Hyundai may add a third production line at Tamil Nadu plant

NEW DELHI: Introduction of goods and services tax has come as a boon in a totally unexpected way for Hyundai Motor, the second largest producer of passenger vehicles in India.

The new nationwide indirect tax system has allowed the company to do a stockyard rationalisation, as it doesn't have to keep finished products locally for tax optimisation. The Indian unit of the Korean company is therefore considering emptying its stockyard within the factory premises at Sriperumbudur near Chennai, where it could add a third production line with capacity of 50,000 units a year.

Hyundai has yet to make a decision on this, but if it goes through, the company will get the additional capacity at a quarter of the cost it would have incurred in creating the same capacity in another site, people in the know of the plan said.

Hyundai Motor India has been operating the Sriperumbudur factory at 98-100% capacity with three shifts, at a time when its rivals, barring market leader Maruti Suzuki, are sitting on idle capacity.

The additional capacity will be created in the run-up to the launch of its all-new small car ahead of the festive season of 2018 which will challenge Maruti Suzuki's mainstay, the Alto.

The company is looking at options to add capacity for 1.5 lakh units for the domestic market, Hyundai Motor India managing director YK Koo told ET.

"The company can produce a maximum of 7.13 lakh units across its two factories in Chennai in 2018. We plan to increase capacity by another 50,000 units in 2018-19, which would take overall capacity up to 7.63 lakh units in 2019," added Koo, while declining to give specifics on how he intends to do that.

Apart from adding 50,000 units with the existing infrastructure, Hyundai is also likely to get capacity of another 1 lakh units for the domestic market by tweaking its export strategy. It will export the Grand i10 hatchback to the Philippines, Vietnam and Algeria as completely knocked down units and assemble them there, instead of shipping the cars as completely built units. This will help it evade higher taxes in those markets, as well as free up capacity here.

Apart from adding 50,000 units with the existing infrastructure, Hyundai is also likely to get capacity of another 1 lakh units for the domestic market by tweaking its export strategy. It will export the Grand i10 hatchback to the Philippines, Vietnam and Algeria as completely knocked down units and assemble them there, instead of shipping the cars as completely built units. This will help it evade higher taxes in those markets, as well as free up capacity here.

Koo, who was part of the project in 1998 to launch the Santro, the company's most successful car in the Indian market thus far, said the hatchback had changed the dynamics of the Indian small-car market then. In the 20th anniversary of Hyundai in India, the company is preparing for another leap in the Indian market and has defined a three-year roadmap.

Hyundai will be launching yet another small car, a "contemporary family-oriented vehicle", which company executives said would aim to create a new benchmark in the small car space.

The vehicle is codenamed AH2. The company may name it after the Santro, but a decision on it has yet to be made. The new small car will retain Santro's signature tallboy stance, but will be wider, bigger and come with Hyundai's automated manual transmission, Koo said. A factory-fitted CNG version of the car will also be available.

This project is part of nine new products Hyundai has lined up for launch over the next three years. The launch of these products, along with sales and marketing as well as building of a new corporate office near Delhi, will entail an investment of over $1 billion (Rs 6,375 crore) from the Korean company in India.

Product interventions are a part of Hyundai's strategy to cross the volume milestone of 1 million units in India in the coming three-four years.

These nine products include the facelifts of premium hatchback Elite i20 and SUV Creta, to begin with, in 2018, followed by the all-new small car AH2 in the second half of the year.

These nine products include the facelifts of premium hatchback Elite i20 and SUV Creta, to begin with, in 2018, followed by the all-new small car AH2 in the second half of the year.

In 2019, the company will launch its much-awaited sub-four-metre SUV, QXi, to take on the Vitara Brezza from Maruti Suzuki. The QXi will come strapped with a 1-litre turbocharged petrol engine.

On the cards are also an electric vehicle — possibly a Kona SUV — and another new vehicle in the second half of 2019. The electric vehicle will be assembled at the company's factory in Chennai.

In 2020, Hyundai will engineer full model changes on three of its volume products. The company intends to transition all its mainstay models — the Grand, Elite, Xcent, Verna and Creta — to new-generation architectures to meet the Bharat State VI emission regulations that would come into force that year. The new-generation Creta may come also in a three-row-seat option.