China car investments for India in pause mode as tension mounts

With Maharashtra putting investments of Great Wall Motors on hold, it will now be a waiting game for Chinese automakers keen on entering India.

Maharashtra’s decision has been prompted by the recent violent face-off between Indian and Chinese troops at Ladakh with no clear solution to the impasse. Till then, there is really no question of any investment from China getting an easy go-ahead from the Centre.

From the auto industry’s point of view, this would mean that Changan Automobile will also have to resort to a wait-and-watch attitude till tempers cool down at the political level. The Chinese carmaker has been scouting for sites with Andhra Pradesh and Tamil Nadu reportedly being on top of the favoured list.

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The other prominent brand from China being touted as a possible partner for Tata Motors is Chery Automobile. The Indian automaker had recently decided to spin off its passenger car business as a joint venture which included a renewed focus on electric mobility. According to market sources, Chery is the lead contender but the situation at Ladakh will now mean that things will just have to take a backseat.

‘Bad optics’ for new investments

“Clearly, any move to go ahead with a Chinese partner will send a wrong message,” a top auto industry executive told BusinessLine. Across the country, there is some kind of an anti-China sentiment building up which, he added, was “bad optics” for new investments.

It was in January when Great Wall Motors announced its intent to take over General Motors’ Talegaon plant in Maharashtra. The Chinese SUV maker had also said that it would acquire GM’s facility in Thailand, a process which was recently completed.

From GM’s point of view, this takeover by Great Wall Motors would mark a complete exit from its India operations. Three years ago, it had signalled its intention by selling its other plant in Halol, Gujarat, to yet another Chinese company, SAIC Motor Corp.

GM and SAIC have been partners for many years now and China remains one of the key priority markets for the American automaker in addition to the US and Latin America. It has pretty much called it a day across every other region right from Russia and South Africa to India, ASEAN and Australia.

Great Wall Motors is critical to GM’s India exit plans since there is a lot of work to be done in terms of manpower rationalisation, incentives to existing workers and so on. “When GM sold its Halol plant to SAIC, it still had Talegaon on its radar which meant that the India chapter had not closed yet. With Great Wall Motors, the sale will pave the way for a complete exit,” said an auto industry executive.

Covid-19 impact

The sooner this is done, the better it is for GM but all this will depend on how quickly India and China bury the hatchet going forward. In any case, there is the overhang of the Covid-19 pandemic where the world is furious with China’s alleged role in wreaking havoc. This has also prompted India to draw up more firewalls when it comes to foreign direct investment proposals from countries that share its borders, a clear message to China.

Incidentally, when SAIC took over GM’s Halol plant, it was quick to steer clear of any Chinese brand association in its India innings. The company, instead, decided to follow its global strategy of using MG Motor, the British brand it had acquired over a decade earlier, as the face for India.

MG wasted little time in rebooting operations at its Gujarat facility acquired from GM and hit the bull’s eye with its Hector SUV. It is, of course, a moot point if Indian customers will now perceive the vehicle as a British or Chinese brand amidst this heightened tension.

However, there are no two ways about the fact that the MG Hector has been a huge success since it was launched last year. It will now face its biggest test on market perception as the anger against everything Chinese is growing by the hour in India.

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