BMW announced that it would cooperate with India's Tata Technologies to develop automotive software, Tesla launched a 10 billion investment in India to build an electric vehicle factory, and MG India, a subsidiary of China's SAIC Motor, changed from a wholly-owned company to a joint venture, and a series of actions by multinational car companies in India not only made India's latest automotive industry policy widely concerned, but also made the relationship between India and China in the automotive field delicate.
In early April, the BMW Group announced the signing of a partnership agreement with India's Tata Technologies to form a 50:50 joint venture. The latter is a subsidiary of Tata Motors, India's largest domestic automotive company. The new joint venture will develop automotive software for the BMW Group. At the same time, Tesla, which has coveted the Indian market for many years, also announced its latest plan: to invest 14.5 billion yuan to build an electric vehicle factory in India.
In contrast, after nearly a year of gambling, China's SAIC Group's MG India has officially changed from a wholly-owned company to a joint venture, with Indian steel company JSW MG Motor owning 35% of the new joint venture, an event that the industry has dubbed the forced "nationalization" of SAIC MG India.
One of the more interesting backgrounds is that India has just revised its auto investment policy and put on a positive posture of "opening the door to welcome investment". The policy promises foreign EV companies a 15% import duty on vehicles as long as they meet a specified threshold for investment and local production in India. At present, India has imposed high tariffs of 60%-100% on imported cars, and many multinational car companies have called on India to reduce tariffs.
"This policy [India's new auto industry policy] is clearly modeled after Thailand," said Zhang Junyi, managing partner at Oliver Wyman and a member of the global automotive and industrial goods leadership team, adding that the reason why Chinese companies have invested in Thailand in the past year is that they have been stimulated by the policy of exchanging investment for low tariffs.
In fact, India's demands for the development of the electric vehicle industry are the same as those of Thailand. As the world's third-largest car market, India's next goal is to become a major manufacturer of electric vehicles, according to Indian officials. However, there have been public opinions in India that the government has been reminded that the policy will be the first to benefit Chinese automakers, and may lead to India's over-dependence on China's auto industry chain.
This series of actions has made India's ambitions in the auto industry, the investment prospects of multinational car companies in India, and the development space of Chinese car companies in India all become the focus of attention.
Follow Thailand's example
According to domestic media reports, the Indian government introduced a new auto industry policy in March, promising that foreign electric vehicle manufacturers will be allowed to import up to 8,000 electric vehicles a year priced at $35,000 or more at a lower rate of 15% as long as they invest at least $500 million in India and start local production in India within three years.
Previously, India repelled many multinational car companies to sell vehicles in the country by importing tariffs of up to 60%-100%, and many car companies, including Tesla, have called for India to reduce tariffs, but the Indian government has not adopted them due to the opposition of Indian local car companies.
Zhang Junyi believes that this move is following the example of Thailand. In order to achieve the goal of producing 2.5 million vehicles per year by 2030, one-third of which are electric vehicles, the Thai government launched the second phase of electric vehicle support measures - the EV 3.5 policy at the end of last year on the basis of the "EV 3.0" policy, stipulating that foreign electric vehicle manufacturers will be eligible for up to 40% import duty reduction and 2% import duty reduction for pure electric vehicles imported into Thailand in 2024 and 2025 , but only if electric vehicles are produced in Thailand and a certain percentage of imports are reached by 2027. By 2026, the Thai government plans to provide about 34.06 billion baht of financial support.
Thailand launched tax cuts for electric vehicles as early as 2020, and the effects of these policies are already being felt quickly, with the total number of new registrations of various types of electric vehicles in Thailand surging to 100219 in 2023, a year-on-year increase of 380%.
Thailand is becoming the first choice for Chinese new energy vehicle companies to expand the Southeast Asian market. It is reported that at present, Changan Automobile, SAIC Motor and Great Wall Motor have signed the latest EV 3.5 preferential agreement. Including Great Wall, Changan, SAIC, Nezha, BYD, Chery and GAC Aion, at least seven Chinese car companies have launched new energy vehicle construction plans in Thailand, among which the Great Wall electric model Ora Good Cat has officially rolled off the assembly line at the Rayong new energy vehicle manufacturing base in Thailand at the beginning of this year.
In addition, under the temptation of up to 8 years of corporate income tax exemption for parts companies, automotive suppliers such as CATL, Gotion Hi-Tech, Honeycomb Energy, and Seiko Automobile will also deploy factories in Thailand.
Zhang Junyi pointed out that in fact, many multinational car companies have the idea of layout in India, but in the end they all stopped before high tariffs. Tesla's head Elon Musk said in 2021 that if India can consider reducing tariffs, then Tesla's construction of a factory in India can also be put on the agenda. As a result, India will not be able to attract investment without lowering tariffs, nor will it achieve its goal of moving away from oil imports and creating a new manufacturing advantage.
European and American car companies responded positively
In terms of 2023 sales, India has overtaken Japan for the second year in a row to become the world's third-largest auto market after China and the United States. At present, the attractiveness of India's new auto investment policy for multinational automakers is emerging.
"India has advantages in software, foundry, labor costs, etc., and at the same time, it also has a huge population base, a huge market and the growth potential of purchasing power, so many companies are looking at the Indian market. The new auto policy will inevitably attract investment from China, Europe and the United States. Zhang Junyi said that whether from the analysis of the geopolitical situation, or considering the cultural proximity between India and Europe and the United States caused by historical reasons, the investment of European and American auto companies will be more active than that of Chinese auto companies.
Judging from the investment of BMW and Tesla, India does meet some of the urgent needs of European and American car companies in their business development. First of all, in terms of software development, India is the world's second largest software exporter, and the development of software outsourcing business and the high penetration rate of English have made India have new competitiveness in the era of smart cars.
According to BMW's public information, the joint venture between BMW and Tata will be part of BMW's global network of software business and IT centers. The joint venture aims to develop functions such as autonomous driving software, infotainment systems, and digital services, including digitalization and automation of product development and production. The Senior Vice President of Software Architecture of the BMW Group said that India has a large pool of software talent, which will provide advanced technical support to the BMW Group.
BMW has also invested in software development and intelligent driving in China, and has also cooperated with domestic technology companies, but because China's application of intelligent vehicle interconnection functions far exceeds that of other markets in the world, and the usage habits are also different from those in other markets, the cooperation and development of intelligent technologies carried out by multinational car companies, including BMW, in China mainly serve vehicles manufactured and sold in China. Therefore, in order to meet BMW's global intelligent needs, India has become a more cost-effective choice.
As for Tesla, Zhang Junyi believes that in addition to the gigafactory in China, Tesla also needs a production base that can radiate the Southeast Asian market, or a backup factory in Asia, and India seems to meet its needs.
In addition, multinational automakers such as Renault, Stellantis (a 50:50 merger between PSA Peugeot Citroën Group and Fiat Chrysler Group) and Toyota have also launched plans to produce electric vehicles in India, among which Stellantis Group opened a software center in India in 2022, and recently announced plans to use India as its electric vehicle export center, saying that it has exported 500 Citroen eC3 electric vehicles from India to Indonesia. In addition, the Stellantis Group has shifted many of its outsourced jobs to India since 2022.
Many of the world's leading automotive suppliers are also increasing their business layout in India. As part of Magna's $120 million investment in India, Magna has built a new engineering center that plays a key role in Magna's electrification, electronics and software-defined vehicle initiatives.
The prudence of Chinese automakers
Compared with European and American automakers, Chinese automakers have a more complex attitude towards India's new auto policy. As one of the latest "lessons", SAIC's experience in India once again reminds its peers that the Indian market is not easy to earn.
In response to the widely publicized public opinion that MG India, a subsidiary of SAIC Motor, was forced to implement a joint venture and the Chinese side lost control, and that the purchase price showed that MG India was seriously undervalued, SAIC's senior management recently made a special statement that the absolute control of MG's brand and technology still belongs to SAIC. SAIC also calculated that the equity transfer was a JSW premium acquisition compared with the 29.2 billion rupees (about 2.5 billion yuan) it spent to buy the plant from General Motors in early 2017. Together with the new investment in India, SAIC Motor is expected to increase its net profit by 5 billion to 7 billion yuan.
However, SAIC Motor did not choose to sell its equity to JSW Group. As early as two years ago, SAIC Motor planned to increase investment in expanding its business with its own funds, but it was ultimately not approved by the Indian government. SAIC MG India has been in operation since 2017, and the MG brand has become the second largest electric vehicle sales in India, and from this perspective, the sale price of MG India's 35% stake and related interests does not reach the highest valuation in the market. In this regard, Zhang Junyi's view is that from the practice of mandating the establishment of joint ventures, India is not only learning from Thailand, but also from China's early automobile policy.
In any case, SAIC MG's situation in India once again confirms that the Indian government's strategic approach to the electric vehicle industry is to enhance the competitiveness of its own electric vehicle industry while restricting foreign companies from occupying more dominant positions in the industry.
"Chinese car companies will still have some scruples and be more cautious in their investment, after all, we may still encounter a situation like Xiaomi that cannot get back the profits," Zhang Junyi said, judging from the complex international relations and the past experiences of Chinese companies in India, the risk of India's business environment is objective.
Under the strong domestic protection policy, India has carried out indiscriminate attacks on the investment of multinational enterprises in many fields, especially the restrictions and obstructions on Chinese enterprises. Most well-known, mobile phone brands such as Xiaomi and OPPO have been subjected to unreasonable investigations and fines in India.
In fact, the development of Chinese auto companies in India is also fraught with obstacles. In 2020, Great Wall Motor's plan to acquire GM's Indian plant was suspended from the Indian investment policy that "investment intentions from neighboring countries on land are not subject to automatic approval". In the second half of 2023, news broke that BYD submitted an investment plan of $1 billion to Indian regulators to cooperate with local companies to produce electric vehicles and batteries, but it was ultimately rejected due to "safety reasons". The Economic Observer asked BYD for confirmation of the news, and BYD said it was inconvenient to respond.
In response to the current layout in India, BYD's official response said: "BYD has launched two electric models, Yuan PLUS (named ATTO 3 in the Indian market) and Seal in the Indian passenger car market, and will continue to bring diversified and high-quality products and services to local consumers in the future." BYD's official information shows that BYD entered the Indian market in 2007 and has built two factories in the local area, focusing on solar panels, battery energy storage, electric buses, electric trucks, electric forklifts and other fields.
How to seize the opportunities in the Indian market has become a difficult problem for Chinese automakers. For Chinese automakers who need to drive economies of scale through overseas markets, the opportunities in the Indian market are attractive. First of all, although India's domestic auto industry has long been monopolized by Indian local brands and Japanese and Korean car companies, electric vehicle products and industrial chains are still India's shortcomings. Secondly, India has a large untapped market for electric vehicles, which is very valuable for commercial development. And India's auto investment policy is indeed a rare opportunity.
Zhang Junyi said that compared with vehicle companies, Chinese auto parts companies have more obvious opportunities in India. When multinational car companies build factories in India, once the supply chain cannot be established in the short term and the local India cannot provide the required resources, it is ultimately up to Chinese parts companies to enter India to build factories. "Moreover, in a very cost-oriented market like India, it may be better for Chinese suppliers and products."
Competition is hard to avoid
It is worth mentioning that as soon as the new policy was implemented, the "Chinese auto threat theory" in India has begun to spread. Domestic media quoted India's "Economic Times" as reporting that the Indian think tank "Global Trade Research Initiative" has released a report, pointing out that India is actively promoting foreign new energy vehicle companies to invest in India, but the main beneficiaries of relevant policies may be Chinese companies.
Such fears are not unfounded. India's electric passenger car sales surged 91 per cent to 91,000 units in the fiscal year ended March 31, according to the Federation of Indian Automobile Dealers Associations. Tata Motors and MG Motor, a subsidiary of SAIC, dominate the EV segment in India. Tata is India's largest homegrown car company, with a 70% share of the Indian EV market in 2023 against the backdrop of government subsidies and high import tariff barriers. However, compared with 2022, it has declined, and part of the share has been divided between MG and BYD. After SAIC MG India has been "infiltrated" by Indian capital, how BYD will carry out safe investment in India has also become another focus of attention.
According to the Federation of Automobile Dealers Associations of India, BYD sold 1,877 vehicles in the country in 2023, up 314% year-on-year. Two months ago, BYD's high-end electric car Seal entered the Indian market, with a starting price of 4.1 million rupees (about 350,000 yuan), and the price of the car in China is 166,800-279,800 yuan. There is information that the sales of the car in India are better than in the country. In this regard, BYD did not respond.
As for whether India will compete with China in the development of intelligent driving software and the investment attractiveness of multinational car companies, the investment community is basically unanimous, believing that India's business environment, hardware base and spending power are not enough to support the rapid development of the electric vehicle industry. The US investment bank Morgan Stanley concluded that India is far from replacing China's position as a global manufacturing hub.
However, it cannot be ruled out that this situation will change with the increase in investment by multinational enterprises. Zhang Junyi pointed out that with the Indian market being highly valued, as well as the increase in India's population base, the Indian market will slowly mature, "India may have to go through a period of China in the first 20 or 30 years of the road, in this process, China's vehicle companies and parts companies will definitely participate."
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