At the end of this month, two car manufacturing plants will be potentially up for grabs. General Motors’ Talegaon plant near Pune which once almost had a suitor in Chinese company till the Indo-China border skirmishes remains in limbo. Then there’s Ford India’s Chennai plant which will see the last vehicle roll out by end-June, ending the American company’s India journey, and leaving hundreds of employees in the lurch.
Ford’s staff at its newer and more automated Sanand, Gujarat plant have been lucky, in a sense, and will now be Tata employees, and can look forward to a new beginning of sorts.
Many years ago, the CEO of a European company on his visit to India had said it was rare in the developed world to be at the opening of a greenfield auto facility. And so, he relished the opportunity to be at the inauguration of a brand-new manufacturing plant.
However, as OEMs rejig their priorities, post-Covid and the electric imperative becomes increasingly a part of their strategic framework, setting up a brand-new plant is perhaps, no longer an option. OEMs may actually be looking at the possibility of acquiring a brownfield project, and then re-wiring it for their gameplans
India’s existing OEMs are already coping with excess capacity, and the fact is that going forward, many of them are taking a close look at market realities as they strategise for the future. During the pandemic, there were stories doing the rounds that MG Motor India has initiated talks with the VW Group and Mahindra-Ford to enter into a contract manufacturing arrangement. Subsequently, Mahindra called off its JV with Ford, and the VW-Skoda group has charted its own plans for the India market.
After being in the news as the most eligible suitor, Tata Motors which is on a roll, has signed an MoU to buy Ford’s Sanand plant which it is expected to acquire for between USD 100-USD 150 million, reports in the media suggest.
Covid and its impact of global supply chains, a slowing market - India’s began to show signs of slowing about 6-8 months before the pandemic - and the need to revisit the strategic game plans to overall business and profitability means companies have to take a close look at their plans going forward, including the promise of the market and how to manage facilities.
In the aftermath of Covid, Honda Cars India decided to shut its sprawling Noida facility and consolidate all its operations at the Tapukara facility in Rajasthan from which the new City and its other offerings now roll out. The plant at Noida with a 100,000 units capacity now makes engines for the Honda’s overseas operations.
In many ways, setting up a brand-new facility is perhaps no longer a viable option unless state government rolls out a red carpet that offers a whole lot of concessions. This was true in the case of Kia India’s Anantpur unit that reportedly cost Rs 12,000 crore which is inclusive of allocations for ancillaries.
Building a new plant
While a brand-new facility cost in the region of Rs 4,500 crore a decade or so ago, setting up a unit now, and depending on the spec, can cost twice or thrice as much. Earlier, PSA, now a part of Stellantis, had planned to set up a greenfield unit in Gujarat which was to cost Rs 4,000 crore. The French carmaker then put on hold its plans as it decided to review its global expansion plans in the light of a slowdown in Europe.
Eventually, the company signed a JV with the CK Birla group to use the latter’s Thiruvallur unit on the outskirts of Chennai to assemble its first offering, the C5, and will soon roll out the C3 B segment offering next month. The advantage of this unit is, among other things, access to engineering talent in the Chennai auto hub, as well as to the Ennore port that has established itself as a gateway for exports. PSA is believed to have invested about Rs 2400 crore, just over half of what it would have cost to set up a new plant.
Kia’s facility in Andhra Pradesh unit is likely to be the last for OEMs setting up plants in the ICE space. In the decade prior to that, Renault-Nissan set up its plant near Chennai in 2010, the first plant of the Alliance in India, and VW India set up shop at Chakan in 2007. Ford’s Sanand, which now has a new owner, began operations in March 2015.
In the CV space, VW Group-owned MAN Trucks shut shop in 2018 as demand did not quite pick up. The plant was later acquired by Force Motors.
Charge of the EV brigade
It’s now over to the EV players with the likes of Ola which is setting up what is calls a FutureFactory, and Ather and Simple Energy, among others, to lead the charge of the electric brigade. While Ola has set up a unit to roll out 20 lakh electric scooters when fully operational, Ather Energy is now in talks with several state governments to set up a third plant. Simple Energy has announced its intentions to set up a unit at Hosur at a cost of Rs 2500 crore. MG Motor India is looking to tap external funds to set up an exclusive EV subsidiary.
LML will roll out electric two-wheelers from the former Harley Davidson plant.
Last month, LML announced that is has partnered with Saera Auto, one of the largest two-wheeler producers and the former contract manufacturer for Harley-Davidson motorcycles in India to set up a plant in Bawal, an auto hub, that will have a capacity of 18,000 units.
On the electric front, the stakes are getting higher with states like Gujarat wooing new players in electric. Suzuki Motor Company is enhancing its substantial Gujarat footprint with an investment of Rs 10,444 crore for making of EVs and components. Toyota is also increasing its investments in green technology in Karnataka, and recently announced major investments across its subsidiaries in the country.
It remains to be seen who emerges as a pivotal player in the India’s emerging EV space particularly for two-wheelers and three-wheelers which will be the segments that will see the transition to electric. Here too, going forward, there will be failures and successes, and perhaps a plant or two up for grabs by a suitor with deep pockets and a sustainable business case.