Mission impossible: The tall order of turning TN EV-ready by 2030

While the state has at its disposal decades’ worth of expertise and mastery in the auto and auto component manufacturing business, it is handicapped by an utter lack of focus on the part of the state machinery to jump on board the EV bandwagon and get things rolling. Even the Centre, which has been tooting the horn to make India fully EV ready by 2030, has suddenly backed off from its stance.

The Union Government remarked that it has no plans of crafting an e-vehicle policy anytime soon. “There is no need for any policy now,” said Union Road Transport Minister Nitin Gadkari a few weeks ago. This announcement may have shocked many, especially given the buzz around this year’s auto expo held in New Delhi. But for the auto industry in Tamil Nadu, this is certainly a welcome move, given the infrastructural “unpreparedness” and the political limbo prevailing in the state.

“TN is no longer an attractive destination because of politics,” says Ramachandran Subramanian, former Quality Engineering Head at Ashok Leyland, who cites instability and leadership vacuum among the key reasons for the current state of affairs. Tier I and II auto component companies have been re-casting their strategies to meet the emission norms and the increasing shift to go the e-vehicle way. Those servicing export markets will automatically make the transition that is bound to happen in the near future, Ramachandran says. However, he adds, the overwhelming nature of the disruption will sound a death knell for many legacy OEM companies as the quantity and specifications of components in e-vehicles will drastically change.

Concurring with this view is technologist R Mahadevan, Whole-time Director, India Pistons, who says, “There is no growth story in TN as no fresh investments have come into the state, highlighting the static nature of the industry scenario. Even at the Auto Expo, there were no exciting offerings or any India-specific designs. On the EV front, it was a disappointment and thinking that the country will turn electric by 2030 is simply wishful thinking.” EVs have only made 5 per cent penetration in the vehicles market and the current infrastructure is totally inadequate. The challenges pertain to the complexities of the country, the right of use of roads issues and the time and scale of such an effort. “The critical technologies required for making EVs – motor, batteries and controls – are next to non-existent,” he says, and adds though TN has a strong auto component base with 35 per cent of the country’s production contributed by the southern state, on the EV front, it is lagging behind. “It is quite a difficult task to re-orient itself for e-vehicles. Also, there is no cohesive policy from the state,” he points out. Competing states like Karnataka and Andhra Pradesh have been on an overdrive. Because of Bosch’s presence, it is logical to assume that the EV systems have a better prospect in Karnataka. Also, Reva, the first e-car from the country, owes its origin to the Bengaluru-based Chetan Maini, Mahadevan reasons.

He adds that the auto industry in TN, like in the rest of India, has attained a “matured” status. The disruptive technology cannot prompt a big jump but the Hindu rate of growth (a term coined to describe the low annual growth rate of India during the pre-liberalised era, which stagnated around 3.5% from 1950s to 1980s, while per capita income growth averaged 1.3%) will continue, he opines.

A former bureaucrat (who has successfully done investment promotions around the early 1990s) says “If Volkswagen and GM were the biggies that gave Pune its auto shine, Chennai is clearly the front-runner. India is home to over 25 major auto players from the globe and interestingly, TN houses 55 Fortune 500 companies. Of this, 13 Fortune auto companies such as BMW, Daimler, Delphi, Ford, Michelin, Nissan, Visteon and Yamaha, are in Chennai.” The quantum of investments by these players have only increased periodically - BMW which started with a Rs 180 crore small assembly plant, has crossed the Rs 300 crore mark, he adds.

It has not been an easy journey for positioning TN as an ideal destination for auto investments. But since the 1990s, the state has been able to move up the value chain, from auto components to vehicle manufacturing.

This is a notion amplified by Erich Nesselhauf, MD-CEO, Daimler India Commercial Vehicles, who says “Our decision to set up our manufacturing plant in Orgadam was based on various factors. Infrastructure, the established supplier base, and the pool of skilled blue and white-collar staff available in Chennai automotive cluster, were among the most important aspects. We also received very good support from the government which helped us to start production in 2012 after a record construction time of just two years.” While it makes sense for auto companies to spread their risks, TN still scores in attracting brownfield expansion projects since the competitive advantages that it offers more than compensate for any disadvantage of cost in transportation, the retired official adds.

He elaborates: Korean auto major Hyundai was classified as super mega investor when it made its big bang investment of Rs 2,400 cr at the time of its entry into the Sriperumbudur auto corridor. But later, when Mahindra and Nissan were ready to pump in Rs 4,500 cr, the presence of mind and the ability of the bureaucracy to swing into action helped to ink the project by introducing the ultra-mega project concept – incentivising based on investments – raising the tax holiday to 16 years, whereas super mega projects provide 14 years tax holiday. This meant an existing policy underwent a tweak whereby in 2007, the migration to ultra-mega projects was facilitated. Such an effort meant companies like Hyundai and Daimler could graduate their existing projects to ultra-mega status by increasing their investments. Hyundai, from 1996, forged ahead with its second expansion in 2008 and the third one in 2012. From producing 1.2 lakh cars, Hyundai manufactures over 7 lakh cars today. Besides seeing itself as a TN company, it has attracted over 300 vendors, creating a supplier base that is growing from strength to strength.

But, TN lost out to AP on the Kia (sister company of Hyundai) investments. To this, a senior bureaucrat, on condition of anonymity, says Kia’s policy, which is available as a letter with the government, clearly specifies that it cannot have two plants in the same state. The economic projections show a slowdown but there has been no lack of co-operation from the government machinery, the official said, noting the state has been able to enact the Business Facilitation Act, whereas other states, barring Telangana, have not implemented the stringent act.

Even Nissan, which has been facing legal issues with TN, is going ahead with its expansion plans, the official said. The French auto MNC will be doubling its current investment level of about $2.5 billion over the next five years. Nissan is aiming to raise its market share to 10 per cent by next year. Increasing the Chennai plant’s annual capacity to 4 lakh units in a few years is on the anvil while the company plans to launch eight new car models in the country by 2021, SIAM data shows.

Hyundai too plans to invest $532 to 737 million within three years to develop new products. “Our total investment in India exceeds $2.7 billion. Hyundai has strong expansion plans for future,” says Bo Shin Seo, MD-CEO, HMIL. But, business leaders and policy makers strike a note of caution. “A strong leadership does not exist any longer though compared to other states, there is policy continuum,” admits the bureaucrat. A sentiment echoed by other stakeholders too. Ramachandran says CMs such as Chandrababu Naidu have managed to bag more new projects for his state due to his hands-on approach. His leadership style of doing presentations, travelling, interacting and engaging with decision-makers, have paid off. TN also needs to market itself. Rather than focusing on Global Investors Meet in January 2019, it needs to get its act together and “magnetise” domestic and foreign investors to regain its glorious status of being an investment hotspot. “Due to its history, TN continues to grow. It needs to do something to keep investors happy. It can start by providing common infrastructure,” says Sankaran P Raghunathan, member, National Executive Committee, IACC