After going back and forth for three years, Hyundai seems to have officially put its plans for a diesel engine plant in India on hold. The reason: Lack of clarity on the Government’s fuel pricing policy.
Mr Bo Shin Seo, Managing Director, Hyundai Motor India, told Business Line , “We have no decision on the diesel plant from the head office and continue to watch the government policy closely. To meet the high demand, we have increased the supply from Korea and can continue to do so further.”
The company will continue to rely on imports of diesel engines from South Korea to meet the increased demand for diesel models such as the i20 hatch and the Verna sedan. It is also increasing exports of models with petrol engines (the i10 and the Eon) to utilise the existing capacity of 5.5 lakh engines a year at its Chennai plant.
No diesel i10
Diesel variants for the i10 and the Eon are not under consideration right now, Mr Bo Shin Seo further said. This is even as the falling demand in compact cars has been attributed to the non-availability of diesel options.
Hyundai, the second largest domestic carmaker, has been studying the possibility of assembling diesel engines in India since 2009, but has not been able to make a viable business case for investment to the parent firm in Korea, supplier and company sources said.
Though reports surfaced in the last three years claiming that Hyundai was almost ready to make the investment (estimated at Rs 400 crore), the company made a U-turn soon after.
“Though imported engines are more expensive, Hyundai has a certain advantage over other carmakers such as Maruti Suzuki. It has a high share of exports — 40-50 per cent of the total production. So, the high import costs are easily offset by the returns on exports,” an industry official said.
The decision to put the diesel engine plant plan on hold comes at a time when close to half of the car market shifted to diesel cars in the last year. The shift has been rapid since June 2010, when petrol prices started climbing after being de-regulated (more expensive by Rs 30 a litre to diesel today) and made the cost of running a diesel car much cheaper.
Meanwhile, market leader Maruti Suzuki is investing Rs 1,700 crore to double its annual diesel engine capacity to six lakh by 2014. In the interim, it is also sourcing one lakh diesel engines a year from Fiat India.
Honda Siel, which currently sells only petrol models in the country, is also reportedly working on small diesel engine thar will debut first in Europe, followed by India. This is expected to boost sales of its Brio, Jazz and City models.