Three decades of rapid and continuous growth, China's automakers have reached a historic inflection point. The industry is witnessing a new reality wherein sales are on the decline, and there is a paradigm shift from the manufacture and sale of internal combustion engine cars to the pioneering of next-generation technologies. The Chinese auto market has reached a saturation point, and hence the automakers were on the lookout for future expansion strategies in newer geographical markets.
These companies are flush with funds and are scouting to invest in a market that has the potential to grow since sales growth in China has stagnated. Who better fits in the frame than their neighbor India for this ample opportunity. India's long-term growth potential of the economy and the success of Chinese companies who have ventured into the non-automotive space, these automakers are taking the plunge in the Indian market.
Setback for Chinese Automakers In India
However, the auto industry was one of the worst impacted sectors due to unprecedented pandemic. The industry that was already seeing declining sales and high costs because of the implementation of BSVI guidelines is now going through its worst phase ever. Manufacturing units have been shut down, footfall at showrooms have fallen sharply, and vehicle sales have taken a huge hit. Automakers have been facing a disruption in supply chains due to the COVID 19 lockdown. As a result of February, their inventory levels have been minimum due to the backlog on bookings.
India's component manufacturers are also analyzing the possible impact of coronavirus on orders for the coming months. The value chains are impacted due to the lack of specific Chinese components that have a cascading effect on the component manufacturers. A majority of components used in automobile manufacturing are produced in India. However, most vehicle makers import these components from Chinese and Asian markets due to price benefits.
The new FDI rules will also impact the new players who are keen to enter the Indian market. The impact of FDI in the auto industry has seen an influx of technology, improved productivity, and output, all towards making the Indian auto industry more competitive. In the nascent stages of electrification, the need for capital investment and development of the infrastructure to support EVs is a necessity. If sanctions for foreign investment get tougher and delayed, this would be a considerable blow to scores of upcoming Chinese manufacturers like Great Wall Motors, as well as smaller units and start-ups that depend on it. Will the recent restrictions, spell the end of the joy ride?
New players shifting gears to India
China's biggest manufacturer SAIC Motor Corp. set up operations last year in India with its British brand Morris Garages (MG). The launch of Hector SUV soon overtook most competitors, with retail sales of more than 3,000 units per month. The company took over the Gujarat plant of General Motors Co., which has an annual manufacturing capacity of 80,000 units. Buoyed by the success of Hector, SAIC is scouting to expand its production.
Another behemoth, Great Wall Motor Co, is scheduled to debut India with its Haval brand of utility vehicles. The company recently acquired a plant of General Motors in Maharashtra. MG and Great Wall are also scouting to start exporting from their Indian setup. Changan Automobile Co. Ltd and FAW Group Corp., are also on the lookout to tie up with local partners to set up their operations.
BYD Co. Ltd, one of the major electric vehicle manufacturers in China, has benefited from the FAME schemes and bagged tenders for supplying electric buses to various state governments in India. BYD has stakes in lithium mines, and currently operates a 1GW battery production plant near Chennai.
China's leading EV company, Sunra, is also vying in setting up a factory as it sees India emerging as the market for electric bikes in the next four to five years. The firm has already partnered with private companies in Delhi. Sinotruk -- a China National Heavy-duty Truck Group, Foton, recently acquired land and are planning to create space in the Indian market. Besides, Geely Auto was in talks with Sajjan Jindal-led JSW Energy to form a joint venture for manufacturing electric vehicles.
The Chinese automakers have a competitive edge in bringing electric vehicles and pricing them more aggressively than incumbents, by leveraging the excess capacity and pricing. Moreover, China's extensive investment in battery technology, procurement and production of the raw materials needed for EV batteries, and stood to gain from India's push towards electrification.
At the recently concluded annual auto expo in New Delhi, more than a third of the exhibition space was booked by Chinese automakers. The physical space occupied by the Chinese delegation at the expo is a clear demonstration of the inroads that Chinese players are making into the India auto scene.
Great Wall Motor (GWM) is willing to invest 1 billion dollars in tapping into the Indian market, which will be made in a phased manner in areas including research and development, manufacturing, and sales and marketing. MG Motor also has plans to set up a new production facility in addition to the one in Gujarat. To provide for a smooth run before the launch of its EV, MG Motor is building a five-way EV charging ecosystem.
Chinese auto manufacturers are on an aggressive investment spree. They will be pumping in close to $5 billion in the Indian market over the next 3-5 years when Indian manufacturers are holding back their investments.Even though the world is currently resenting China, the world's factory is facilitating the average Indian consumer to fill her shopping cart. As they zip along the cutting edge, automakers need to remember the importance of quality and safety.
Investing in new technologies is essential, but it will not be enough to survive the competition. Domestic and foreign automotive companies should use this transitional period to reposition and benefit from what we believe will be the second phase of sustained growth. Chinese automakers will face significant challenges in strategic planning, moving closer to their customers, and improving the brand experience.