Chinese auto firms to fast-track India plans3 min read . Updated: 14 Jul 2016, 01:50 AM IST
Changing market dynamics in India and a shift in buyer preference from small cars to utility vehicles has encouraged Chinese automakers
At least four Chinese automobile makers are in talks with Indian state governments to set up local manufacturing plants, as they seek new markets to compensate for slower growth at home.
Changan Automobile Co., Dongfeng Motor Corp., BYD Co. and Great Wall Motors Co. are in advanced talks with the industry departments of governments including those of Andhra Pradesh, Gujarat and Maharashtra, said four people familiar with the development.
Of these, at least a couple are expected to make an announcement about their India plans over the next six months, the people said.
E-mails sent to the four Chinese companies on 11 July remained unanswered. Officials of the three state governments mentioned above declined to comment, citing confidentiality agreements with the companies.
“While they have been exploring the market for some time now, saturating and slowing sales in China have added heft to their plans and they are likely to make an announcement in the next six months," said one of the four people cited above.
Passenger vehicles sales in China jumped almost fivefold to 24 million units in 2015 from 5 million units in 2005, according to Autofacts, a provider of automotive industry information and forecasts affiliated with PricewaterhouseCoopers (PwC).
The forecasting unit expects the pace of growth to slow and China’s passenger vehicle market to reach 29 million units by 2020. China’s slowing economic growth is expected to moderate demand and create overcapacity, forcing automobile makers to look at overseas markets.
For instance, Jaguar Land Rover Automotive Plc., the UK unit of Tata Motors Ltd, produced and sold more cars in the year ended 31 March than at any time in its history, but sales in China fell 16.4%. During the year, JLR sold a total of 544,085 units, an increase of 15.6% from the previous year, chairman Cyrus P. Mistry said in a letter to shareholders in its annual report.
To be sure, changing market dynamics in India and a shift in buyer preference from small cars to utility vehicles has encouraged Chinese automakers, most of which have a strong portfolio of sports utility vehicles, to explore the opportunity in India, said a second person among the four people cited earlier.
Passenger vehicles sales in India have expanded for 12 consecutive months. Sales rose 2.68% to 223,000 units in June compared with a year ago. Overall sales growth was outpaced by utility vehicle sales, which expanded 35.24% to 55,825 units in the same month.
Strong month-on-month expansion of utility vehicle sales increased their share in the overall passenger vehicle market to 25% in the quarter ended June from the year-ago period, according to Society of Indian Automobile Manufacturers.
On 9 July, Business Standard reported on Changan Automobile’s plans to set up its first India factory, with a capacity to manufacture 200,000 vehicles a year. Company executives recently visited Andhra Pradesh and Tamil Nadu, it said, citing government officials it didn’t name.
“One of them (the four companies) is looking to showcase some of their products in the auto show in India 2018. By then, they would have finalized their India plans," said the first person cited earlier.
A few large manufacturers and suppliers of auto parts are likely to follow the automakers as they set up their bases in India, said the second person.
They, too, have begun talks with the state governments for land parcels. While most of the automakers are looking at an independent entry, their suppliers may enter the market through a joint venture with Indian or global suppliers present in the country, this person said.
Chinese automakers may not find it easy to crack the Indian market.
“They will have to deal with stiff competition on the one hand and a negative brand perception associated with Chinese auto brands on the other," said Rajeev Pratap Singh, head of the automotive practice at the consulting firm KPMG in India.
Sure, some Chinese brands have succeeded in their home market, fending off overseas rivals, and that would have bolstered their confidence in seeking to enter India, he said.
Encouraged by the Indian government’s push for electric and hybrid vehicles, executives from BYD—one of the four Chinese firms mentioned above and one with a strong portfolio of electric vehicles—have been meeting state government officials, seeking to get into the public transport space, said a third person among the four people cited earlier.
“They are looking to bring battery-operated buses to India. They may not look at full-fledged manufacturing in the initial phase of their operations," he said.