Volvo to start assembling cars in India by year-end

Mumbai: Swedish luxury car company Volvo Auto India Pvt. Ltd on Thursday said it will commence local assembly operations in India by the end of this year as it seeks to make deeper inroads and double its share in the country’s small but fast expanding luxury car market that is expected to advance at a fast clip on the back of strong economic growth, better sentiments and the impending goods and services tax (GST).

Volvo has been selling cars in India since 2010 but, unlike German rivals, Mercedes Benz AG, BMW AG and Audi AG, it has been importing them instead of assembling them locally.

“We had two years of solid growth that were driven by the new models and, therefore, we thought it was time to commence local operations,” said Tom von Bonsdorf in an interview, pointing that the company envisages to double its share in the luxury segment to 10% by 2020.

Albeit on a low base compared to its German rivals, Volvo cars sales in India advanced to 1,600 units in 2016 compared to 1,423 units in the previous year. It expects sales to advance 25% to 2,000 units this year over the year-ago period. It has seen sales jump to 35% in the first four months of the current calendar year.

Volvo’s car assembly operations will be located near Bengaluru and focus on models based on Volvo’s SPA’s modular vehicle architecture. The XC 90, a premium SUV model, will be the first model to be assembled locally. The company has modified its existing truck plant to accommodate the assembly unit. The XC 90 would be followed by other models at a later stage, said Bonsdorf .

Volvo Cars is working together with Volvo Group India, the truck, bus, construction equipment and Penta engines manufacturer, and will make use of Volvo Group India’s existing infrastructure and production licences near Bengaluru. Bonsdorf declined to comment on the investment or the capacity of the upcoming unit.

Volvo currently sells nine luxury models in India, including sports sedan Volvo S60, performance sedan Volvo S60 Polestar, premium sedan Volvo S60 Cross Country and luxury hatchback Volvo V40. All the models are imported. India levies a duty of 120% on imported cars, and 60% on completely knocked down kits. But Volvo is unlikely to cut prices of models even after the local assembly, said Bonsdorf.

“We don’t see big adjustments in prices as the models are already priced competitively,” he said.

Volvo plans to launch the V 90 Cross Country in August and the new XC 60, which has already been launched globally, in the last quarter of the current calendar year.

Sales of luxury cars in India slowed over the past three years, which were marked by a ban on the sale of diesel cars in Delhi in 2015 and demonetisation of high-value banknotes in November 2016. In 2016, sales contracted 4.24% from a year earlier to 33,279 units, according to market researcher IHS Markit. The firm estimates that the market will expand by more than 10% in 2017, the fastest in three years, and 42% and 21% in 2018 and 2019, respectively.

“Starting vehicle assembly in India is an important step for Volvo Cars as we aim to grow our sales in this fast-growing market and double our market share in the luxury segment in coming years,” said Håkan Samuelsson, president and chief executive officer of Volvo Cars, in a statement.