Ford reconsiders production in India shortly after production halt

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The Ford EcoSport is no more, not that it was a hit with consumers or critics. Still, those considering next year’s model are out of luck. Ford announced plans to close two factories in India where the EcoSport, among other vehicles, was manufactured. However, Ford executives reconsidered this decision and announced their intention to resume production.

Ford suspends operations in India

The Ford logo | Indranil Aditya/NurPhoto via Getty Images

India has long been seen as a growth market for the automotive industry. With rising GDP and personal income, more citizens have the disposable income to spend on motor vehicles. India also occupies a strategic position in South Asia as a hub for distribution to neighboring countries.

Ford established assembly plants in Sanand and Chennai years ago. However, as The Street reports, the automaker has been losing money every year for the past decade. After suffering operating losses of more than $2 billion since 2009, in September 2021 Ford announced plans to close the Sanand Vehicle Assembly Plant by the end of 2021 and the plant of Chennai by spring 2022.

These closures did not mean that Ford was completely divesting from India. Even with the closings, Ford would have retained some 11,000 employees in the country. These employees would have focused on the production of engines for export and the production of parts. To ensure that Indian consumers still had access to Ford vehicles, the company also announced plans to import certain vehicles.

Along with the announced closures, Ford also announced that it would discontinue the Aspire, EcoSport, Endeavour, Figo and Freestyle. However, they would continue with their plans to manufacture a wide range of new EVs and EV technologies, with much of this latest work still centered on the remaining Indian production facilities.

Will Ford restart production?

Despite its announcement and reduction efforts, Ford recently announced plans to resume vehicle manufacturing in India. While this was great news for those who had been laid off or were at risk of being laid off in Sanand and Chennai, it was probably quite surprising. Closing a plant and dismantling operations is no small decision. This takes effort, time and money, not to mention initiating import operations to build sales inventory.

So why then, as vehicle manufacturing operations draw to a close, would Ford suddenly decide to reopen those operations? The answer lies in a $3.5 billion Production Linked Incentives (PLI) policy designed to provide incentives such as tax refunds to automakers that invest in clean energy technologies.

Some time ago, Ford announced its intention to electrify its fleet. In its announcement of the Sanand and Chennai plants, Ford noted a global investment of $30 billion in hybrid vehicles and electric vehicles. Thus, the company applied to participate in the PLI program and announced the approval of the Indian government in February.

Ford’s future operations in India

Given the incentives currently offered, Ford plans to manufacture electric vehicles in India for export to the United States. The company has not ruled out selling these vehicles in India as well. However, market conditions would likely have to change significantly for that to happen.

In India, Ford manufactured electric and hybrid vehicles for sale locally. However, as Reuters reported, the company’s losses were partly the result of below-average expected growth and fierce competition in the domestic market. Those terms have not changed, but Ford plans to leverage its existing operations and workforce to build electric and hybrid vehicles in India and ship them to the United States profitably.

As Ford races against time to meet its self-imposed goal of electrifying 40% of its fleet by 2030, it must take advantage of any opportunity to develop EVs and hybrids on the cheap. While PLI rebates may help, Ford has yet to finalize a decision on which of the two plants it will reopen or which vehicles it will manufacture when operations resume.

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