Kia in talks to spend over $1.1 billion to move a plant within India

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South Korea’s Kia Motors is in discussion with the Indian state of Tamil Nadu regarding the possibility of moving a $1.1 billion plant out of neighboring Andhra Pradesh.

The move comes after a few months after it fully opened, because of policy changes last year, sources knowledgeable with the talks informed Reuters.

Kia inaugurated the Andhra plant, its first in the world’s fifth-largest automobile market, in December following two years of construction. It has yearly capacity of some 300,000 units and created 12,000 direct and indirect jobs.

But Kia is now in talks with the closeby state of Tamil Nadu, home to many major auto parts providers, regarding the possible relocation of the plant, a senior state government official and a second source knowledgeable with the discussions said.

“(Kia) are dealing with problems (in Andhra Pradesh), they have been in preliminary negotiations with us … There is a secretary-level meeting next week, we might have more clarity then,” the official informed Reuters on Wednesday.

Kia stated it has a long-term commitment to the Indian market and it intends to utilize the full capacity of its Andhra plant “before considering further expansion”.

“We do not have any plans to move the manufacturing facility from the current location,” it stated, without saying on any policy issues or discussions with Tamil Nadu, which are at an early stage.

Kia is being represented in discussions by executives at its sister company Hyundai Motor, which is India’s second-largest automaker and has all its car production centers located in Tamil Nadu, the state official added.

Hyundai is yet to comment about the issue and so is the Tamil Nadu and Andhra Pradesh chief minister’s offices.

Kia finds the new Andhra state law on local hiring to be problematic. By the new state government wanting to evaluate the incentives given out by the previous administration to encourage the company to install the plant, the second source and a third person with knowledge of the talks stated.

Shifting the plant to Tamil Nadu could also help Kia in decreasing logistics costs as it would bring it closer to some of its parts providers, the second source added.

It is yet to be seen that how Kia will move the plant from one state to another.

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