Global automakers see chance to turn India into an export hub

Receive free Indian business & finance updates

We’ll send you a myFT Daily Digest email rounding up the latest Indian business & finance news every morning.

Global car manufacturers are making efforts to turn India into an export hub, as locally produced vehicles targeting wealthier drivers become more globally competitive.

India, which overtook Japan as the world’s third-largest car market after the US and China last year, had a 14 per cent uptick in auto exports in the year to March, with 662,891 vehicles shipped. That is still well behind Japan’s figure of 3.37mn cars for the same period, but automakers in India see room for further growth.

As incomes rise, Indian drivers are opting for more expensive sport utility vehicles and sedans over hatchbacks. Global automakers have responded by launching cars designed specifically for India, which they are keen to introduce in other markets.

Frank Torres, president of Nissan India, told Nikkei Asia that the Japanese automaker “wants to use India as a big hub for exports”.

Nissan exports its Magnite SUV, launched in India in late 2020, to 15 south Asian, south-east Asian and African nations. The company plans to start exporting left-hand drive variants of the SUV to the Middle East and Latin America. Nissan and its partner Renault committed $600mn this year to roll out six new cars, including electric vehicles, that will go on sale in 2025. All those models will be exported.

“Export [from India] is one of the pillars of our strategy,” Torres said. “It is not only to increase the revenue but also increase our [production] capacity utilisation.”

Analysts say the shift in local demand from small, inexpensive cars to higher-quality vehicles could encourage other global automakers to plan more “India-first” models that are eventually exported.

“Carmakers have learnt that if you make a compelling product, Indians are not averse to it,” said Harshvardhan Sharma, head of automotive retail practice at Nomura Research Institute. “Manufacturers need not plan track one for India and track two for the global markets, as the Indian market is quite in sync and harmonised with global markets.”

India’s exports are already on par with its major south-east Asian rivals. Indonesia exported 512,448 cars in the year to March, up 70 per cent on the year, while Thailand exported 300,000 units between January and June, according to local automobile associations.

India’s lower costs are another potential advantage for an export-focused approach.

Piyush Arora, managing director and chief executive at Škoda Auto Volkswagen India, told Nikkei Asia that the India unit would spearhead the group’s expansion in south-east Asia.

“We are definitely exploring newer markets [for export from India] . . . Until last year, we were exporting only Volkswagen brand cars and now we started looking at Škoda brand cars as well [to the Middle East],” Arora said. “I definitely believe that we have a cost advantage for the domestic market, and it translates into a cost advantage for exports as well. The strength of India’s low-cost manufacturing possibilities is definitely utilised.”

The country has an extensive network of domestic component suppliers and comparatively cheap labour. The Automotive Component Manufacturers Association of India said in a report this month that the auto parts sector grew about 33 per cent in fiscal 2023 to about $70bn.

Analysts say increasing exports is crucial for global carmakers that have been overshadowed by local rivals such as Maruti Suzuki, Tata Motors and the Mahindra Group.

“They [global carmakers] realised that if they wanted to compete with Maruti, they had to get the pricing right. And for them to get the pricing right, they had to get the volume right,” said VG Ramakrishnan, managing partner at consultancy Avanteum Advisors. “For them to get the volumes right, the India market was not sufficiently big and the only way was to go for a large-capacity plant that would cater to both Indian and overseas markets.”

The combined market share of Nissan and Renault in India dropped from 3 per cent in June 2022 to 2 per cent in July 2023. Škoda Auto Volkswagen’s share remained flat at 2.46 per cent during the period.

Nissan and Renault’s combined annual capacity stands at about 500,000 units. Torres said the group’s current factory utilisation rate of 50 per cent would shoot up to 80 per cent by 2025 as new models hit the market. Škoda Auto Volkswagen’s Indian factories can manufacture about 240,000 cars. The group made about 133,000 cars in 2022, approximately 55 per cent of its capacity.

An increase in domestic demand coupled with plans to roll out EVs has also spurred local players to build more factories, with a part of the output aimed at overseas shipments.

Maruti Suzuki, India’s largest carmaker with a roughly 41 per cent market share, had an annual production capacity of 2.25mn cars in fiscal 2023, according to the company. It is looking to commission a third factory in 2025 with an annual capacity of 250,000 vehicles, a spokesperson told Nikkei, and aims to eventually increase capacity at that factory to 1mn units.

“The company is very optimistic about the growth potential of the automobile market in India as well as India’s automobile export potential,” the spokesperson said. “To leverage this opportunity, Maruti Suzuki has put a plan [in place] to increase its manufacturing capacity.”

Additional reporting by Sayumi Take, Apornrath Phoonphongphiphat, Ismi Damayanti and Nana Shibata

A version of this article was first published by Nikkei Asia on August 16 2023. ©2023 Nikkei Inc. All rights reserved.

Related stories