Author | Zhou Zhiyu

The Indian market is a popular place for global car companies to invest and build factories, yet very few can stand firm in the local market. SAIC Motor Group, on the other hand, wanted to eat this tempting “cake.”

SAIC Motor Group announced on April 7 that it has received 26.5 billion rupees of equity transfer payments from Indian steel giant JSW Group. This means that its cooperation in introducing local investors in India has been implemented, and SAIC Motor can also make a net profit of at least 5 billion yuan through transactions.

As cooperation was further implemented, SAIC Motor did not lose control of its Indian subsidiary. SAIC cleverly adopted voting rights arrangements to guarantee control over the company and continue to control the technology and brand while maintaining that it is still the largest single shareholder of MG India.

Wall Street News learned that after the establishment of the joint venture, SAIC Motor will own 49% of the shares in the joint venture, the JSW Group's shareholding ratio will be 35%, local financial institutions in India will hold 8% of the shares, and employees and dealers will hold 5% and 3% of the shares, respectively. The valuation of the acquisition was also approved by the State Assets Administration Commission.

SAIC Motor Group told Wall Street News that shares held by employees and dealers do not have voting rights. This enabled SAIC Motor to hold more than half of the remaining 92% of the voting rights through 49% of the shares in its hands. Through this arrangement, SAIC maintains control over its subsidiaries.

SAIC Motor also recovered most of its initial investment after this deal.

SAIC Motor wholly established MG India in 2017 with paid-in capital of 29.2 billion rupees. With the introduction of investors such as the JSW Group, JSW has now received a payment of 26.5 billion rupees from JSW to purchase 26% of MG India's shares, and most of the investment has been recovered. Next, JSW, investment funds, dealer trusts, and employee stock ownership plans will jointly inject 25.6 billion rupees into MG India. This enabled SAIC Motor Group to increase net profit by 5 billion to 7 billion yuan through this deal.

A consultant familiar with the Indian market said that in the past, most companies invested in India, faced the problem that India could only spend money in India, and problems such as tax checks and fines plagued many foreign-funded enterprises. After weighing the many parties, SAIC Motor achieved a good result in this deal.

SAIC Motor's deal had its ups and downs. A person close to SAIC Motor once told Wall Street that business in the Indian market has developed well in recent years. SAIC Motor Group also had plans to directly increase MG India's capital, but the relevant plans have never been approved by the Indian government.

Yu De, assistant to the president of SAIC Motor Group and general manager of the international business department, said bluntly, “As an automobile group committed to global development, we have no reason not to participate in the Indian market.”

In addition to directly increasing investment, SAIC Motor needs to consider more financing channels if it wants to expand further in India. Zhou Jiang, chief financial executive of SAIC MG India, said that the solution is to find a good partner. After all, the automotive industry talks about scale effects; if scale does not go up, it is difficult to guarantee profitability.

Bringing in outside investors is a two-way process of choosing. It requires finding a strong local partner in India to help SAIC obtain a safer and more stable growth environment, but it also requires longer-term development to consider whether the partner will threaten SAIC Motor's market position in the future. People familiar with the matter said that after several trade-offs, India's steel giant JSW Group became the best choice.

SAIC Motor's data shows that SAIC MG India's first model went on sale in June 2019, and its sales volume has grown from 16,528 vehicles in 2019 to 62010 vehicles in 2023.

With the support of local Indian investors, SAIC Motor's joint venture in India can make a big difference and is expected to challenge the market position of car companies such as Suzuki and Hyundai in the local market.

For global car companies, the Indian market is very attractive. According to data released by the Automobile Manufacturers Association of India (SIAM), India's new vehicle sales volume (passenger cars and commercial vehicles) in 2023 was close to 5.08 million units, an increase of 7% over the previous year. India also became the third-largest automobile market in the world for the second year after surpassing Japan in new car sales for the first time in 2022.

Entering the Indian market is not difficult; what is difficult is to stabilize in the Indian market and achieve a further increase in scale.

India's passenger car market has been an oligopoly market for over 40 years. The top five car companies have a market share of over 80%. Japan's Suzuki established Maruti Suzuki through a joint venture with the Indian government, and has a market share of over 40%.

Global car giants, including GM and Ford, are trying to get a share of this market. Even companies like Volkswagen have a market share of less than 1% in the Indian market. There has been news several times that Tesla wants to build a factory in India, but no specific implementation has been made so far.

However, in March of this year, the Indian government also proposed that automobile manufacturers can reduce the import tax on some models of electric vehicles on the premise that they meet a certain amount of investment. This leaves the Indian market on the eve of an explosion. If they cannot seize the policy boom period, it will be very difficult for car companies to further increase in scale.

As for the next development of the Indian market, after solving the financial problem, SAIC Motor also has its own way of solving the problem. For example, in response to India's preference for small cars, Zhou Jiang revealed that MG will consider introducing some SAIC-GM-Wuling models into the Indian market next.

With the further increase in scale in the future, SAIC Motor will also be able to gradually shift from break-even to profit in the Indian market.

For Chinese car companies, going overseas is always a two-sided issue. Profits, increased investor recognition, etc. are driving Chinese car companies to speed up their overseas conquests under the wave of new energy. At the same time, they need to address business environments such as the Indian market, policy risks, and localised product strategies.

This also further tests the wisdom of car companies' leaders and regional leaders, making appropriate stock ratio concessions, avoiding risks in overseas markets, and receiving recognition and policy support from local partners. As a pioneer for Chinese car companies to go overseas, SAIC has solved the difficulties in the Indian market and paved the way for latecomers.

The road ahead is rugged. Chinese car companies will accelerate integration and collision with the global automobile industry, and will also unfold more events as SAIC and BYD go overseas.