By Pritish Raj
Hyundai Motor India is considering a proposal to use the manufacturing plant of sister firm Kia Motors in Andhra Pradesh as the company’s plants in Tamil Nadu are being operated at a 100% capacity utilisation and it has no immediate plans to invest in setting up a new manufacturing facility, people aware of the development said.
Kia Motors has a 536-acre facility in Anantapur, Andhra Pradesh, with a production capacity of 3 lakh units per annum. The plant site has an additional space to ramp up production by another 1 lakh units. Hyundai's two plants in Tamil Nadu has a total capacity of over 7.2 lakh units per annum. At the end of FY19, the company produced over 7.11 lakh units, with the utilisation nearing over 98%.
Senior executives at the parent Hyundai Motor Company in Korea believe a new plant would entail significant investments, though not neccessary immediately, given that domestic car demand is weak and is likely to continue for a couple of years, one of the persons said.
"Besides, for a new entrant like Kia, it is unlikely that the brand will manage to sell 3 lakh units in a year with limited products in the pipeline," the person told FE, adding instead of the capacity lying ideal, it makes more economic sense to utilise it on which the investment is made.
Out of the total capacity at Kia's plant, around 1 lakh is likely to be used by Hyundai from around 2021-22. Kia will be launching its maiden vehicle, a compact SUV named Seltos soon and has plans to launch four cars over the next two years.
"Senior executives from Hyundai India and the parent company will meet next month to further deliberate on the matter and come up with an decision," another person said. Hyundai and Kia did not reply to the e-mails sent till the time of going to the press. Hyundai’s capacity was full to an extent that the company had to discontinue its small car Eon last year to make space for the production of the new
Santro launched in October 2018. The company also plans to increase exports of completely knocked down (CKD) units to Asian markets, which will also create more space at the existing plant for production for the domestic market. It shifted the production of some of its models like Elite i20 to global factories, which were meant for exports to the European markets. VG Ramakrishnan, MD & managing partner at Avanteum Advisors LLP said the decision to share the plant would be with an aim to maximise profitability and no company would want to invest on a new plant due to uncertainty related to policy changes and BS VI norms, which would keep the demand subdued. "Moreover, Kia has just started. Many of their retail outlets are not yet complete, so utilising full capacity in the near-term is not a question at all," Ramakrishnan said.
Following drop in demand for cars and two-wheelers since the second half of 2018 coupled with stringent regulatory pressures, some of the auto companies have hinted at curtailing future investments in India in the near term.
Honda Motorcycle & Scooter India (HMSI) made it clear last month that it is reconsidering its future investments in India, after the government’s plan to push for changeover of below-150cc bikes to electric by 2025.