Why Ford now wants to make for the world from India

Observers may wonder why the American carmaker has decided to return to India. It had accumulated losses of $2 billion in operations before it shuttered its Chennai plant and sold its other facility in Sanand, Gujarat to Tata Motors Ltd.

In truth, Ford continued to have a large presence in India even after it stopped selling cars in the country. The company employs 12,000 personnel in India to service and provide spare parts for the million-odd Ford vehicles on Indian roads, and it also reportedly does some design in India. Reopening the Chennai plant could lead to 2,500-3,000 new hires, although details about Ford’s deal with the Tamil Nadu government are sparse.

It’s also not clear if Ford will focus on electric vehicles or regular petrol-diesel cars. Ford has been working on designing an affordable EV platform. Reports suggest that Ford is looking at manufacturing EVs in India but this is not confirmed. Given that Tata Motors and its British subsidiary Jaguar Land Rover and Vietnam’s Vinfast Auto Ltd manufacture electric vehicles in Tamil Nadu, a strong EV ecosystem already exists in the state.

Ford’s Chennai facility had enough capacity to produce 200,000 petrol vehicles annually, out of a total 350,000 internal combustion engines. Its assembly lines would need to be reorganised completely to manufacture electric vehicles.

Here’s what we know for sure: Chennai is a big export hub for passenger vehicles. India exported 672,000 passenger vehicles in 2023-24, with a large contribution from Tamil Nadu. In total, passenger vehicle exports amounted to 13-14% of India’s total passenger vehicle production. 

In terms of units, passenger vehicle exports have stayed roughly in that range for years, if we ignore a dip during the covid years. Including commercial vehicles and two- and three-wheelers, India’s vehicle exports amounted to about $20 billion in 2023-24, positioning the country 22nd in the global exports list.

As a percentage, India’s passenger vehicle exports are low. Japan exports about 50% of the passenger cars made in the country, and South Korea about 65%. Nevertheless, India is a substantial player. The big Indian vehicle exporters include Maruti Suzuki India Ltd, Hyundai Motor India Ltd, Kia India Pvt. Ltd, and Nissan Motor India Pvt. Ltd. 

The subsidiaries of the Japanese and South Korean carmakers contribute almost 90% of India’s passenger vehicle exports. Other global companies including Germany’s Volkswagen, France’s Groupe Renault, the US’s Jeep and Japan’s Honda Motor Co. Ltd also export out of India, with small contributions from India’s Mahindra & Mahindra and Tata Motors. General Motors and Ford also used to export from India till the US companies shuttered their operations here.

Also read | Ford in talks with JSW for India re-entry

The volumes and the fact that multiple companies use India (and specifically Chennai-Ennore ports) as an export hub and have done so for decades may indicate why Ford has opted to return.

First and foremost, the economics are viable: Auto companies can export and profit from India. The logistics work. Global markets can be reached cost-effectively and efficiently. The regulations—the tax, duties, and paperwork involved—in exporting cars (while importing necessary parts for re-exports) are clear, and the processes are smooth enough.

The supply chain is stable. Tamil Nadu itself has a strong vehicle ecosystem, with local engineering micro, small and medium enterprises that produce many of the thousands of parts necessary for an internal combustion-engine petrol or diesel vehicle. Also, there are plenty of bigger vehicle manufacturers across India, the world’s third-largest vehicle market. The Indian government also offers several incentives, including its flagship productivity-linked incentive schemes, to encourage the manufacturing of electric vehicles.

When Ford quit India, the global vehicle industry was going through a major supply chain glitch. Chips (semi-conductors) were in short supply due to covid-19 (which put fab units into lockdown), and the Russia-Ukraine war led to a shortage of critical raw materials such as neon gas and palladium metal. Semiconductor shortages are no longer a problem, and global supply chains are now more resilient.

The global economy is still slowly climbing out of post-covid recession. Global passenger vehicle sales peaked in 2017 at 85 million units, but dropped to 58 million in 2020. By 2024, sales had recovered to 74 million units.

Ride-hailing services have changed the dynamics of passenger vehicle demand. Electric vehicles and hybrids are also growing more popular due to consciousness about climate change and government policies driving EV adoption. 

In 2014, petrol and diesel contributed 98% of passenger vehicle sales, according to Statista. In 2024, petrol and diesel vehicles contribute 65.5% of sales, with electric vehicles accounting for 26%, and hybrid vehicles for 8%. 

If Ford is looking to ramp up electric vehicle exports from India with an affordable platform, the data indicates why.