Kia in talks over moving $1.1 bn plant out of AP
South Korea’s Kia Motors is discussing with Tamil Nadu the possibility of moving a $1.1 billion plant out of neighbouring Andhra Pradesh only months after it fully opened, due to policy changes last year, sources close to the talks said.
Kia inaugurated the Andhra plant, its first in the world’s fifth-largest car market, in December after two years of construction. It has an annual capacity of some 300,000 units and created 12,000 direct and indirect jobs.
However, Kia is now in talks with Tamil Nadu, home to many major autoparts suppliers, about potentially relocating the plant, a senior state government official and a second source familiar with the discussions said.
“(Kia) are facing problems (in Andhra Pradesh), they have been in preliminary negotiations with us ... There is a secretarylevel meeting next week, we might have more clarity then,” the official told Reuters on Wednesday.
Kia said in a statement it has a long-term commitment to the Indian market and it aims to utilise the full capacity of its Andhra plant “before considering further expansion”.
“We do not have any plans to shift the manufacturing facility from the current location,” it said, without commenting on any policy concerns or talks with Tamil Nadu, which are at an early stage.
Kia is being represented in the talks by executives at its sister company Hyundai Motor Co, which has all its car production facilities in Tamil Nadu, the state official added.
Hyundai did not respond to a request for comment. The Tamil Nadu and Andhra Pradesh chief minister’s offices did not respond to requests for comment.
Kia has been troubled by a new Andhra state law on local hiring and by the new state government wanting to review the incentives given out by the previous administration to encourage the company to set up the plant, the second source and a third person with knowledge of the discussions said.
Moving the plant to Tamil Nadu could also help Kia in reducing logistics costs as it would bring it closer to some of its parts suppliers, the second source added.
It was not immediately clear how swiftly Kia could move production lines from a plant in one state to another, or what sort of disruption that would entail.
Kia started building the new plant in 2017 and formally inaugurated it in December, when it said the 23 million square foot facility would manufacture vehicles like its Seltos SUV for both the Indian and overseas markets.
It said the facility would “become a vital part” of its global production network in the long term.
But considering relocation within months of the inauguration highlights the challenges foreign investors face while dealing with policy changes at federal or state level in India.