Ford might just make a return to India. Is it worth the fight?
Ford might just make a return to India. Is it worth the fight?
After leaving the shores some two years ago, speculation is rife that the American automotive giant wants to sell in India and export out of here. By holding on to its Chennai plant, it wants to focus on the electrification and digital transformation of core segments in which it is a leader—trucks, SUVs and commercial vehicles
Manu Balachandran is a writer for Forbes India, based in Bengaluru. At Forbes India, Manu writes on automobiles, aviation, pharmaceuticals, banking, infrastructure, economy and long profiles among many others. He also moderates many of Forbes India's CEO and CXO events and hosts Capital Ideas, a podcast on the most riveting success stories from the business world. He has previously worked with Quartz, The Economic Times and Business Standard in Mumbai and New Delhi. Manu has a master's degree in journalism from Cardiff University and a degree in economics from the Loyola College. When not chasing stories, he is most likely obsessing over Formula 1 (Read: Lewis Hamilton), historical events and people, or planning long weekend drives from Bengaluru
Jim Farley, CEO of Ford Motor Company
Image: Bill Pugliano/Getty Images
It was a twist that many didn’t see coming.
But India’s automobile industry is abuzz with speculations about American automotive giant Ford making a re-entry into the country after leaving the shores some two years. It all began with Ford’s decision to walk away from a deal to sell its manufacturing plant in Chennai after coming to an agreement with the $23 billion-JSW Group.
The Ford Motor Company Chennai assembly plant, also known as the Chennai Vehicle & Engine assembly plant, is located in Maraimalai Nagar, Tamil Nadu, and boasts a capacity to manufacture 200,000 vehicles and 340,000 engines a year. Already, Ford had sold a manufacturing facility that it had in Gujarat to Tata Motors last year and the sale of the Chennai plant would have signalled the end of a nearly-three-decade tryst with India, when it had become one of the first global automakers to enter India under a liberalised regime.
Now, with the company deciding to hold on to the plant, speculations are rife about Ford bringing its popular SUVs to India, especially as India’s automobile transitions from small cars and sedans to SUVs. It could also just be that the plant might fit into Ford’s export plans.
“Globally, under its current CEO, Jim Farley, Ford is focussed on the electrification and digital transformation of core segments in which it is a leader, namely trucks, SUVs, commercial vehicles, and performance cars,” Vinay Piparsania, a former director at Ford India and an automotive and mobility expert, tells Forbes India. Under Farley, Ford has chosen to move away from cars into segments such as SUVs, trucks (common name for pickup vans), hybrid and electric vehicles (EV).
That has meant that its current portfolio comprises the high-performance Mustang, and SUVs such as the Everest (Endeavour in India), Bronco and Explorer. The company has discontinued sedans such as Fiesta, Mondeo and Fusion in addition to upping its expected investment in EVs and other technologies to $50 billion by 2026, from a previously announced $30 billion through 2025. Last year, Farley also made it clear that the company would not compete in over-served market segments instead focusing on connected vehicles and digital services.
Instead, Farley wants to move away from thin profit margins with a lean disciplined operating system. A spokesperson for Ford tells Forbes India that the company does not respond to market speculations about a re-entry into the Indian market.
“Ford may not be keen to restart sales in India immediately,” Piparsania says. “It could also consider entering contract manufacturing EVs for other OEMs who are currently in, or are, entering India. It might also be strategically opportune in making India an export hub for Ford EVs, especially on the back of the PLI scheme, and likely FTAs being entered into.”
“Ford had made India as a base to build frugal and competitive cars in the country and also export cars from India, but it was unfortunate to see them leaving overnight,” says Puneet Gupta, director for automotive forecasting at market research firm S&P Global Mobility. “Regaining confidence and trust among consumers, suppliers and dealers is going to be a tedious task for sure.”
Holding on to the Chennai plant, even if the company does not have any sales in India, is significant as it helps the company avoid the massive costs of setting up a new plant, giving it a quicker start-up in addition to reducing financial risks compared to greenfield projects while also providing infrastructure, including production lines, equipment, and a trained workforce.
“This translates to faster operationalisation and potential cost savings,” says Harshvardhan Sharma, head of auto retail practice at Nomura Research Institute. “Ultimately, entering or re-entering a market is a strategic decision that depends on various factors, including market conditions, competition, consumer preferences and regulatory environment.”
Coincidentally, the speculations about Ford returning to India, a market once seen as key to growth in the Asia-Pacific region and emerging markets, comes a few months after the India-born Kumar Galhotra took charge as the automaker’s chief operating officer, a role held by Farley before his elevation. Galhotra is in charge of the company’s global industrial system, including all global vehicle engineering and cycle planning, ICE and hybrid programmes, and supply chain management.
Ford began operations in India with the Ford Escort, a sedan.
The company started out with a 1,600 cc petrol-powered engine, which went on sale in October 1996. Going up against heavyweights in the Indian automobile markets, Ford tried to bring global standards to their product offerings in India, which meant seat belts and airbags, among others. “We had to dumb down our vehicles in the Indian markets then,” a former executive at Ford tells Forbes India.
The Ford Escort, while not a volume churner, boasted power windows, power steering, music systems and air conditioning. Ford was also the first carmaker to let dealers use their names and even helped set up advances in body shop facilities at the dealers’ outlets.
With the Escort finding its feet, Ford soon turned to manufacture an India-specific sedan, at a lower price, which then went on to become a bestseller. The Ikon was a direct rival to Maruti’s compact sedan, the Esteem, and Hyundai’s Accent. The Ikon used all the learnings from India and used more localised components and instantly became a hit.
But even as it began to find success in India, Ford’s global operations were in turmoil, with leadership changes, and concerns over safety. Between 2000 and 2001, it was in the midst of a serious battle with tiremaker Bridgestone over its Firestone tyres, which were used on Ford’s popular SUV Explorer. By 2001, about 174 people were killed in accidents and crashes involving these tyres, and the carmaker and tyre-maker were blaming each other for them.
Then there was the exit of CEO Jacques Nasser in 2001, as Ford’s US operations began to struggle. In India, Ford also had a problem with pricing since the company did not follow cost-plus pricing, instead relying on market-based pricing. Much of that was because of the price-conscious Indian buyer, at a time when the Indian economy was only beginning to pick up pace.
Meanwhile, after the success of Ikon, Ford’s successive launches, including the Fusion and Mondeo, failed to woo buyers before the company staged a comeback with Figo and EcoSport. The Mondeo was priced almost as much as a Mercedes, largely due to import duties. The Ecosport built up a massive fanbase, and in many ways was among the original sub-compact SUVs kickstarting what would later be a phenomenal shift towards SUVs among Indian car buyers.
By 2015, Ford, which also had plans to launch a slew of vehicles, decided to set up a new state-of-the-art manufacturing plant at Sanand, on a 460-acre site, for $1 billion. The facility was to manufacture 2.7 lakh engines and 2.4 lakh vehicles a year. The company had also struck a deal with Mahindra to jointly develop products in India before calling off the plan in 2021.
That, along with mounting debts, and dwindling market share meant that the automaker would soon fold up operations, even though its SUV, Endeavour, had found takers in large numbers. “Despite investing significantly in India, Ford has accumulated more than $2 billion of operating losses over the past 10 years and the demand for new vehicles has been much weaker than forecast,” Ford said in a statement announcing its decision to leave the Indian shores.
Whether Ford plans to sell in India or look at exporting out of here, the country still offers tremendous opportunities when it comes to demand. Indian passenger vehicle market is still significantly underpenetrated with less than 8 percent of households having a car. That’s one in 12 houses.
With the likes of Tesla and VinFast firming up their India plans, India’s automotive segment is seeing a surge in interest among global automotive players to strengthen their presence in the country, especially as disposable income continues to rise, while loan rates become even more attractive. Last year, India's passenger vehicle sales surged past 4 million units for the first time ever in the calendar year 2023.
In all, more than 4.1 million cars, sedans and utility vehicles were sold in the domestic market last year, an 8.2 percent increase from the 3.79 million vehicles sold in 2022, according to the industry body, Society of Indian Automobile Manufacturers (SIAM).
“With favourable macroeconomics and stable policy and governance factors, the market is poised to grow at a very rapid rate, and it will be prudent to ride with wave for any OEM,” says Sharma of Nomura Research Institute. A brand like Ford surely enjoys a strong brand image in India, especially for SUVs like the Endeavour. This loyalty could provide a head start in a market becoming increasingly familiar.”
Then, there is the enormous opportunity available in the EV ecosystem. Over the past few years, India’s EV segment has seen some serious traction, with both homegrown and foreign automakers making a beeline with their models. Globally, automakers ranging from GM to BMW and Ford are expected to spend over $500 billion in developing all-electric vehicles from gasoline models over the next several years.
In India, automakers from Tata to Mahindra have taken the plunge to develop their models as the government looks to have 30 percent of all vehicles sold in the country to be electric by 2030. Currently, Tata Motors sells over 6,500 units of EVs every month in the country. By 2030, about 40 to 45 percent of all two-wheelers and 15 to 20 percent of all four-wheelers (passenger vehicles) sold in India will be electric, according to a report by Bain & Co, while the government wants EV penetration to hit 40 percent for buses, 30 percent for private cars, 70 percent for commercial vehicles, and 80 percent for two-wheelers.
Today, homegrown automaker Tata Motors corners a lion's share when it comes to EVs followed by MG Motors and Mahindra. The Tata Tiago is the country’s highest-selling electric vehicle, followed by Tata Nexon and Tata Tigor.
Tesla, meanwhile, is expected to build a sub-$20,000 electric vehicle, and the Indian market, with its cheaper workforce and a production-linked incentive from the government, could help hasten that. For long, Musk himself has been advocating a sub-$30,000 (Rs24.5 lakh) electric vehicle, but even the cheapest Teslas costs as much as $39,000 (Rs32 lakh) in the US. Over the past few months though, Tesla has been taking the fight to other automakers in the US with a series of price cuts, on the back of its position as a cost leader.
All that means there is an opportunity for Ford to play in India. “The Indian market is undoubtedly becoming increasingly competitive, but the potential rewards may outweigh the risks,” adds Sharma. “Their (Ford) success will depend on their execution, adaptation, and ability to leverage their unique strengths in this dynamic and exciting market.”