JSW Group, China's SAIC Motor begin negotiations on royalty fees

China's largest auto firm keen to get higher royalty fee; JSW group wants to go with industry benchmark

SAIC Motor, China’s largest automotive (auto) company, and JSW Group have commenced negotiations on the royalty fees to be paid by their joint venture (JV) in India, which would manufacture and sell electric vehicles (EVs) in the country.

The talks are crucial for the JV as SAIC Motor is eager to secure a higher royalty fee, considering its technical expertise in the EV segment. However, JSW Group aims to align with the industry benchmark.

Maruti Suzuki India currently pays 3.6 per cent of its net sales as a royalty fee to its parent Suzuki Motor Corporation, considered an industry benchmark, according to a banking source.

“Both sides are currently working on the royalty fee to be paid by the JV. JSW, which would own 35 per cent of the JV, also plans to bring in other financial investors,” said a source close to the development.

“We realised that to achieve the Rs 15-20 lakh magic figure car profitably and to achieve scale, China was the right model compared to European or American carmakers. Hence JSW started discussions with MG, which wants to continue with an Indian partner,” said a source close to the development.

“The royalty fee is an important component to make the JV a success,” the source added.

JSW executives were not available for comment.

The new JV will be independent of SAIC Motor’s existing operations in India — MG Motor India — and no decision has been made yet on whether to carve out the EV business from SAIC’s Indian subsidiary to the JV.

“The talks are currently on whether to include the EV business of MG Motor and whether the JV should buy Ford’s Chennai plant to increase its capacity,” the source said.

JSW executives stated that in the past five years, Indian players have not moved aggressively in the EV segment, including the Tatas and Mahindras.

The current vehicles made by some of the electric car companies are a retrofit of internal combustion engine cars and are not EVs by design. Some of the EVs designed for India will be launched only by 2025, said a source.

According to officials, the Indian auto market, currently at 4 million a year, will double by 2030, and a large chunk of the market will be cornered by EVs.

“We believe that at least 30 per cent of the 8 million vehicles will be EVs, hydrogen-fuelled/alternative fuels and not petrol or diesel engines. Hence, we felt it was a big opportunity and we started looking at getting a technology partner and studied partners from all over the world,” informed a source.