Under fire in China, South Korean carmaker Kia is coming to India with a $1 billion factory

Rise and shine.
Rise and shine.
Image: Reuters/Daniel Becerril
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It’s official: Korean carmaker Kia is driving into India with some big bucks in tow.

South Korea’s second-largest automobile manufacturer has announced that it will be setting up a manufacturing facility in Andhra Pradesh with a total investment of around $1.1 billion (Rs7,000 crore). Work on the factory, which will have an annual capacity of around 300,000 units, will begin later this year, with the first cars rolling out by 2019.

For Kia, it’ll be a tricky entry into one of the world’s fastest growing car markets, where its parent company—Hyundai Motor—has long been a major contender. But with growth slowing down in key markets like China, it would’ve been hard for Kia to ignore India for much longer. “It will enable us to sell cars in the world’s fifth-largest market, while providing greater flexibility for our global business,” Han-Woo Park, president of Kia Motors, said in a statement.

For India, which has been straining to attract big investments—despite prime minister Narendra Modi’s high decibel “Make in India” campaign—this’ll be a much-needed shot in the arm. Since its launch in September 2014, the manufacturing-focused initiative has racked up billions in investment pledges, yet not many have put their money where their mouths are. With Kia in the bag, and Apple waiting in the wings, the Modi government will finally have some big names with big investments on its ”Make in India” list.

Fast & furious

India’s car market has been on a bit of a tear lately.

Last fiscal, passenger vehicle sales grew at the fastest rate in six years, moving more than three million units in a year for the first time, despite the impact of demonetisation. Within the passenger vehicle segment, sales of utility vehicles jumped by over 30%, overshadowing small cars that have been the mainstay of the Indian car market for decades.

In order to cash in, Kia plans to roll out a compact sedan and a compact sports utility vehicle custom-built for the Indian market from its upcoming plant.

It won’t be easy to compete with the likes of Maruti and Hyundai, which together control over 60% of the Indian passenger vehicle market. “Since 1997-98, the auto industry has changed a lot; the competition is very different. Now, the competition is very tough. Almost 19 players…To set up a factory is okay since people have money, but to survive and continue the success is a different issue,” YK Koo, managing director of Hyundai India, told reporters on April 21. “We will be aggressive against Kia. They are competition.”

But around the time Kia’s locally manufactured cars hit the road, India will likely be well on its way to becoming the third-largest car market by 2020. That sort of growth will mean that there should be room for new players, like Kia. “In the short-term, Kia seems to (want to) produce small cars for Indian and European markets. In the long-term, the company may want to focus on rising demand in the Indian market,” Kang Seong-jin, an analyst at KB Securities, told the Nikkei Asian Review.

It’ll also help Kia hedge against slowing growth in China, where anti-Korean sentiment and changing consumer preferences have hit the carmaker hard. Sales in the US, another major market, have also been weak lately, partly because of a lack of new models. For the quarter ended March 31, 2017, Kia Motors posted a 19% drop in net profit.