As Kia’s sole plant in India is currently running at 100% capacity, it has become imperative to increase production
Within a short span of just around 2.5 years, Kia has emerged as a leading carmaker in the country. It is currently ranked fifth in terms of overall sales. It has created multiple bestsellers such as Seltos, Sonet and most recently Carens. The company recently achieved the 5 lakh sales milestone, which includes domestic sales and exports of 4 lakh and 1 lakh units, respectively.
4 lakh production targeted
Kia has been witnessing a surge in demand for its SUVs/MPVs in recent times. This is applicable for both domestic and international markets. Kia exports its cars to various countries across Africa, Middle East, Asia pacific and Central and South America. It is currently one of the leading utility vehicle exporters from India with a market share of more than 25% (2021).
To meet rising demand and to reduce waiting period, Kia is planning to boost production capacity. The company currently has only one plant in the country, located in Anantapur, Andhra Pradesh. Construction of the plant was started in 2017 at an investment of $2 billion. This plant is currently working at 100% capacity in three shifts. Total production capacity is at 3 lakh units per annum.
Speaking about the plans, Kia’s Managing Director and CEO Tae-Jin Park said that capacity upgrade will be achieved via efficiency enhancement. The company is planning to add 1 lakh units more, taking the total production capacity to 4 lakh units per annum. This is planned to be achieved by the end of this year.
Details about how exactly that will be achieved has not been revealed. However, Park has clearly stated that they won’t be setting up a new production line. He also said that Kia will continue to focus on SUVs and MPVs.
Decision based on prevailing uncertainties
In normal circumstances, a carmaker witnessing increased demand would have thought about setting up a new production line. Or investments could be made to set up an entirely new plant or acquire an existing unit from another OEM. Kia has chosen none of these options, primarily due to uncertainties in post-Covid world. The Russia-Ukraine crisis has further complicated the situation for auto companies around the globe.
Supply chain has been significantly impacted and there’s shortage of critical components such as semiconductor chips. In such uncertain times, making investments in a new production line or building a new plant seems a risky bet. There’s little clarity on how things will evolve politically and economically in the coming years.
Increasing production capacity through efficiency enhancement seems much safer, as the quantum of investment will be relatively less. In case things go the unexpected way, production can be reduced without any major impact on ROI. Kia is already functioning at 100% capacity, so the business can stay healthy even if there is reduction in demand.