The Volkswagen Group may spend up to 40 million euros (about Rs 280 crore) as an initial investment on a new engine assembly plant in India, though a final call on the location will be taken this December. Output will be at about 1.5 lakh units a year, which will be increased as sales go up.
Starting production by 2014, the move will help the firm price its cars more competitively in a crowded market where incumbents such as Maruti Suzuki and Hyundai are strongly placed. With plans to supply to four group brands ? Volkswagen, Skoda, Audi and Porsch ? the engine plant is expected to reach a profitable scale of operations at a fast space, the company said.
John Chacko, Volkswagen Group chief representative for India, said that an engine plant is usually feasable when output is about 1,000 unit a day. So, initially the company will instead assemble engines at about 500 units a day and work at rapidly increasing localisation through local sourcing of components.
?We had been contemplating on the engine plant for a while, and now the business case is looking very positive. It is logical to keep Maharashtra open as an option for the new plant as we have the land,? he said.
Though Volkswagen?s facility at Chakan, Maharashtra, has enough land, the company along with other automaker such as Mahindra & Mahindra, Tata and Bajaj, have said that they may hold back on fresh investments in the state as an objection to a change in policy by the state government.
Initially, to woo investors, the Maharashtra government used to refund VAT paid on all vehicles sold by companies with factories in the state. But in 2011, this was modified to include only those vehicles sold within the state.
Industry sources say that Gujarat?s investment friendly policies may make it the likely alternative for new investments, though reports have claimed that Kerala may be a surprise destination as well.
