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When Ford and Renault recently announced their partnership for Europe, the clear message was that it was to take on the growing competition from China.
Ford CEO Jim Farley was quoted as saying, “We know we are in a fight for our lives in our industry. There is no better example than here in Europe. Together (with Renault), we can create a powerhouse of LCVs in Europe that would be very difficult for the Chinese to compete with.”
His counterpart at Renault, Francois Provost, added, “The Chinese will come soon, and that is why I don’t want to wait.” Farley had incidentally gone on record last year in a podcast to say that he had been driving a Xiaomi SU7 for the past few months and “doesn’t want to give it up”.
Likewise, Renault has an alliance with Geely that extends to Korea and, more recently, Brazil. The Chinese automaker picked up a 26.4 per cent stake in Renault do Brasil, giving it access to Renault’s factory in São José dos Pinhais.
The goal is to assemble Geely-branded cars and distribute them through Renault’s network. The French automaker, in turn, will use Geely’s vehicle architecture to expand its range to other segments for the Brazilian market. In the process, the factory’s capacity of 400,000 units can be optimised beyond its current 50 per cent level.
Chennai mirrors Brazil
Back home in India, the picture is not too different from Brazil, where the Chennai plant has a capacity of 480,000 units, of which barely 45 per cent is being used. What began as a manufacturing alliance of Renault and Nissan, with the latter holding a majority stake, has now become a 100 per cent-owned Renault facility following the exit of its Japanese partner. Nissan will now have its cars manufactured in Chennai under a new contract, and has reiterated that it is here to stay in India for the foreseeable future. This is important from the viewpoint of capacity utilisation, but there is no telling if the script will change. Nissan has had a rough run in recent years, and even as it has made it clear time and again that India is relevant to its global growth plans, it continues to walk a tightrope while attempting to keep its house in order.
Renault, meanwhile, is in the driver’s seat with complete control of manufacturing but still faces the challenge of capacity utilisation. This is where the Brazil model comes into play, and it will be interesting to see whether Geely can be roped in to pick up a stake in the Chennai plant operations.
For now, this seems a tall order, given that the Indian government has put on hold direct Chinese investments in sectors such as automobiles and electronics. This is a fallout of the 2020 border clashes, where China constantly stirs the pot to raise India’s hackles. Clearly, there is little love lost between the two countries, even as Chinese imports exceed $100 billion annually. There have been some attempts at rapprochement in recent times, through visa relaxations and the like, which augur well for the normalisation of ties.
Great Wall, Changan experiences
Companies like Great Wall Motor and Changan Automobile were keen on entering the Indian market before the border fracas broke out, after which relations between India and China took a nosedive. Great Wall dropped its plans to take over General Motors’ facility near Pune, while Changan, similarly, decided that there was no point waiting for eternity and sought greener pastures elsewhere.
However, companies like SAIC Motor, which had begun its MG Motor India operations earlier, realized it could divest a part of its shareholding to a local entity, since there was no way it would be allowed to pump in more funds directly. The JSW Group stepped into the picture, and it now remains to be seen whether SAIC will further dilute its stake in the now rechristened JSW MG Motor India.
The other Chinese brand due to enter next year is Leapmotor via Stellantis, which has two plants in India — Chennai and Pune — for its Citroën and Jeep brands, respectively. The merged entity of Groupe PSA and Fiat Chrysler Automobiles (with other European brands like Opel and Vauxhall in its kitty), Stellantis, has had little to show in terms of market share in India thus far.
The company picked up 20 per cent in Leapmotor in 2023 with the objective of retailing affordable electric vehicles in emerging markets like India. This will now happen in the coming months and is yet another indication that Chinese brands can still enter the Indian market so long as it is not a direct investment. This explains why a company like BYD, now leading the global EV race ahead of Tesla, was not given the go-ahead to finance its expansion plans in India.
Brazilian encore in India
In this backdrop, it is entirely conceivable for Geely to piggyback on Renault for its India entry, using the same business model as in Brazil. Even if such a proposal is made, it will still have to obtain the Centre’s approval, but this should be less complicated than a direct investment by Geely in a 100 per cent Indian subsidiary.
Should this happen, it will be a huge boost for Renault and help it generate the volumes that it so desperately needs to make an impact in the market. The basket of products will also become much more diverse and attractive, with a host of new energy options coming in. Renault and Geely are keen to enhance their presence worldwide, and after Brazil and Korea, India is an absolute imperative given its size and potential.
Incidentally, Chery Automobile of China is tipped to partner with the JSW Group in another automobile venture at Chhatrapati Sambhajinagar (formerly Aurangabad). If things go according to plan, the technical alliance will see Chery supply powertrains and other critical components to JSW, which plans to make its own brand of cars.
Chinese carmakers would ideally like to come to India all guns blazing, but this will only happen when the two countries bury the hatchet and take things forward. Given today’s geopolitical tensions, this may seem far-fetched right now, with China and the US drafting a new world order, and India having to balance equations deftly while deepening bonds with Russia.
Chinese carmakers on a roll
China’s automakers are now on a massive global expansion spree, even as they face stiff entry barriers in the US and Europe. They are now facing a 50 per cent import levy in Mexico, an important market for Chinese car brands. With demand weakening in its domestic market, China is keen that its exports more than make up for the shortfall, which explains why its carmakers are now firing on all cylinders and exploring new markets.
There is no question that Chinese cars offer the best mix of design and features at competitive prices. Across the world, customers will be more inclined to buy brands like Geely, BYD, or Chery, which is now happening in South America and ASEAN. Even as Europe has imposed higher import tariffs on cars from China, some EU countries are quite open to Chinese automakers setting up new facilities in their regions.
The truth is that China has redefined the EV game while the rest of the world is struggling to keep pace. Partnerships like Ford and Renault could help from a cost-control perspective, but the Chinese are just way more agile. Ford, incidentally, also has a tie-up with Volkswagen for the European market, and it is a moot point how effective these alliances will be from the viewpoint of achieving the desired results.
Consolidation is the name of the game
Carmakers have realised that they need to pool in their competencies to keep the Chinese juggernaut in check. Japan is seeing some consolidation, with Toyota and Suzuki joining hands for India, Africa, and Latin America, Toyota-Mazda largely targeted for North America, and Toyota-Daihatsu in the ASEAN region. Honda and Nissan are also exploring coming together in some areas as part of the endeavour to share common resources.
Europe has seen the emergence of Stellantis, which could, in the future, end up being a tad too unwieldy with way too many brands to handle. After its decades-long association with Nissan, Renault may seek to grow alongside Geely as a new force to be reckoned with in the automotive arena.
Chinese automakers, meanwhile, will be on the lookout for new growth avenues, which could even include potential acquisitions. The coming years will be a virtual rollercoaster ride for the automobile industry, which, going by the popular idiom, will separate the men from the boys.
