Chinese influx poses threat to Indian auto makers; 20% market could be lost

At the upcoming annual auto expo in New Delhi, more than a third of the exhibition space is booked by Chinese auto makers such as the  largest maker of utility vehicles Great Wall Motors, FAW-owned Haima Automobile, and state owned SAIC which has seen its SUV, the MG-branded Hector, notch up record early sales. '

The physical space occupied by them is a clear demonstration of the inroads that Chinese players are making into the India auto scene. Chinese OEMS recently bought General Motors’ plant in Gujarat. Byd, a top-ranked Chinese firm that makes trucks using LNG (cheaper than diesel) and is a world leader in this segment, is coming to India soon and will make electric buses. Reports indicate that Chery Automobiles is looking for land to build a factory. 

Why the sudden interest in India? P Balendran, executive director at Great Wall Motors, says the obvious motivation is that although the home market in China is still sizable, it is beginning to slow and this is prompting leading Chinese companies to scout for the next growth markets among which India is one of the largest.

Great Wall Motors will exhibit at least a dozen cars at the expo. Half or more will be SUVs.  Haima is also expected to showcase an SUV. MG sources say it will show off an electric version of its popular Hector as well as nine other SUVs and around five cars. 

 

Analysts point out that competition in India is lower than in America or Europe. “No one understands low cost manufacturing as well as the Chinese and after the Japanese and the Koreans have come into the Indian market, this is likely to be the most serious entry,” said Suraj Ghosh, principal analyst (powertrain forecast), IHS Markit. 

What this means is that dominant Indian manufacturers face the threat of an eroding market share.  Today, close to 70 per cent of the market is accounted for by what the industry deems A and B segment cars or models like the Maruti Alto and the Swift.

With the SUV segment growing at around 50 per cent or more, their current dominance will not be able to survive in the short term, say analysts.

"Chinese automakers are well-equipped with electric technology, the latest telematics, and connectivity and they have the scale to offer all this at affordable price points," said Ghosh. 

Indian car makers face a ‘clear and present danger’, adds Hormazd Sorabjee, editor of Autocar India magazine. He says the key advantage enjoyed by Chinese players is that they have developed their products over the years and loaded them with technology and gizmos.  

“Most of the other Chinese players have watched the outright success of one SUV - the MG Hector - and are chasing that very model down," he said. "MG's success with the Hector generated the confidence needed by first time manufacturers to go the same route.” 

The Hector sold around 20,000 units in the 2019 CY and has received orders well above its current capacity.  The car was only launched in the second half of the year.

Rajeev Chaba, president and managing director of MG Motor India explains that the MG, a British brand, was bought by SAIC and it is this brand which has driven the successful narrative, along with the company’s robust backend manufacturing. "We already have 2800 bookings for our electric SUV and we haven't even announced the price yet," he said. 

In many ways the present Chinese entry is a redux of 2008 when the industry experienced the onslaught of Japanese, European and American car makers such as General Motors, Volkswagen, Nissan Ford, Fiat, Renault and others, all beadily eyeing India’s growth potential. However, the majority of them read the market wrong and either left the country or were reduced to bit players with small export operations.

Will the Corona virus scare change things for the Chinese wanting to come to India? Balendran says he has a team of senior executives who have been camped out in India for the last three weeks and says that any contagion will only be a short-term blip. 

Apart from the usual technology, the other noteworthy feature of Chinese automakers is that their electric vehicle technology is ready. According to reports, a company called CATL is the world’s biggest electric vehicle battery maker by capacity and by the number of factories. With that kind of infrastructure and technology in place, it may be reason enough for the Chinese to focus on India.