Hyundai May Utilise Kia’s New Manufacturing Facility In Andhra Pradesh
Aiming to sell one million units by 2021, Hyundai Motor India Ltd (HMIL) is likely to roll out certain models at its sister entity Kia Motors’ upcoming facility in Andhra Pradesh once the former’s existing capacity at Chennai unit in Tamil Nadu gets completely exhausted.
There is also a lot of buzz that Kia Motors will be utilising 50 per cent of the initial production capacity at 3 lakh units per annum and the remaining one will be used by HMIL.
There is also a possibility that Hyundai could outsource the production of some models to Kia once the latter’s plant goes on stream. Both the South Korean companies together are the fifth largest car manufactures in the world.
It was reported earlier that Kia Motors, a minority-owned subsidiary of Hyundai Motor Company, South Korea has decided to set up a manufacturing base at Ananthapur, Andhra Pradesh with an investment of $1.1 billion. The construction of the new facility, with a capacity to produce 3 lakh units a year, will start in the last quarter of 2017 and production is likely to begin in the second half of 2019.
The project is likely to create permanent and temporary jobs for about 11,000 people and Hyundai may consider spending around 30-40 per cent of the said amount if it goes ahead with its plans to build cars at Kia’s aforementioned facility spread over 600 acres.
According to a source who requested anonymity, “There are some broader level discussions happening between Hyundai and Kia at their global headquarter on how to optimize the output at latter’s new facility in AP. The first option is Hyundai partly sharing the new facility once the Chennai plant(s) reaches its optimum capacity at 7 lakh units per annum. The second option is Kia contract manufacturing for Hyundai models just like what Suzuki will be doing for Maruti. The third alternative is if Kia is able to successfully sell its models, it may use 70 per cent of the capacity and the remaining one could be offered. Even though the facility would be single with a common vendor base, there would be separate production lines for both the carmakers.”
However, a HMIL spokesperson when contacted stated, “Globally, Kia and Hyundai are separate entities with a distinct strategy, management, and manufacturing operations. Their joint product development is the only common ground between them. As far as utilizing Kia’s facility in India, we are not aware of any such alliance.”
Puneet Gupta, South Asia Manager -Vehicle Sales Forecast, IHS Markit, stated, “Hyundai and Kia sharing a joint facility and expertise would be a win-win proposition for both the OEMs. On one hand, players like Kia gets an advantage as the plant costs will be shared with Hyundai and the majority of the capacity will be utilized from day one. This will help them in bringing the costs down for Kia and achieve a break-even within a quicker time. This will also help Kia in pricing their products competitively which is a key to success in India especially for mass manufacturers. On the other hand, Hyundai, which is almost working on full capacity, gets an additional plant to sell more cars in the country and this perfectly fits in with its long term volume planning. Moreover, Kia can extract the expertise from Hyundai, which has tasted huge success in India and is the No 2 player here. Hyundai’s supplier and dealer assets can be turning point for Kia success in India.”
Meantime, HMIL has recently announced that it will invest Rs 5,000 crore to develop eight new products, including three models in new segments, in the next three to four years. The company plans to introduce two new models (including hybrids) per annum until 2020. Being the country’s second largest carmaker at 17 per cent market share with 10 models in its portfolio, it has sold a total of 6.62 lakh units (including 5 lakh in the domestic market) last year. It has set a target selling 6.72 lakh units across domestic and international markets during this year. However, it has no plans to expand its existing capacity in Chennai which stands at 7 lakh units per annum.
