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Business News/ Auto News / Coronavirus no setback for Chinese automakers in India
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Coronavirus no setback for Chinese automakers in India

Chinese automakers are expected to hit the ground running at the Auto Expo
  • Some of the biggest vehicle manufacturers from China will unveil cars packed with technologies
  • A file photo of an auto show in China. Chinese automakers have never successfully ventured out of China and the success of their India operations may decide fate of expansion strategies in other geographies.Premium
    A file photo of an auto show in China. Chinese automakers have never successfully ventured out of China and the success of their India operations may decide fate of expansion strategies in other geographies.

    NEW DELHI : The outbreak of coronavirus may have cast a shadow over businesses in China, but companies in the world’s biggest auto market are expected to leverage the biennial show this week to aggressively explore opportunities in India, especially in the development of electric vehicles.

    While some Chinese delegates and senior executives have pulled out following a travel clampdown, as first reported by Mint on 31 January, several others will be present from the group of Chinese companies who will take part in the Delhi auto show for the first time.

    “The organizers have also asked us to take precautionary measures. Hence, our executives who were supposed to come from China will not be able to make it. We also don’t want to harm the show anyway," said an executive at one of the largest automakers in China on condition of anonymity.

    Graphic: Paras Jain/ Mint
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    Graphic: Paras Jain/ Mint

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    Nevertheless, Chinese automakers, who have lagged far behind rivals from the US, Japan and South Korea in the development of internal combustion engine cars, are expected to hit the ground running at the Delhi show as they search for lucrative markets outside of China.

    Some of the biggest vehicle manufacturers from China—SAIC Motor Corp., Great Wall and FAW—will unveil cars packed with technologies including AI and IOT. Given China’s strength in manufacturing, it is likely that competitors would find their prices hard to match, industry officials said.

    According to an executive working for one of the Chinese companies in India, most of the companies from China are flush with funds and looking to invest in a market which has the potential to grow since sales growth in China has stagnated. Hence, India is a good opportunity for them.

    “Most of these companies are not only manufacturers of vehicles but have also invested in lithium battery manufacturing and other technological innovations. Also, the emergence of electric vehicles has given them the opportunity to take the Indian market by surprise since such vehicles require more electronics than traditional parts. When it comes to innovation, most of the Indian car makers are quite behind the Chinese," said the person on condition of anonymity.

    Over the last three decades, the Indian automobile industry has been dominated by a Japanese and South Korean duopoly, unbroken by even the best from Germany’s Wolfsburg and America’s Detroit. By the end of fiscal year 2019, Japan’s Suzuki Motor Corp. and South Korea’s Hyundai Motor Co. together commanded 67% of the market.

    In 2019, China’s biggest manufacturer SAIC Motor Corp. was the first to start operations in India with its British brand Morris Garages, better known as MG. The Shanghai-based company launched a mid-size sport-utility vehicle, Hector, in June and soon overtook most competitors with retail sales of more than 3,000 units per month.

    The company took over the Gujarat-based manufacturing plant of US-based General Motors Co., which has a modest annual capacity of 80,000 units. Buoyed by the success of Hector, SAIC is scouting for manufacturing capacities to expand its production.

    Another behemoth, Great Wall Motor Co.—China’s biggest manufacturer of sport-utility vehicles—is scheduled to make a debut in India with its Haval brand of utility vehicles. The Hebei-based company recently acquired a plant of General Motors in Maharashtra. Both MG and Great Wall are also eyeing exports from their Indian base.

    State-run vehicle manufacturers, Changan Automobile Co. Ltd and FAW Group Corp., are also scouting for local partners to set up their India operations. FAW has already collaborated with Bird Group, a diversified business entity, to start its India operations.

    BYD Co. Ltd, one of the biggest Chinese electric vehicle manufacturers, will showcase its range of electric buses.

    In addition, Geely Auto was in talks with Sajjan Jindal-led JSW Energy to form a joint venture for manufacturing electric vehicles.

    Most of these vehicle manufacturers also have an upper hand when it comes to bringing electric vehicles and pricing them more aggressively compared to the incumbents, by leveraging the excess capacity and cost competitiveness in China.

    According to a senior executive in an Indian automobile manufacturing company, the threat from Chinese companies is not the technology they are bringing in. Rather, it’s their ability to price the products cheaper that gives these companies the upper hand.

    “Today most technology regarding emission, safety and other aspects of a vehicle are regulation-driven. So that is not a threat. The feature-driven tech is more of a gimmick and that can’t be a potent threat as well. These companies can price their electric vehicles quite aggressively since they have the cost advantage in China especially in batteries. In the process some low-quality parts are also coming in the market," said the executive, requesting not to be identified.

    As opposed to their Japanese, South Korean and German counterparts, the Chinese automakers have never successfully ventured outside their home country and the success of their Indian operations will likely decide the fate of their future expansion strategies in other geographies.

    In an interview, Rajiv Chaba, president and managing director, MG Motor India, said the success of the India operations will decide the company’s expansion plans in other markets in the future. Also, India in the future is likely to become part of the company’s export plans, he said.

    According to Kavan Mukhtyar, partner and leader, automotive, PwC India, growth in the Chinese market has saturated and last year, it was in the negative. These manufacturers have been looking at the Indian market for quite some time but market dynamics posed several constraints. Given the long-term growth potential of the Indian economy and success of Chinese companies in the non-automotive space, these automakers are taking the plunge in the Indian market.

    “Initially they would invest, build brands and not look at returns. Though selling cars are different from mobile phones and getting the right dealers and after-sales service points are crucial for building a sustainable brand. The aggressive pricing strategy may be a short-term one but with a stable localisation strategy and right teams in place, these players can compete aggressively in the Indian market," added Mukhtyar.

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    Published: 04 Feb 2020, 11:15 PM IST
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