Production of Two Brands
Ahead of Kia Motors’ decision on where to establish a new plant in India, the company is considering a plan to jointly produce cars with Hyundai Motor.
According to foreign media reports and industry sources on March 23, Hyundai Motor is planning to jointly produce cars with its sister company Kia Motors at the latter’s Indian plant which is due to become operational in 2019. This is because Hyundai Motor’s Chennai plants have reached the limitations of production capacity.
The company currently operates its first and second plants in Chennai, the capital city of Tamil Nadu State, India, and their combined annual production capacity is 650,000 units – 300,000 units and 350,000 units, respectively. Hyundai Motor manufactured 660,000 cars in the Chennai plants last year and sold 500,000 units of them in the Indian market and exported the remaining 160,000 units. The first and second plants exceeded the production capacity by as much as 10,000 units.
As sales in India surged from some 300,000 units in 2010 to 480,000 units in 2015, Hyundai Motor has looked into building its third plant in the nation. Hyundai Motor Chairman Chung Mong-koo also announced that he met Indian Prime Minister Narendra Modi, who visited Korea in May 2015, to discuss the issue of setting up its third plant in India. However, it has made little progress since it costs more than 2 trillion won (US$1.78 billion) to build a new plant with an annual production capacity of 300,000 units and there are many factors to consider including a discussion with the labor union in Korea.
Hyundai India, which saw its gross sales increase 2.9 percent on-year last year including exports, needs to establish a new local factory to meet the growing demand. The Indian passenger car market grew from 8.5 percent in 2015 to 6.5 percent in 2016. It is also expected to increase 6 percent to 3.1 million units this year.
India imposes 125 percent tariffs on imported cars so automakers, which don’t have a local plant, cannot sell their products in the nation. This is because Kia Motors, which hardly sold vehicles in India, is planning to build a local plant.
Hyundai Motor Group is expected to produce Hyundai cars at Kia Motors’ new plant to be established first and build Hyundai Motor’s third plant in India later considering market situations. The group has been already jointly producing the Kia Pride, locally known as the Rio, at Hyundai Motor’s factory in Saint Petersburg, Russia. Volkswagen Group also jointly produces Volkswagen and Skoda cars at its Chakan plant in Maharashtra State of India.
Kia Motors will announce where to set up its first Indian plant with an annual production capacity of 300,000 units in the second quarter, start construction within the year and complete it in 2019. The company is likely to choose a site in the district of Ananthapur, Andhra Pradesh State on India’s southeast coast, for the factory, which is 400 km northwest of Hyundai Motor’s Chennai factory.