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Hyundai won't tap Kia's India factory despite running at peak capacity

Hyundai had earlier announced that it is planning to invest up to Rs 7,000 crore for setting up a new plant.

December 26, 2019 / 03:52 PM IST

Despite running the existing factories at close to 98 percent of their peak utilisation capacity, Hyundai has ruled out producing its cars from sister concern Kia's manufacturing unit in Andhra Pradesh.

The two companies have been operating independently since Kia’s entry into India as far as production, sales and marketing is concerned but parts, engines and platforms sharing will be looked into by both.

"There will be no chance of utilising Kia's excess capacity for Hyundai.  Some back-end functions such as procurement, R&D, platform sharing, parts-sharing can bring some benefit to the Indian market in terms of cost reduction and value creation. But direct operation areas such as sales and marketing and production they will remain 100 percent independent," SS Kim, Managing Director and CEO, Hyundai Motor India, told Moneycontrol.

Kia presently sells only one model in India - Seltos, - which is a mid-sized sports utility vehicle (SUV) rivalling the Hyundai Creta. The Kia model sees production of 13,000-14,000 units a month from its factory in Andhra, that is equipped to produce 3,00,000 units a year at its peak.

Hyundai had earlier announced that it is planning to invest up to Rs 7,000 crore for setting up a new plant. This new plant, which will come up near its existing factories in Chennai, however, will take at least 2-3 years to become operational.

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Hyundai is banking on a smart balancing act of export and domestic demand for meeting production schedules. The company is the largest exporter of passenger cars from India. In April-November Hyundai recorded 18 percent increase in exports to 132,800 units even as its domestic sales dipped by 8 percent to 339,044 units, according to data supplied by the Society of Indian Automobile Manufacturers.

Hyundai, however, has systematically brought down the exports share from its total output over the years. From a peak of 50 percent export share has come down to 29 percent as of November.

Many countries have increased taxes on fully built products which has made exports to those countries uneconomical. Auto companies have thus switched to exporting vehicle kits to such countries from India. Hyundai India exports to 90 countries. The company currently has an annual capacity of 750,000 units which will be hiked to 800,000 units.

Next year Hyundai will launch the all-new Creta and an all-new i20. Both models generate about 45 percent of the volumes for the company which indicates that Hyundai will need additional capacity to meet demand for both the models.
Swaraj Baggonkar
first published: Dec 26, 2019 03:45 pm

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