Korea's Kia Motors to pump in $1.1 bn for India ride

Andhra plant to start car production in 2019, agreement signed

Korean small carmaker Kia Motors has finally announced it will be entering the Indian car market, with an investment of $1.1 billion (about Rs 7,000 crore). 

It will set up a manufacturing unit in Andhra Pradesh, with an annual capacity of 300,000 units. The agreement was signed on Thursday with the state government for a factory in Anantapur district.

Kia’s parent company is Hyundai, India’s second-biggest carmaker, with a 17 per cent market share. 

Kia plans to produce a compact sedan and compact sport utility vehicle (SUV) for the Indian market. 

Both segments are seeing a lot of action and these vehicles also enjoy a lower excise duty, compared to large sedans and SUVs. Kia will be competing with Maruti Suzuki, parent Hyundai, Honda, Mahindra & Mahindra (M&M), and Tata Motors.

“In spite of all the competition, we are able to judge what the market needs and grow our share,” said R C Bhargava, chairman of market leader Maruti Suzuki.

Construction of the new factory will commence in the final quarter of this calendar year and is expected to begin production in the second half of 2019, the Seoul-headquartered company said. Spread over 563 acres, it will also be home to numerous supplier companies’ facilities.

Kia was earlier undecided between Andhra and Tamil Nadu (TN), where Hyundai’s units are located. TN is also home to Ford, Renault-Nissan, and BMW. 

“The region’s fast-developing supply chain network and skilled labour force were other key reasons for the new investment by Kia Motors,” the company said on its decision to opt for Andhra. The state government has extended a host of incentives for the company, treating Kia’s investment as an ultra-mega project.

Han-Woo Park, president of Kia, said the investment would enable them to sell cars in the world’s fifth-largest market, while providing greater flexibility for the global business.

“Worldwide demand for Kia cars is growing and this is our latest step towards becoming a leading global manufacturer,” he added. Kia sells a little more than three million vehicles a year from 14 manufacturing and assembly operations in five countries; it has annual revenue of $45 billion.

Kia did not mention how many jobs would be generated. “We are still in the process of detailed planning for the India plant,” a spokesperson said in response to emailed queries. On synergy with Hyundai, he said Kia can benefit from the former’s existing infrastructure. “Hyundai’s Chennai plant is 390 km from our site. This proximity between the two facilities will benefit both of us in terms of logistics.” 

India saw domestic sales grow a little more than nine per cent to three million vehicles in the year ended March 2017. Another 758,000 vehicles were exported last year, when shipments grew 16 per cent. The country is expected to emerge as the third biggest market in the world by 2020, with annual volume of five million units. Bhargava says the Indian market has the potential to grow to up to 10 million units annually in the coming years and no other country can offer such an opportunity. 

SAIC, biggest carmaker in China, and France’s PSA are also preparing for an India entry. However, the Indian market is also complex and not every large global player is able to grab a significant pie. General Motors of the US is an example. The world’s third-largest carmaker has a share of less than one per cent in this country. Volkswagen, Ford and Nissan are sitting on a low single-digit share. Three companies - Maruti, Hyundai and M&M - have a little more than 70 per cent; the other dozen have the rest. A number of these smaller entities are now exporting more vehicles from here than they sell in India.