Ford sells the factory and leaves, Toyota retreats, can India still accommodate foreign auto giants?

Why did Ford, a century-old brand that once dominated the world, suffered inconsistency in India?

Ford's ambitious plans to build cars in India seem to come to an end shortly.

According to foreign media reports, Ford is considering completely terminate its operations in India shortly, and its two major production bases in India-the Maraimalainagar plant in Tamil Nadu and the Sanand plant in Gujarat will also cease operations. Currently, Ford is in talks with several Indian companies for foundry or sale, including shared travel giant Ola.

In India's huge car market, Ford has been entrenched for nearly 25 years, and of course it is not weak when it comes to hard power. However, it actually made very few achievements, and it was beaten by those seemingly weak latecomers (such as Suzuki). Why did Ford, a century-old brand that once dominated the world, suffered inconsistency in India? This issue is not only worth thinking about Ford, but also worth thinking about those auto companies eager to enter the Indian market.

Can't foreign auto giants win India?

Ford first entered India in 1995. At that time, it established a joint venture with Mahindra, India's largest multinational group, and launched the Escort model locally the following year. However, the cooperation between Ford and Mahindra did not last long as the Indian government gradually liberalized restrictions on foreign auto companies. In 1997, Ford increased its shareholding in the joint venture company and randomly changed its name to "India Ford"-obviously, Ford did not want to share the cake with Mahindra.

As one of the leading brands in the global automotive market, Ford is very confident that it can win this remote market at the southern end of Asia, just as it did in other countries. Unfortunately, things don't seem to develop as it thought-ten years after entering the Indian market as an independent posture, Ford's sales are still standing. According to foreign media statistics, as of 2016, Ford's market share in India only accounted for 2.4%, and by 2019 it only reached 2.5%.

In the face of sluggish sales, Ford once again came up with the idea of ​​seeking cooperation with his old friend Mahindra, and Mahindra seemed to have the same intention.

In 2017, Ford and Mahindra issued a joint statement stating that the two parties will "strategic alliance" to cooperate in mobility, electric vehicles and procurement; in October 2019, Ford also publicly announced that it would once again establish a company with Mahindra valued at 275 million U.S. dollar joint venture company. According to this agreement, Ford will hold 49% of the new company and Mahindra will hold 51%.

It can be seen that Ford's posture has been low enough that it has not even demanded dominance in the new company. However, this possible cooperation did not reach an end after all. In December 2020, Ford announced the termination of its plan to establish a joint venture with Mahindra, and the reason given was that "affected by the epidemic, the plan has to be terminated."

Not only Ford, but the major auto giants that entered India at about the same time as Ford-Toyota, Honda, Volkswagen, and GM, all performed flat. According to a set of data, as of 2019, Toyota, Honda, Ford, and Volkswagen have a total of only 12.5% ​​of the Indian market, which is less than one-fifth of Suzuki's sales in India.

Due to the difficulty in solving the sales difficulties, many foreign auto companies eventually withdrew from the Indian market. General Motors is a typical example. In 2017, GM International President Stefan Jacoby issued a statement stating that GM will withdraw from the Indian car sales market within the year because it “cannot expect to obtain benefits that match the investment” in India.

In addition, Toyota has also retreated recently. In September last year, Shekar Viswanathan, vice-chairman of Toyota's Indian subsidiary, said in an interview with the media that future expansion plans in India may be suspended.

The giants have been smashed, what is the magic of the Indian car market?

“Since we came here to invest, the government’s taxes on cars and motorcycles have been high. The high taxes have prevented most Indian consumers from owning their cars, and manufacturers’ sales will also decline, which means The factory is idle and cannot create jobs for the local area." Viswanathan complained.

Viswanathan’s complaint is not groundless. According to Bloomberg’s statistics, India’s motor vehicle tax rate (including cars, motorcycles, and multi-sport vehicles) has reached 28%, and the government will also determine the type, length, and engine size of the vehicle. Additional taxes ranging from 1% to 22% are levied. An SUV with an engine capacity of more than 1500cc and a length of more than four meters has a tax rate of up to 50%. At the same time, the privatization of land policies in various states has also caused great obstacles to car companies building factories.

Viswanathan said that such a policy has seriously dampened the enthusiasm of other foreign automakers to develop in India, weakened the profitability of automakers, and also increased their costs for launching new products.

As a country with a large population in the world, India's per capita consumption level has been low. According to data from research institutions, the average annual income of Indian consumers is only US$2,000, and two-thirds of consumers have a car purchase budget of only US$10,000. Coupled with high taxes from the government, it is even more difficult for ordinary people to buy a car.

As Viswanathan said, high taxes make most people in India unable to buy large cars, which has caused foreign manufacturers entering India to quickly adjust their strategies and launch cheap and compact models that suit the consumption level of Indians to increase sales. , To seize market share. Manufacturers like General Motors and Ford that have not been able to adapt to the environment will be quickly eliminated. Instead, those "second-rate" manufacturers that strive to meet the needs of consumers will survive. Among them, Suzuki is a typical example.

For a long time, Suzuki has been focusing on cheap small and micro vehicles, and has the title of "King of Small Cars" in the industry. Like most Japanese car companies, Suzuki once used China as its main market and has been cultivating it for nearly 36 years. However, because the market share of small cars in China has been gradually replaced by large-space cars, it chose to shift to the more promising Indian market.

In India, low-priced Suzuki cars have been popular among consumers, which has allowed Suzuki's market share to expand rapidly. According to SIAM statistics, as of the end of 2019, the sales volume of Maruti Suzuki, Suzuki's joint venture in India, has exceeded 20 million units, with a market share of 50.6%, while the second-place Hyundai only has a market share of 17.4%.

"Maruti Suzuki's Suzuki Alto only sold for more than 800,000 rupees (approximately RMB 70-80,000), but it is one of the highest-selling models in India. The status of this car is equivalent to the domestic Santana in the 1990s. "In an interview with the media, Yang Honghai, who used to be the assistant marketing deputy general manager of SAIC MG India, described the Indian market in his eyes.

Can Tesla do what Ford did not do?

However, the Indian market is still attractive to car companies, especially those new players who have not experienced setbacks.

In October last year, Tesla CEO Elon Musk said when interacting with the fan club on Twitter that he "will definitely enter India next year." In January of this year, Tesla also registered a subsidiary in the Kartana state in southwestern India. At the same time, there are some reports that Tesla intends to establish a research and development base in India, or even an entire super factory.

Tesla's reliance on entering the Indian market is undoubtedly the Indian government's encouragement to the electric vehicle industry and the tangible tax incentives. In 2019, the Indian government launched the "Faster Development Plan for Electric and Hybrid Vehicle Manufacturing and Application Development" (FAME II), which will distribute a subsidy of Rs 1 trillion to the electric vehicle industry from 2020 to 2022. At the end of September this year, the Indian government also plans to provide $4.6 billion in incentives to companies that manufacture advanced batteries.

Nevertheless, compared with the predecessors who failed in the era of petrol cars, Tesla still has many problems to face. For example, infrastructure charging stations in the Indian market is still lacking. An article in India's "Business Today" pointed out that to support the government's dream of electric vehicles, "thousands of" charging stations are needed. At present, "there are only a few hundred charging stations in the country."

In addition, Tesla’s pricing is also a big problem. Although its pricing in the Chinese market is already low enough (the current Model 3 long-life version is priced at 250,900 yuan, or about 2,893,700 rupees), this is for most Indian consumers. It is still an unbearable high price. Amit Gupta, the founder of India's shared travel platform YULU, said that Tesla's price in India is "better set at 1.2-1.5 million rupees."

If Tesla is an Indian company, then these problems can be solved slowly. But unfortunately, it has many valuable markets waiting to be developed outside the Indian market, and the Indian market's high investment and low returns will further aggravate Tesla's financial situation that is not optimistic. Is it surrendered to India's distinctive car market? Or set aside this land to find another way out? This may not be difficult for Tesla, which is struggling to remain profitable.