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Stellantis has some stellar ambitions for India. Can it make them work?
The carmaker wants to increase localisation levels in its vehicles as it looks to double its revenue by 2030 and maintain double-digit profit margins. However, despite plans to launch newer models, cracking the Indian market won't be easy, say experts
Jeep has managed to bring some reprieve for the global automaker, although it is a long way from the top
They are now a mighty force. And that could make all the difference, after all the years. For Stellantis—the automotive giant formed in 2021 after a merger between the Italian American conglomerate Fiat Chrysler Automobiles and the French PSA Group—India isn’t unchartered territory. Fiat first became known to Indians in 1964, when the Mumbai-based Premier Automobiles Limited (owned by Walchand Group), joined hands with Fiat Automobiles and obtained licence to manufacture the Premier Padmini, known globally as Fiat 1100.
The Premier Padmini was a phenomenal success and once the mainstay of taxis in Mumbai. In the late 1990s, Fiat came directly to Indian shores and joined hands with Tata Motors to set up Fiat Group Automobiles India Private Limited in Pune, as India opened its economy to welcome foreign automakers. By 2012, the Fiat Chrysler group decided to go all alone in India, before deciding to shut the Fiat brand altogether in the country in 2019.
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The combined entity, which comprises FIAPL and PCA Automobiles that manufactures the Citroen range, has a market share of less than 0.5 percent in the country. India’s domestic market is led by Maruti Suzuki, followed by Hyundai, Tata Motors, and Mahindra. Together, they control nearly 75 percent of the Indian market.
Despite its paltry share, the Netherlands-headquartered Stellantis has laid out some ambitious plans for India. “India is the core of this (Asia-Pacific) region, and I must say that I'm very excited about what has been presented to me today, both in terms of potential and about the things that we are actually executing right now,” Carlos Tavares, chief executive officer of Stellantis said in a select media interaction in Chennai last week. “I think it's a very concrete contribution that we are getting from this region. We are not at all in a defensive mode.”
Stellantis, which manufactures over six million vehicles a year through its 14 brands, including the likes of Alfa Romeo, Citroen, Peugeot, Fiat, Jeep and Chrysler, has revenues of more than £150 billion and is also the fourth-largest carmaker in the world by volumes. By 2030, the company wants to double its revenue, while also maintaining double-digit profit margins. In India, too, the company wants to do the same.
“The Asia-Pacific region will contribute by no less than doubling their own net revenues,” Tavares said. “Which means that India will more than double the network used so far because we have a growing activity in India. We are just starting to grow our activities and it's going to start this year, but I would say within a couple of years, India will also have a double-digit margin like the rest of the region. The rest of the region in the Asia-Pacific is already significantly above double digits. We have done a lot of preparatory work.”
So, what’s the plan?
To begin with, the carmaker wants to source components worth billions from India, apart from, of course, increasing localisation levels in the vehicles to bring about a cost advantage in the country. In India, Stellantis operates three manufacturing plants in Ranjangaon, Hosur and Thiruvallur, an ICT hub in Hyderabad, a software centre in Bengaluru, and two R&D centres in Chennai and Pune.It took over a year for the Italian-American Fiat Chrysler and French automaker PSA (Peugeot Société Anonyme) to finalise the $52 billion deal, during which the global economy was upended by the Covid-19 pandemic. The companies had announced their intention to merge in October 2019.
“We are now a much bigger company, and together we are one single company acting in an aligned way,” Tavares said. “We have strong confidence in the Jeep brand. So, we are going to focus on Jeep and Citreon and we are going to leverage the full power of Stellantis not only for the global markets but also for India and make sure that all the technology that we have elsewhere is made available for the Indian citizens.”
This month, Stellantis unveiled the Jeep Meridian, a large SUV from the Jeep family that is priced at Rs29 lakh, and an attempt to take on the market leader, Toyota Fortuner. This year, apart from the Meridian, the group will also launch the Jeep Grand Cherokee and the new Citroën C3, which is designed, developed and manufactured in India, for India and export markets.
Interestingly, Stellantis’s move to ramp up its presence in the country comes barely a year after American automotive giant, Ford decided to step away from the Indian market after years of accumulated losses. With Ford’s exit, the only American automobile manufacturer in India remains Fiat Chrysler Automobiles, makers of the Jeep brand, and now part of Stellantis. In 2017, General Motors exited India.
“The reason why some of the Western carmakers failed is because they did not recognise that if they want to be profitable, they have to do things the Indian way, which is to be smart, be frugal and understand what the customer really wants and does not want,” Tavares says. “And that is the reason why we need to engineer those cars in India because the product might have features and equipment which may not be valued by the Indian consumers.”
That also means Stellantis is looking at localising components for up to 98 percent of the products to keep costs low. “If you do not localise the platform, the engine, and the gearbox, then forget it,” Tavares said. “You will never achieve 95 percent of localisation rate. So first you need to localise deep.”
The company is now gearing up to bring the Citroen C3 compact car, widely expected to be a mass segment car that can drive necessary volumes, in the next few months. The C5 will be the second offering in the country from Citroen, and will be positioned under the C5 Aircross, rivalling the likes of Nissan Magnite and Renault Kiger, among others. Citroen which began operations in India in 2021 hasn’t found much success, with barely 43 units being sold in April.
“India is a very competitive and unique market not only because of its manufacturing competitiveness and cost arbitrage which is ideal for exports but also because of its strong domestic demand function,” says Harshvardhan Sharma, head of auto retail practice at Nomura Research Institute. “If Stellantis can stay agile and nimble cost-wise and yet deliver a refreshing portfolio, I am sure they will see success.”
The automaker is also firming up plans to jump on the electric bandwagon in India and is gearing up to launch its first electric vehicle (EV) in the Indian market in 2023. The plan includes launching an EV in the compact sub-four metre segment and sports utility vehicle segment, and will be built as part of the smart car platform programme of Citroen. While the carmaker reckons that EVs may constitute 100 percent of its sales in Europe and 50 percent in the US by 2030, in India, it expects the segment to contribute to between 25 percent and 30 percent by 2030.
“I think that by 2025, EVs are going to be 5 percent to 10 percent in terms of the mix, and by the end of the decade, perhaps 25 percent to 30 percent,” says Tavares, whose company will bring the EVs as part of the smart car programme. “We understood where the world was going and there is no reason why Indians would not benefit from the best technology in terms of cutting emissions.”
Yet affordability will continue to remain a challenge, especially since electric carmakers in India haven’t been able to offer a value proposition with high costs of the vehicle. Barring Tata Motors, which now corners over 90 percent of the domestic EV market, no other carmaker has managed to make a significant dent in the segment. In early May, soon after Tata Motors showcased its third-generation electric concept vehicle, Avinya, which could have a range in excess of 500 km and is envisioned as a global product that can rival even Tesla, Tata also launched its latest offering, the long-range Nexon EV, that the automaker reckons will allay range fears.
“The challenge is to make sure that we make these cars affordable for the middle-class citizens,” Tavares added. “This is still something that needs a lot of work… not only at Stellantis but also in the industry to make these affordable. The level of localisation (in EVs) could be better had we found a battery cell supplier in India which so far, we didn't. So, the batteries will come from somewhere else, but surely, we will consider if there is a sourcing opportunity.”
Challenges galore
Cracking the Indian market isn’t an easy affair.
In the 1990s, the PSA Group had forayed into India with the Peugeot brand, before calling it quits in 1997. Subsequently it made numerous attempts, including in 2007 and 2011, to bring the Peugeot brand in India, before finally coming to the country with Citroen in 2021. Over the past few years, homegrown carmakers have made a stellar return to the top with Maruti Suzuki, Tata Motors and Mahindra accounting for 62 percent of the market. Hyundai Motors and Kia Motors corner another 15 percent and 6 percent, which means the likes of Stellantis have a humongous task at hand to crack the Indian market.
“India is the fifth-largest automobile market in the world, and that’s perhaps why Stellantis is keen on its presence here,” says Puneet Gupta, director for automotive forecasting at market research firm S&P Global Mobility. “But Indian customers want a value proposition and European carmakers have struggled with that for long. Citroen hasn’t been able to generate adequate volume, and the Jeep brand has taken a serious hit as is evident from sales numbers.”
Gupta also reckons that the carmaker lost out on a massive opportunity in the Indian market in the SUV segment, where relative newcomer Kia has managed to make significant headway. “When Jeep was launched, there was a lot of expectation,” adds Gupta. “That has faded away. With Citroen, dealerships are seeing poor footfall, and that can lead to many leaving the company unless their numbers improve.”
“Cost efficiencies emerging from economies of scale are key for manufacturing operations,” Sharma of Nomura says. “For automakers, it’s imperative to keep achieving a minimum volume to sustain their investments. One strategy could be ‘freemium’ meaning initially taking a hit on profitability and getting the customers to experience the products until they come around. Furthermore, strategic sourcing and a strong focus on demand and supply alignment are key to ensuring efficient cash flow management. The playbook for India is simple. Right product set and cost competitiveness both upstream and downstream.
Yet, for Stellantis, the focus now is rather simple and it isn’t in the country for the volumes game. The company wants to double its net revenue in line with global plans to double net revenue by 2030 and keep its operating income margin above 10 percent. “We don't mention volume because we believe that the world is changing. And in some cases, you need to create value rather than push for volume. It is visible that all the companies that were pushing volume as an objective itself failed. It's a fact. We have been achieving efficient operating income margins despite very low volumes.”
Much of that has also to do with the growing uncertainties with the Russia-Ukraine crisis and the risk of a pandemic. “We keep it that way because we need to be able to digest any chaotic events that would bring our net revenues down by 50 percent,” Tavares says. “We are very hard-working people and we are hard on ourselves because as you know it's not easy to be there. But by doing that we are ensuring the stability of the company, in a chaotic world.”
Perhaps it’s the right strategy to go. Or it might be the wrong one in India. Only time will tell.
