Auto Investments: Tamil Nadu Still In The Driving Seat

The Tamil Nadu government received a shot in the arm when it grabbed a big-ticket investment from Tata Group in the automobile sector on Wednesday.  The state, popularly known as Detroit of Asia, will now be in a better position to market its auto original equipment manufacturer or OEM clientele with added fervour across the globe, giving tough competition to states like Gujarat and Maharashtra, in wooing further investments.

The excitement was palpable when the news was broken by the Industries Minister TRB Rajaa himself. "Tata Motors and the government of Tamil Nadu are revving up for an epic journey. Another billion-dollar investment comes into Tamil Nadu," is how he started off while announcing the investment by the Tata Group.

To put things in perspective, the Tamil Nadu government and Tata Motors signed a memorandum of understanding (MoU) for setting up a new vehicle factory in the state with the auto major committing an investment of Rs 9,000 crore over a period of next five years, promising employment generation for around 9,000 people. The proposed factory, the first ever by Tata Motors in Tamil Nadu, will be set up in the Ranipet district of the state.

The fresh investment by Tatas reiterates Tamil Nadu's strategic significance as an automotive manufacturing hub. The announcement comes at a time when the automotive sector is experiencing dynamic shifts, including the push towards electric and sustainable mobility, coupled with the evolving regulatory landscape.

This is the second big automobile-sector investment the state has grabbed in just two months' time. Vietnam's leading electric vehicle manufacturer, VinFast, in January committed an investment of Rs 16,000 crore ($2 billion) to set up an integrated electric vehicle facility at Tuticorin in Tamil Nadu. The company proposed to create employment opportunities for close to 3,500 local workers.

Tamil Nadu boasts of a robust ecosystem — skilled labour, well-established supply-chain networks and favourable industrial policies, making it an attractive destination for automotive investment. Tata Motors' decision to set up its new unit in Tamil Nadu aligns with this trend and positions the company strategically to leverage these advantages.

According to Rajaa, Tamil Nadu has hit the fast lane over the past couple of years and become the ultimate hub for investment, fostering top-tier employment for the youth while amplifying the industrial prowess of the state.

In yet another big-ticket auto sector investment in the state, last year in May, Hyundai Motor India had announced its long-term investment plans in the state of Tamil Nadu. The company has planned further inroads into electric vehicles and modernisation of vehicle platforms by investing Rs 20,000 crore in a phased manner over the period of 10 years. The South Korean car major is one of the early entrants into Tamil Nadu and in 2021, the company celebrated its 25th year of establishment in India.

Besides Hyundai, Tamil Nadu is home to several other automobile companies, including BMW, Daimler, TVS Motor, Ashok Leyland, Renault-Nissan, Citroen, Isuzu Motors , BYD India, Royal Enfield and Yamaha Motor India.

The state has also earned the tag of EV capital of India with big names such as Ola Electric, Ather Energy, Simple Energy and Switch Mobility. With the launch of the revised EV policy in February 2023, the state is looking to enhance its footprint in the sector further.

In 2021, when the US car major Ford officially announced its exit plans for India, the company had put up both its Chennai and Gujarat plants for sale. The latter plant was sold to Tata, while the Chennai plant was closed due to the unavailability of a suitable buyer. JSW, which recently announced the purchase of a 35% stake in a joint venture with SAIC, had apparently finalised an agreement to buy the Ford Chennai plant. However, Ford called off the deal later. Now, with Ford reentry on the cards, the state is betting on the revival of the defunct factory in due course.

• Strategic location: Situated in the southern part of India, Tamil Nadu enjoys proximity to major ports like Chennai and Ennore, facilitating easy access to international markets for auto exports. This advantageous geographical location enhances logistical efficiency, reducing transportation costs for both raw materials and finished products.

• Industrial infrastructure: Tamil Nadu boasts a well-developed industrial infrastructure, with established industrial parks, special economic zones and automotive corridors, such as the Chennai-Bengaluru Industrial Corridor. These zones offer a range of amenities and incentives tailored to the needs of auto manufacturers, including streamlined approval processes, tax breaks and access to utilities.

• Supplier ecosystem: Tamil Nadu's automotive ecosystem is characterised by a well-developed network of suppliers, ranging from component manufacturers to service providers. This proximity to suppliers reduces lead times, minimises inventory costs, and promotes collaboration and innovation within the industry.

• Skilled workforce: The state's emphasis on education and skill development has resulted in a large pool of skilled and semi-skilled labour, particularly in engineering and technical fields. This abundant talent pool ensures a steady supply of qualified workers for the automotive industry, reducing recruitment challenges and enhancing productivity.

• Government support: The Tamil Nadu government has been proactive in attracting investments and fostering a conducive business environment for auto companies. Through a slew of policies, such as industrial and EV policies, the government offers various incentives such as subsidies, land allocation, and infrastructure support to encourage investment in the automotive sector. The Guidance Bureau, the nodal agency responsible for attracting investments into the state, works relentlessly to spot opportunities and engage with potential companies.

• Political stability: Tamil Nadu has a history of political stability, which is crucial for businesses seeking long-term investments. A stable political environment reduces uncertainties and provides a conducive climate for business growth and expansion.

Many industry watchers would agree to Industries Minister Rajaa's posture that it was not just the incentives, the companies are looking for the robust ecosystem available in Tamil Nadu, infrastructure, availability of talent pool and ease of doing business facility.

The writer is a veteran financial journalist based out of Chennai.

Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.