Hybrids in an EV era

Propelled by the Toyota and Suzuki partnership, the resurgence of hybrids is a signal that the electric mobility revolution in India may take a lot longer than was assumed

Indrajit Gupta

[From Unspalsh]

The Indian passenger car market will soon see a fork in the road on its journey towards electrification. Until now, pure electric vehicles (EVs) have been the flavour of the day. But hybrid technology is now emerging as an important game-changer, providing more potent and effective alternative to wean customers away from the internal combustion engine (ICE) to cleaner options. 

Despite a limited range of hybrid vehicles on offer currently in India, the sale of hybrids have revved up, albeit from a small base, and surpassed EVs since the second half of last year. The trend continues this year as well. In the US, too, sales of EVs are starting to stagnate.

The EV landscape will soon start to dramatically change. Numero uno Maruti Suzuki’s decision to press the accelerator on hybrid technology, including a low-cost variant, across much of its fleet—Baleno, Swift, Fronx—apart from its existing range of Grand Vitara and Invicto — is likely to shake up the automobile market. As much as a quarter of Maruti’s sales could come from its expanded hybrid range, tapping into the growing environmental consciousness among Indian consumers. 

However, that could very well spell trouble for the major Indian players, Tata Motors and Mahindra, who decided to entirely hitch their bandwagon to EVs, completely ditching hybrid as a more viable intermediate solution. The Indian government, which patiently supported the EV revolution, may soon have to bring a measure of parity in its incentive schemes. Toyota and Suzuki are aggressively campaigning for a cut in goods and services tax (GST) rates for hybrid cars from 43% to 12% (as opposed to 5% for EVs) — something that even Union Minister Nitin Gadkari appears to be increasingly in sync with. Tata Motors has been crying itself hoarse to prevent tax cuts for hybrids, but the strident lobbying may not cut ice for long.

So what’s really going on? Hybrids score on three counts: They are cheaper to manufacture compared to EVs. And their cost of ownership falls somewhere in between an ICE car and an electric car. What’s more, it is not dependent on a battery charging infrastructure, which eliminates range anxiety that has hobbled the growth of EVs in India and also eliminates the attendant hassles. Simply put, a hybrid car typically alternates between an ICE and a self-charging battery depending on the terrain. In city traffic, the car draws power from the battery. On the highway, it relies on its gasoline engine. And the switchover is seamless. To make it worse, the resale value of EVs remains uncertain.

Toyota was the first global car maker to bet on hybrids with its Prius brand way back in 1997. And since then, it has had enough time to refine the technology. However, it was often mocked for not focusing sufficiently on EVs and the need to completely eliminate emissions. Its chairman Akio Toyoda stuck to his guns, allowing customers to choose between hybrid and electric and also arguing that “electric car adoption would peak at 30% and with the remainder taken up by hybrids or vehicles that use hydrogen technology.” But now, as Elon Musk’s Tesla starts to lose steam in the US (sales dropped 13% in the first quarter of this year compared to Q1 of the previous year), it seems certain that Toyoda will have the last laugh.

In India, Toyota’s unique two decade long partnership with Suzuki has shifted gears and set the cat among the pigeons. Primarily, a small-car maker, Maruti Suzuki realises the need to expand its product portfolio with bigger cars, especially SUVs. The consumer response to last year’s launch of Toyota Innova Hycross and the Toyota Urban Cruiser Hyryder are seen as the tipping point for hybrids. The same SUV is rebadged as Suzuki Invicto. As this Business Standard story from last year shows, Toyota India’s business has been the biggest beneficiary of its global partnership with Suzuki which allows the two Japanese carmakers to share technology and vehicles.

Maruti Suzuki has signed a production-sharing agreement with Toyota, where a part of Toyota’s capacity is earmarked for it. Going forward, Maruti is pushing through its own capacity expansion, extending a hybrid option across its entire fleet. It plans to offer three distinct hybrid variants. While Toyota already has access to the mature hybrid option in the Hycross, it has sensibly allowed Suzuki to take the lead on the development of these low-cost hybrid options. Toyota’s failure with its small car project Etios in India, coupled with Suzuki’s strengths in frugal engineering and design and its aggressive cost reduction targets, likely influenced this decision. Auto experts like Hormazd Sorabjee predict that the projected fuel efficiency of these low-cost hybrids could reach an impressive 35 kmpl, more than double what current hybrids offer. This has the potential to set the market on fire, he says.

[Autocar India Deep Drive Podcast: At a time when rivals are betting entirely on EVs, Maruti Suzuki has chalked out plans to go big with hybrids. Hormazd Sorabjee and Sergius Barretto discuss the rationale and the story behind the news.]

This hybrid resurgence is a signal that the full electric mobility revolution will take much longer than expected. In India, the primary bottleneck is building a sufficiently large battery charging infrastructure across the length and breadth of the country. That has taken far longer than what was originally assumed and the search for viable public-private partnerships to build infrastructure is still on. Until then, it is likely that EVs will remain a second car option for most Indians who drive within the city and have access to charging infrastructure in their residential complexes. Plus, building out the electric car ecosystem in India and localising manufacturing has taken time. 

Unlike rivals like Honda, Hyundai and Kia, Maruti Suzuki has now seen the writing on the wall. Its decision to double down on fuel-efficient hybrids through its partnership with Toyota makes ample business sense for both Japanese firms.

(A shorter version of this Strategic Intent column was published in Business Standard)

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About the author

Indrajit Gupta
Indrajit Gupta

Co-founder and Director

Founding Fuel

Indrajit Gupta is a business journalist and editor with over two decades of experience. He was the Founding Editor of the Indian edition of Forbes magazine. Within four years of its launch, Forbes India became the most influential magazine in its space.

He is the co-founder and director at Founding Fuel.

He has served in leadership positions at many of the leading media brands in the country. Before taking up the assignment to start up the India edition of Forbes magazine, Gupta was the Resident Editor of The Economic Times in Mumbai and before that, the National Business Editor of The Times of India.

Over the years, Gupta has built a reputation for grooming talent and creating highly energised and purposeful newsrooms. He has interviewed several leading global thought-leaders and business leaders including CK Prahalad, Ram Charan, Wayne Brockbank, Sumantra Ghoshal, Carlos Ghosn and Nitin Nohria, and also led cutting-edge joint research-based projects with McKinsey & Co, The Great Place to Work Institute, Boston Consulting Group, KMPG and Coopers & Lybrand.

He won the Polestar journalism award in 2010 and was awarded the Chevening fellowship by the British Foreign office in 1999. Gupta is an alumnus of the SP Jain Institute of Management and Research, Mumbai and a B.Com (Hons) graduate from St Xavier's College, Calcutta.

Gupta teaches a course on Business Problem Solving at his alma mater. He writes a column named Strategic Intent in Business Standard’s edit page. He lives in Mumbai with his wife and two young daughters.

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