Suzuki had been skeptical over Indian Prime Minister Narendra Modi's push for electric vehicles due to the country's poor infrastructure in the electricity sector. But the potential to make further inroads into India's auto market, a profitable sector for Suzuki, has prompted the company to shift course.
Suzuki and Toyota signed an agreement last month to help "the Indian government fulfill its 'Make in India' initiative, even in the field of [electric vehicles]," they said in a statement, referring to the campaign Modi launched in 2014 to encourage local manufacturing.
"Prime Minister Modi is committed to promoting electric vehicles," a Suzuki executive said. "We face his commitment sincerely. The agreement is a message that we will help 'Make in India' with EVs in addition to hybrid vehicles."
The agreement said the two automakers "intend to conduct a comprehensive study of activities for the widespread acceptance and popular use of EVs in India," and "such activities encompass the establishment of charging stations, human-resources development that includes training for after-service technicians employed throughout sales networks, and systems for the appropriate treatment of end-of-life batteries."
Only two months before the agreement was signed, Suzuki had been cautious over India's plan to promote electric cars.
On Sep. 14, Modi, Japanese Prime Minister Shinzo Abe, Suzuki Chairman Osamu Suzuki, and Suzuki President -- and Osamu Suzuki's son -- Toshihiro Suzuki attended the opening ceremony for the automaker's new plant in Gujarat state and another ceremony to lay the cornerstone for a lithium-ion battery factory by a joint venture between Suzuki, Toshiba and autoparts maker Denso.
Osamu Suzuki told Modi at the time that a shift to electric cars would drastically change the auto-industry structure that India had built over the years, and he questioned whether the strategy was the right move for implementing the "Make in India" initiative.
But Suzuki has apparently concluded that Modi will not change his mind.
Supporting local carmakers
Another reason for Suzuki's about-face is the Indian government's move to nurture homegrown automakers. The government began a pilot project in May to build a mass transport system using electric vehicles in Nagpur in central Maharashtra state. Nagpur is a politically important city, where the Hindu nationalist group Rashtriya Swayamsevak Sangh (National Volunteers Organization), to which Modi once belonged and is the largest support base for the ruling Bharatiya Janata Party, is headquartered.
The government has chosen Indian automaker Mahindra & Mahindra and car-hailing service provider Ola as its partners for the project. Mahindra provides electric cars and Ola supplies an app to reserve buses and passenger cars. Electric charging stations have also been set up in the city.
In September, meanwhile, the government selected Tata Motors, another Indian automaker, as the supplier of 10,000 electric cars to be used by government offices.
"Tata Motors is extremely proud to partner with the government of India in its journey to facilitate faster adoption of electric vehicles and to build a sustainable India," Guenter Butschek, CEO and managing director of Tata Motors, said in statement. He also vowed "to participate in boosting e-mobility in the country [and] accelerate our efforts to offer full range of electric vehicles to the Indian consumers."
Sanshiro Fukao, senior analyst at Hamagin Research Institute in Yokohama, said the Indian government hopes to nurture homegrown automakers and promote the use of renewable energy to reduce oil imports, which hurt the country's trade balance.
Suzuki started producing four-wheel vehicles in India in 1983 by taking part in a national car project. Over the decades, it has clashed and reconciled with the government many times over issues such as personnel affairs at Maruti Suzuki India, its local joint venture, and raising its stake in the venture. Suzuki has secured a roughly 50% share in the Indian auto market.
Suzuki now seems to have sensed that the government is changing its auto policy and decided to side with Modi, who enjoys wide public support.
India also has geopolitical importance for Toyota's global strategy, as highlighted in Abe's speech during his September trip to India.
Abe said connecting the Indian Ocean and Pacific Ocean, and Asia and Africa which border them, is the key for the future growth of the global economy.
For Japanese automakers, India is an important foothold to expanding its business into Africa and the Middle East, Abe said, adding that Japan will have to stop an offensive by European and Chinese rivals on making rapid shifts to electric vehicles in India in order to proliferate in other parts of Asia.
"Vehicle electrification, which involves building charging stations and power infrastructure, is not easy," the Suzuki executive said. "We will think and discuss with the Indian government about how EVs fit in the 'Make in India' initiative." The automaker takes the "best defense is a good offense" approach to minimize management risks, the executive said.
Since late last year, Suzuki has been the sole winner among Japanese automakers in terms of share performance. As of Dec. 7, Suzuki has risen 53%, far outpacing Mitsubishi Motors' 20% advance, while the benchmark Nikkei Stock Average rose 18%.
Toyota, Honda Motor and Subaru saw new car sales in the U.S. decline over the period, while Suzuki increased sales in India and its stock price hit an all-time high. The company's robust new car sales helped its market capitalization reach 3.091 trillion yen, surpassing Subaru, whose share price has dropped 24% so far this year, with its market capitalization shrinking to 2.803 trillion yen.
Still, some observers expressed concern over Suzuki's electric car strategy.
An analyst at a U.S. securities firm based in Tokyo welcomed Suzuki's agreement with Toyota and said it eases concerns over Suzuki's electric car policy. But the analyst cautioned that if India shifts too quickly to electric vehicles, Suzuki's earnings could be hurt in the short term because it will need to shift its initiatives in order to maintain long-term competitiveness in the Indian auto market.
Osamu Suzuki, the chairman, began working with the Indian government more than 30 years ago to lay the foundation for the country's auto industry and made his company a recognized national brand. His son, Toshihiro, is now taking on the difficult challenge of leading the shift to electric cars in India.
While Suzuki has projected a record profit in the current fiscal year thanks to its brisk business in India, it cannot rest on its laurels.