Hyundai plans car exports in CKD format to gain tax advantage

Tax rates for CBUs is about 70% in Vietnam, but only 10-12% for CKD units

Hyundai Motor India Ltd (HMI), the Indian subsidiary of Korean automobile major Hyundai Motor, has decided to export vehicles to select markets in Completely Knocked Down (CKD) format. 

This comes in the backdrop of growing demand for Made-in-India cars, and a high tax rate for CBUs (Completely Built-up Units) in the destination markets.

According to company officials, tax rates for CBUs is around 70 per cent in Vietnam, but only 10-12 per cent for CKD units.

Y K Koo, managing director and CEO, Hyundai Motor India Ltd said that after Vietnam and Philippines, a few more countries, including a few in Asia and South America are planning to increase tax rates for CBUs, so it makes business sense for the company to export as CKDs.

Sending in CKD format will also help the company release capacity at its Sriperumbdur unit to cater to the domestic market. HMIL plans to increase its manufacturing capacity to 750,000 units in 2019 from 713,000 units, said Koo.

In the first half of the current calendar year, Hyundai's sales rose 8.6 percent year-on-year.

The additional capacity will come through value engineering with any additional investments, Koo said, adding that catering to export markets with CKD will also release capacity to cater the domestic market.

He added, HMIL is targeting around 50,000 units by 2019 in CKD format. Last year, it exported around 160,000  units to around 83 countries in CBU format.

Completely built-up units are those vehicles that are direct bought by the end-user in ready shape, while Completely Knocked Down Units are those whose parts are officially imported from foreign countries and are assembled in the selling country.

In order to beef up market share, Koo said that the company is planning to launch eight new products in next two years, along with an electric SUV, which will be imported as CKD unit. The company is investing around $1 billion to develop and launch these products.

“We are open to partnerships for EVs,” said Koo, adding that in the long term, the company would produce EV models from its Chennai plant.

The upcoming launches include AH2, which sources say is codenamed for Hyundai's iconic model Santro that was discontinued earlier. The product is expected to hit the market during the festival season this year.

Technologies like AMT will also be a part of the new vehicles slated to hit the Indian market, said Koo.

At present, the company sells nine car models across segments - EON, Grand i10, Elite i20, Acitive i20, XCENT, Verna, Elantra, Creta and Tucson.