India's crackdown on Chinese firms: How automakers MG Motor, BYD are coping

In May 2019, Rajeev Chaba, then President and Managing Director of MG Motor India, was a proud man. He had just overseen the launch of the company’s first locally made sports utility vehicle (SUV). In the year and a half that followed, the company sold over 72,000 units, no mean feat for a new entrant.

Little did Chaba know then that four years after its launch with much fanfare, he would have to scout for a buyer for the company—owned by SAIC Motor Corporation, the largest Chinese state-owned automobile manufacturer—as it looks to ‘Indianise’ its operations by selling a majority stake to Indian investors. Billionaire industrialist Sajjan Jindal is reported to be interested in acquiring a 48 per cent stake in the company.

But then again, the wheels of commerce often hit speed bumps because of extraneous circumstances. In MG Motors India’s case, those circumstances pertained to a clash between Indian and Chinese soldiers in the Galwan Valley in Ladakh in May 2020.

The subsequent chill in relations enveloped all aspects of India-China relations. The Indian government introduced a host of measures against Chinese businesses—the banning of Chinese mobile apps was emblematic of this. That adverse climate also extended to investments into automotive firms. The most significant casualty was Great Wall Motor, which exited the Indian market in 2022, just two years after its launch, citing its inability to garner foreign direct investment as a reason.

“In the passenger vehicles industry, no approvals have been given in recent times to Chinese investments. Even the local auto industry lobby is against a free run for Chinese automakers. Thus, it was only prudent for MG to look for Indian partners,” says a senior automotive industry executive.

According to industry experts, MG’s move to localise is more a compulsion than a voluntary exercise. “In India, MG Motor is the established Chinese-owned passenger vehicles maker. But the developments between India and China since the Covid-19 pandemic’s outbreak have [created] an anti-China sentiment. The government is increasingly turning the heat on fully-owned Chinese entities and wants them to have Indian partners holding a majority,” Manish Raj Singhania, President of the Federation of Automobile Dealers Associations (FADA), tells BT.

MG Motor received an additional blow in the form of a notice from the Registrar of Companies under the Ministry of Corporate Affairs in 2022, summoning its top brass, citing irregularities in its financials.

Indian accent

The company though is firm in its commitment to the Indian market, and Chaba and his team have drawn up a plan to not just help the firm survive in the world’s fourth largest passenger vehicles market, but also grab a larger share of the pie.

“We plan to dilute our shareholding [with the] majority to be owned by Indians within two–four years. The second phase involves expanding our capacity with a new plant. While we have a capacity of 120,000 units a year at our existing plant in Halol (Gujarat), it will [be] exhausted soon. Thus, we plan to set up a second plant at the same location with an additional capacity of 180,000 units a year,” says Chaba, now CEO Emeritus of MG Motor India. He adds that MG will invest “at least Rs 5,000 crore” that it estimates to receive from the stake sale.

Given the growth MG has seen, the expansion is a necessity, feels Chaba. In FY23, the company sold 48,866 passenger cars—21 per cent more than the 40,369 units sold the previous year and more than double the 21,954 units it sold in FY20, the first full year of operations. Chaba now estimates that it will clock sales of over 70,000 units in FY24.

According to MG, its indigenisation plan involves complete localisation. “When we say ‘Indianising the operations’ that includes everything—like localising the technology. We are going to assemble the batteries from next year at Halol. A lot of important components like cells that our industry currently imports will be made in India through joint ventures. For instance, we will explore local production of newer technologies like Hydrogen fuel cell that we have access to,” says Chaba.

A Different approach

Localisation is one response to the prevailing conditions. Rival Chinese auto major BYD that entered the Indian passenger vehicles market in 2021 presents a picture in contrast. It has so far been unfazed by the challenges emanating from the tensions between the countries.

Primarily focussed on the premium end of the market, with its two models priced above Rs 30 lakh, its passenger vehicles operations in India are smaller than MG’s. According to Sanjay Gopalakrishnan, Senior Vice President of Electric Passenger Vehicles (EPV) Business at BYD India, it has so far sold some 2,200 electric four-wheelers here. Given the smaller scale of its operations, the company is yet to chalk out a plan to manufacture components locally and is focussing on assembling its cars here.

“Currently, we are focussed on stabilising our operations and distribution here. Globally, we are an EV player and with our advanced technology we want to increase awareness in India. Eventually, we want to become a key player here. BYD India is also a hub for BYD South Asia and we have plans to export cars from here. We have been operating in India as per local norms,” he tells BT, adding that the company has even sold electric buses through its partner to the Indian authorities without much hassle. As the technology partner, BYD assembles the chassis and the batteries while its partner Olectra sells the e-buses to various state governments.

The company has set a target of selling 15,000 EVs this year and more than double its distribution network to 53 dealers. “EV sales are growing rapidly in India and by 2030 it’s estimated to form 30 per cent of passenger four-wheeler sales. So, as a global leader in EVs, we would definitely like to grab a larger share of the market and we will launch more models,” says Gopalakrishnan, adding that BYD is planning to launch a new model, Seal, in 2023.

Chaba, meanwhile, has larger plans. With the Comet—a compact two-door electric hatchback—he expects to garner 35 per cent of sales from the EV segment by 2025. “As our next phase starts with the second plant, we will launch another four–five models and that will take the share of EVs in our total sales to 65-75 per cent by 2028. We also have plans to go public by then,” he says.

Additionally, both automakers highlight the investments they have made as a reflection of their commitment. According to Chaba, MG has already invested Rs 4,000 crore in India, while Gopalakrishnan says BYD has invested over Rs 1,600 crore ($200 million). BYD is also planning to invest another $1 billion to manufacture EVs and batteries, reports say. However, other reports suggest that the government may not approve such a proposal.

According to experts like Harish Bijoor, Founder of Harish Bijoor Consults, the initial success of Chinese car makers was due to their focus on developing the business and establishing a reliable image rather than creating too much noise like Chinese handset companies. “However, given the nature of the relationship between India and China, the pressure on Chinese automakers will remain in the future. After all, the two economic powers in the region are unlikely to come closer anytime soon,” says Bijoor.

MG and BYD are hoping that their strategies will insulate them from any such pressures, should they arise.

@arndutt