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Colin Shah
Colin Shah
Shri P.R. Aqeel Ahmed
Shri P.R. Aqeel Ahmed
Dr. Vidya Yeravdekar
Dr. Vidya Yeravdekar
Alok Kirloskar
Alok Kirloskar
Pragati Khare
Pragati Khare
Devang Mody
Devang Mody
Vinay Kalantri
Vinay Kalantri
Varun Aggarwal
Varun Aggarwal
Erich Nesselhauf
Erich Nesselhauf
Ghanshyam Lal Vyas
Ghanshyam Lal Vyas
Mr Siddhartha Sacheti
Mr Siddhartha Sacheti
Satish Kannan
Satish Kannan

Joint Ventures in India's Automobile Industry

Joint Ventures in India's Automobile Industry

India's Automobile Industry
India is the fifth largest vehicle market and largest manufacturer of three-wheeler and two-wheeler vehicles in the world. India’s automobile industry currently manufactures 22.9 million vehicles annually, of which 5.6 million vehicles are exported. The sector manufactures vehicles in the passenger car, commercial vehicle, two-wheeler and three-wheeler segments. In terms of unit sales, two-wheeler vehicles account for the largest share, followed by passenger cars. Small and mid-sized vehicles form a major portion of passenger car sales.

Source: Society of Indian Automobile Manufacturers

List of Joint Venture Companies in India
The economic boom post liberalisation opened up several industries to foreign investors including the automotive industry. Joint venture became a preferred route for major car manufacturers looking to gain a foothold in the Indian market. Given below are some of the joint venture companies' examples.

Maruti Suzuki India Ltd.
Maruti Suzuki India Ltd. (formerly known as Maruti Udyog Ltd.) is a famous example of a joint venture in the automobile industry in India. It was a joint venture between the Indian government and Suzuki Motor Corporation Japan, a Japanese automobile manufacturer. The company launched Maruti 800 as its first car, followed by several other models. In 2002, the government privatised the company, and Suzuki Motor Corporation took major stake in it. Currently, the company has a product portfolio comprising 16 car models with 800 variants, ranging from small, entry-level cars to luxurious sedan cars. Furthermore, Maruti Suzuki is among the top automobile companies in India. The company is credited with bringing about the automobile revolution in India.

 

Hero Honda
Hero Honda was formed as a joint venture between Hero Group and Honda Motor Company, a Japanese conglomerate, in 1984. The joint venture formed was named Hero Honda Motors Ltd. Hero Group planned to enter the two-wheeler segment and had a foothold in the Indian market. Honda Motor wished to enter the Indian market and had the relevant technology and experience in selling products. The joint venture benefited both the parties by making Honda a well-known brand and providing Hero Honda with the relevant technology. Since 2001, the company is the largest two-wheeler manufacturer globally. In 2010-11, Hero Group bought Honda's stake in the company, and it was renamed Hero MotoCorp.

 

Nexcharge
Nexcharge is another example of a joint venture in the automotive industry. It is a partnership between Exide Industries, India’s largest battery manufacturer, and Leclanche, a Swiss battery manufacturer in 2018. The company makes lithium-ion battery packs used in EVs. At the time of forming the joint venture, Exide held a stake of around 75% while the rest was held by Leclanche. After incorporation, Exide has increased its stake to 84.9% in 2022 Nexcharge earned Rs. 3 crore (US$ 0.4 million) in FY21, a growth of 38.1% from FY20.

Currently, Nexcharge buys battery pack cells, making the company’s profit susceptible to raw material shortage and price volatility. To remedy this, Exide Industries plans to manufacture a lithium-ion cell plant and take advantage of the government’s production-linked incentives (PLI) scheme applicable for advanced chemistry cells.

 

Advantages of Joint Ventures in India
Some advantages of joint ventures in India's automobile industry are explained below.

  • Cost Sharing: The automobile industry is highly capital-intensive and requires huge investments in factory, machinery, equipment, etc. Additionally, companies benefit from economies of scale. Thus, small local players can enter the industry by forming a joint venture with large international players.
  • Brand Development: Companies in international markets may not be known in domestic markets and may have to spend extensively on marketing, which may prove unsuccessful. Instead, such companies may collaborate with well-known local players and develop a brand image. Suzuki Motors chose this route, and today, most cars sold in India are made by Maruti Suzuki.
  • Access to Advanced Technology: Local companies may not have the latest technology available in international markets. Technology may help reduce costs, increase efficiency and stay ahead of the competition. In such cases, firms can tie up with international players with access to advanced technology, similar to Hero Group. Currently, Hero is the largest manufacturer of two-wheelers in the country.

Government Initiatives
The government announced various initiatives to support the automobile industry. Some of them are explained below:

  • EV Push: Given the benefits of EVs, the government is incentivising EV usage through the following initiatives:
    • Faster Adoption and Manufacturing of Electric Vehicles in India II (FAME India II) to build EV charging infrastructure and provide subsidies
    • National Programme on Advanced Chemistry Cell (ACC) to promote the establishment of manufacturing facilities for 50 GWh of ACC and another 5 GWh of niche ACC
    • Other initiatives such as reducing taxes and charges, and streamlining applications and procedures

 

  • PLI Scheme: This scheme was announced to increase India's manufacturing capabilities and exports. 13 key sectors were identified, including ‘automobiles and auto components’. The scheme attracted an investment of Rs. 74,850 crore (US$ 9.6 billion), which was much higher than the targeted investment of Rs. 42,500 crore (US$ 5.5 billion). It aims to provide incentives of nearly 18% to promote the manufacture of advanced automotive technology products and attract investments in creating their value chain. These incentives are applicable for the next five years beginning on April 1, 2022.

Bright Outlook for Automobile Industry
India has a large automobile industry with significant upside potential owing to the EV segment, which can prove to be a growth driver. Given the nature of the industry, the joint venture strategy is preferred by many companies due to advantages such as sharing costs and risks, easy access to foreign markets, brand development and access to new technology. Some of the well-known automobile joint ventures in India are Maruti-Suzuki, Hero-Honda and Exide-Leclanche. While some joint ventures in this industry were unsuccessful, those that succeeded are placed among the top players and proved to be a win-win for all stakeholders.

The government announced multiple reforms to promote growth in the industry and increase EV penetration. Measures such as PLI and FAME are expected to boost Indian manufacturing, especially in the EV segment. Higher growth may lead to new players taking the joint venture route. These factors will help India rise as a world-class manufacturing hub and make the Prime Minister’s ‘AatmaNirbharBharat’ campaign a roaring success.

 

 

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