How Maruti sped past Hyundai in global race

The compact SUV is manufactured in Maruti Suzuki India Ltd’s Haryana factory —and shipped nearly 10,000 km away to South Africa, where it has quickly become a bestseller. A cross-badged version of Maruti’s own Brezza, it is a small SUV that is less than 4 m in length—a species peculiar to India, where such cars get tax concessions. “The demand for the Brezza is off the charts in South Africa. It shows that if you make a successful model in India, it will find customers in many different parts of the world," says Shashank Srivastava, senior executive director, Maruti Suzuki India. South Africa is not Maruti’s only overseas market, nor is the Brezza the only car from Maruti that is in great demand outside India.

For years now, the Indian car market has seen a fierce Hyundai vs Maruti rivalry play out, with Maruti holding on to its pole position in the domestic car space. In the last fiscal, it pulled off a turnaround. It dislodged Hyundai Motor India Ltd from the position of the country’s largest car exporter—a place the South Korean major had held on to for 23 of the last 25 years.

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The numbers speak for themselves. The Japanese carmaker exported a record 236,000 cars from India, an over two-fold increase from fiscal 2021. This was its best ever export performance since its inception almost four decades ago. More importantly, it was comfortably ahead of Hyundai, which shipped 129,000 units during the year, a growth of 24 % year-on-year but still significantly less than its pre-Covid tally.

How did Maruti pull this off? One, it got lucky with a better-than-anticipated supply of semiconductor chips for its export models. Second, it has been aggressively entering newer geographies, and going deeper into existing markets in Africa and Latin America. Third, its association with partner Toyota Motor Corporation has given it the acceleration it needed in exports.

“The world over, the market for more affordable cars has risen. Southeast Asia and Africa are on the verge of high growth. Given that most of them [especially Africa] do not have domestic manufacturing capabilities, India becomes a very good source of affordable vehicles," says Avik Chattopadhyay, co-founder, Expereal, a brand strategy consultancy firm."

Cheap and best

The surge in exports for Maruti comes at a time when the industry is grappling with supply chain issues. In the domestic market, there is a backlog of nearly 700,000 cars in the passenger vehicle industry currently, with consumers having to wait an average 5-6 months for their choice of car. For Maruti, that number is over 350,000 units, as inconsistent supply of semiconductor chips has handicapped its production.

Surprisingly, this has had little impact on its exports.

Since fiscal 2020, Maruti has increased its share of industry’s overall exports from 15% to 41 %. The momentum has sustained in the first quarter of fiscal 2023—Maruti shipped nearly 70,000 cars, accounting for 43 % of all exports during the period. Its export market share is now, ironically, higher than its domestic share. “Our total output, including export, if compared to previous year, increased 13%," says Hisashi Takeuchi, managing director and CEO, Maruti Suzuki India Ltd (MSIL).

The semiconductor chips needed for manufacturing export models are different from those needed for domestic cars. Vehicles with superior features—on emissions, safety or connectivity—need more as well as advanced chips. Most countries in Africa and many countries in Latin America still do not have Euro IV emission norms (India has BS VI, comparable to Euro VI)), while safety regulations are also less stringent. “The availability of specific components was limited for the domestic market. But components for exports were available last year. So, we could produce more to meet the strong international demand," adds Takeuchi, who took over as the top boss at Suzuki’s crown jewel at the start of this fiscal.

Passenger vehicle exports for the industry as a whole have somewhat rebounded from the lows of the pandemic. It is still 13% lower than the pre-pandemic levels and nearly a quarter less than the peak volumes of fiscal 2017. For Hyundai, the decline started much earlier as it prioritised the domestic market and shifted production base for export models.

Its shipments for Europe, for example, which used to be its biggest market accounting for 40% of export volumes at one time, has almost entirely been shifted to its factories in Czech Republic and Turkey. “We are a global company with factories all around the world unlike Suzuki which is concentrated in India. Our priorities change with time. We were much more export-oriented at one time. Now our attention is focused on the domestic market," said a senior Hyundai official.

Since it started operations in India in 1998, the Korean carmaker has been a big exporter of cars as it set out to make India its global hub for compact cars. The share of exports in its overall production has, however, fallen in the last 15 years. In fiscal 2009, a year after it doubled its capacity with a second factory in Chennai, exports accounted for 51% of the production. In absolute numbers, exports peaked at 286,000 units the next fiscal year (see chart). In fiscal 2022, it came down to just 21%. The dent in exports from India has not affected Hyundai’s global sales numbers, which are strong and growing.

Capacity constraints have also played its part. Hyundai Motor is yet to commission a third factory in India, relying on incremental engineering innovations to enhance capacity at its existing units. From a rated 600,000 per annum facility, it can manage to eke out a maximum 765,000 units. But its focus remains firmly on the domestic market. This year, Hyundai aims to exceed its peak sales of 550,000 units in India in 2018. In the absence of a third factory, Hyundai has to calibrate exports to adjust for domestic demand.

“Companies like Hyundai/Kia together have been able to grab a bigger piece of the domestic market share in India in FY22. So, they focussed more on domestic markets and less on exports as they had limited production capacity in India," says Puneet Gupta, director, S&P Global Mobility. “Hyundai either needs to reduce exports from India or set up a new plant."

Maruti has no such worries. It has been adding factories and ramping up capacity on a regular basis. With two factories in Haryana and one in Gujarat, it has a cumulative capacity of 2.2 million units today. Recently, it started work on its biggest factory yet in Sonepat, Haryana, which aims to produce 1 million units by the end of this decade, taking Maruti’s overall capacity to well over 3 million units.

“The company has set up an installed capacity of about 2 million units and with domestic market still recovering and not yet back to 2019 levels, the gaps were filled in by exports.," says Ashim Sharma, senior partner and group head (auto, engineering and logistics) at Nomura Research Institute Consulting and Solutions). Suzuki cars are also good fits for the target markets in the ASEAN region, Africa, Latin America and even Europe. “With the current capacity, new plant capacity announcements, strong presence in small / compact car segment, India’s regulatory alignments with European standards, this certainly looks sustainable," Sharma said.

The surge in exports for Maruti comes at a time when the rupee has considerably weakened against the dollar, giving its finances a boost. Its revenues from exports during the year jumped 158% to ₹12,490.7 crore. It logged revenue ₹5.3 lakh per car for exports, which was a shade higher than from its domestic operations.

“A stronger dollar definitely makes exports lucrative. The benefit is more for companies that have a high degree of localization in India as their import bills are lower," adds Sharma of Nomura.

More cars, more choice

The fortuitous availability of chips for export models alone would not have been enough for Maruti to unseat Hyundai. Not by this margin anyway. What helped was its sustained focus on the export market.

It quadrupled its sales in Egypt and doubled its sales in Chile. The standout performance was in Africa, which emerged as the top export destination accounting for half of the total export volume. In fiscal 2022, exports to the continent grew by 200%. As a result, South Africa, which was not even in its top 5 markets six years ago, is now its biggest by far —registering a growth of 167% and accounting for a quarter of its overall export volume.

“While the better demand environment in these markets was a factor in this unprecedented growth, the efforts in developing these markets over the past few years proved to be the big differentiator, especially in South Africa," says Rahul Bharti, executive officer (corporate affairs), Maruti Suzuki. “Additionally, supply of vehicles to Toyota through Suzuki Motor Corp in the African market also helped grow the export volume. Growth in exports to Latin America, and the Middle East, which are among our other important export destinations, has also been strong."

The profile of the models that it ships out of India has also evolved, keeping in mind the changing preferences of consumers. From affordable no-frills compact cars, Maruti’s portfolio has diversified over the years to include somewhat premium models like the Baleno and its compact SUV Brezza. Both the models now feature in the list of its top 5 exported cars worldwide.

It also has an export-only model—the three-door Jimny SUV, the global successor to the Gypsy, which it began shipping from its Gurugram facility to Latin America, Africa and the Middle Eastern markets last year. It is the only hardcore offroader built on a ladder-on-frame chassis in Suzuki’s global lineup. In a ladder-on-frame construction, the body of the vehicle and the chassis are made separately and then put together, ensuring a more robust car, capable of handling rough terrain. “Our growth in Africa is partially because of the Jimny and then because of the boost from Toyota’s distribution network. We think this is sustainable. We would like to consolidate a bit and keep our position strong in exports in the future also," Bharti adds.

The tie-up with Toyota has given it an edge, agree analysts. “At the core is their collaboration with Toyota which is making them think and look beyond the Indian market. Suzuki’s India focus, both in terms of product proposition and technology upgradation, has gone through a sea change in last two years due to this collaboration," says Gupta of S&P Global. “The combination of Toyota’s global reach and Suzuki’s frugal manufacturing/engineering skills in India will help them serve the world with the best value ‘make in India’ cars."

The race between the two biggest players aside, these are good tidings for domestic manufacturing. Nothing makes a better advertisement for ‘Make in India’ than a domestically manufactured automobile plying on the roads of Montevideo or Nairobi, Jakarta or Tokyo.

Even smaller players like Renault Nissan or Honda, Volkswagen and Skoda are latching on to it. Exports provide them a hedge against the vagaries of the domestic market, which has seen the likes of General Motors and Ford exit. “It makes the business case more resilient. Bigger volumes mean better economies of scale that also helps companies in pricing the cars more aggressively in the domestic market. That is the key takeaway from Hyundai’s success story," says Chattopadhyay of Expereal. Maruti has done well to learn that lesson—and outrace its rival.

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