are leaders in the e-cars segment and have been in the segment for a considerable amount of time. As such, they have already invested in research and development and have established products in the market. Partnering with either of the two will allow Maruti to skip the research and development step and accelerate its speed-to-market (“Strategic Alliances for Competitive Advantage,” 2019). Moreover, forming a strategic alliance with either Nissan or Tesla will allow Maruti to compete with Mahindra in the e-cars segment. Maruti stands to benefit from the strong brand image possessed by both Nissan and Maruti. Other advantages of strategic alliances include the spread of risk, specialization, and the synergy stimulated by the two players.

  • What would be an appropriate time for Maruti to enter the e-car market?

The appropriate time for Maruti to enter the market would be when the hindrances to its entry are addressed. This time is thus not specific but dependent on the actions of the government. The first hindrance is the unstable nature of the government subsidies for electric vehicles to original equipment manufacturers. At the moment these subsidies are unstable and non-sustainable. The initial capital outlay for e-cars is huge given that the batteries are imported and account for a third of the total cost. The absence of subsidies will prevent local manufacturers from shifting to manufacturing e-cars. Secondly, there are inadequate charging stations for electric cars coupled with frequent breakdowns in the electricity supply. India’s infrastructure for charging electric cars was weak with Mumbai and Nagpur being some of the few cities with charging stations (Pailwar, 2018). Lastly, the government should consider offering consumer incentives to increase the demand for e-cars. As currently constituted, e-cars have a limited demand in India. Mahindra, the only company manufacturing e-cars is already experiencing less demand compared to its supply of e-cars. The entry of Maruti and other companies into the e-cars segment will increase supply. To avoid a state of excess supply, the government should create incentives that will encourage consumers to buy e-cars such as tax subsidies. Maruti should also consider entering the e-car market when the e-car batteries are easily available because of being manufactured locally. As such, the company will end up saving a lot of money that would have been used in importing these batteries on a frequent basis due to their short shelf life.

  • What should the Indian government do to promote the e-car market?

The biggest hindrance to the purchase of electric cars is the hefty buying costs. Many consumers are willing to buy these cars but are not able to afford them. Secondly, there are limited charging stations currently in India making it hard to own these cars. Thirdly, an unstable supply of electricity makes it hard to charge these cars. Lastly, the absence of a local manufacturing factory makes it expensive for local production of e-cars since the batteries are imported and are expensive. The government has an essential role to play in promoting the e-cars market. To begin with, the government should subsidize the cost of manufacturing and buying these cars (Huang, Leng, Liang, & Liu, 2013). Secondly, it should increase the number of charging stations available in the country. More charging stations will reduce the costs of maintenance of the cars since one will not have to travel long distances to charge their car. Thirdly, the government should stabilize the country’s electricity supply. Fourthly, the government should lead by example by purchasing electric cars for its high-ranking civil servants as opposed to the conventional and hybrid variants. A Company like Nissan, for instance, is still assessing the demand for e-cars especially within the government and private sector before considering setting up local manufacturing factories for e-cars (Pailwar, 2018). Lastly, the government should make it easier for international e-cars brands to set up factories and import their cars locally. Tesla, for instance, has delayed setting up a local factory to manufacture its cars for the local market because of the restriction in place that is preventing it from importing its e-cars (Pailwar, 2018).

  • Why are e-cars considered a disruptive technology? Should the Indian government be part of the disruptive technology, considering that the country has already invested huge amounts of money in conventional cars and oil refineries? What are the benefits of this approach and what is at stake?

Disruptive technology is any technology that satisfies the following five elements: cheaper, simpler, starts small, broad-reaching in impact, and advances rapidly (Sanketh, 2016). As such, in order to decide whether e-cars are disruptive technologies or not they are scrutinized against the above elements. To begin with, e-cars are cheaper since they are easier to maintain because of their simple technologies. Secondly, e-cars are simpler than the conventional internal engine combustion counterparts. E-cars have only one moving part, the motor, while conventional internal combustion engines have more than one hundred moving parts. They are, therefore, easier to maintain and more reliable. The simple nature of e-cars is further emphasized by their energy efficiency. Electric motors are more efficient than fossil fuel motors and also experience fewer mechanical problems. This advantage also makes e-cars cheaper to maintain due to lower maintenance and operational costs.

Thirdly, the e-cars technology started small with a handful of companies adopting the idea. However, the technology is already growing rapidly with statistical forecasts showing its global appeal. A country like Norway is already predicting a 100-percent shift to e-cars by 2025 (Pailwar, 2018). Lastly, e-cars technology has broad-reaching impacts. The technology will not only reduce the rate of global warming and climate change but also reduce the heavy oil import bills that countries like India have to deal with.

The Indian government considers being part of the disruptive technology regardless of its vast investments in conventional cars and oil refineries. This technology is quickly spreading and soon conventional cars will become obsolete. Moreover, the Indian government is already experiencing trade deficits because of its hefty oil import bills. Adopting this disruptive technology is likely to reduce its reliance on oil in the near future and improve its balance if trade deficit. Secondly, if the Indian government fails to adopt the disruptive technology right now it may end up missing a golden opportunity to supply these cars to its huge populace of more than 1.2 billion people. Other international manufacturers will soon flood their markets with cheaper e-cars and make it hard for the nation to compete with them.

The benefits of adopting the e-cars technology are a reduction of greenhouse gases, ballooning oil import costs, supply not only to the local market but also to foreign markets, and becoming compliant with agencies such as the United States that India is a signatory. If India fails to adopt the e-car’s disruptive technology, it stands to lose a lot of money it would have earned by selling these cars both locally and internationally. Moreover, the country stands to lose very many jobs that would have been created by setting up factories for manufacturing these cars.

 

 

References

Huang, J., Leng, M., Liang, L., & Liu, J. (2013). Promoting electric automobiles: Supply chain analysis under a government’s subsidy incentive scheme. IIE transactions45(8), 826-844.

Leykun, F. (2019). Maruti Suzuki India Limited Strategic Management: (A Case Study). International Journal of Research in Commerce and Management Studies (ISSN: 2582-2292)1(3), 16-43.

Pailwar, V. K. (2018). Should Maruti Suzuki Invest in Electric Cars? Ivey Publishing, 1-13.

Sanketh, A. (2016, September 19). Electric vehicles: Are they disruptive? Nikko Asset Management. Retrieved from: https://en.nikkoam.com/articles/2016/09/electric-vehicles-are-they-disruptive

Sathre, R. (2014). Comparing the heat of combustion of fossil fuels to the heat accumulated by their lifecycle greenhouse gases. Fuel115, 674-677.

Strategic Alliances for Competitive Advantage. (2019, September 8). The Wall Street Journal. Retrieved from: https://deloitte.wsj.com/cfo/2019/09/08/strategic-alliances-for-competitive-advantage/