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Kia Threatens to Scrap 2-Month-Old Factory in India

$1.1 billion facility could be relocated in the country
#Hyundai #Jaguar #Kia

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Kia Motors reportedly may shut down a $1.1 billion assembly plant it opened in India two months ago and set up shop elsewhere in the country.

Sources tell Reuters this is all about the newly installed state government of Andhra Pradesh, which last summer switched terms of the deal that attracted the project to the region in the first place.

Indian Beachhead

Kia’s besieged plant in India   (Image: Kia)

The factory is Kia’s first in India. The plant has an annual capacity to make about 300,000 vehicles for the local market, thereby reducing Kia’s need to import all its models.

Construction began on the facility two years ago, and the plant began making the Seltos small crossover late last year. Now it’s in the process of adding the Carnival MPV.

Reuters’ sources say Kia is floating the notion of packing up the site’s stamping, welding, painting and final assembly equipment and setting up shop due south in the state of Tamil Nadu.

Tamil happens to be where parent Hyundai operates a big assembly plant. The state also is home to several of India’s major auto suppliers.

Deja Vu?

Only Hyundai/Kia knows whether such a dramatic (and very expensive) move would make sense. But it has happened before—also in India—back in 2008.

That’s when Tata was getting ready to open a $357 million plant in eastern India to make the ultra-cheap Nano minicar. Festering complaints over how the government acquired the plant site prompted Tata to shut down the nearly complete facility and open a replacement factory on the other side of the country nearly two years later.

It turned out to be a good move for Tata. An India court ultimately ordered the carmaker to return the land for the original plant to the farmers who previously owned it.

More likely, Kia is using the possibility of a move to make Andhra’s government stop questioning incentives on taxes and land purchased for the project. Last summer the government ordered Kia to fill the factory’s job openings with local workers. 

Risky Deals

Kia’s plight underscores the perils of foreign investment. Others have encountered similar second-guessing about big factory projects.

It happened last year with Nissan over waffling government promises regarding the future of its factory in Sunderland, England.

The European Commission raised similar after-the-fact questions about incentives that helped Slovakia win a Jaguar Land Rover plant two years earlier. And Nissan got into a scrap in 2017 with Tamil, the same place Kia is considering, over $775 million worth of promised incentives.

Reuters says Kia’s discussions about moving from Andhra to Tamil are preliminary, and some sort of compromise seems likely. But as history has shown, you never know.

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