German auto giant Mercedes-Benz is contemplating setting up a plant to manufacture engines, gearboxes and other components in India at a whopping investment of Rs 2,500 to Rs 3,000 crore (Rs 25 to Rs 30 billion).
While plans are yet to be finalised, the lower cost of manufacturing in India has compelled the company to give a serious thought to the proposition, Harald Landmann, the bus business head for Mercedes-Benz said at the launch of the company's intercity luxury bus in Pune.
Assembled at Sutlej Motors in Jalandhar, the Rs 80-lakh (Rs 8-billion) bus will compete with its Swiss counterpart Volvo in the fast growing Indian luxury bus segment.
"We are yet to figure out when the entire bus building operation, including the development of engine and gearboxes, will happen in India. However, we are looking at a possibility to set up a manufacturing unit over the next three to five years," Landmann said, speaking to reporters after the launch.
While Landmann did not disclose the location to set up this unit, officials close to the development hinted at Pune or Chennai.
Mercedes Benz is setting up its new facility at Chakan to manufacture cars as well as buses, which will begin operations in January. The company is expected to move all its operations from its present plant in Chikhali to Chakan.
Considering this, the company might set up the engines and gearboxes unit in the vicinity of the Chakan plant.
"As our new manufacturing unit is coming up at Chakan, the engine and gearbox manufacturing should ideally happen in the same region. Since Pune has a strong automobile component industry, the unit has to come up nearby," an official stated.
Once the company draws a concrete plan for the Rs 2,500-crore project, it will approach the Maharashtra government for approvals. "We might explore other states to set up the engine-gearbox facility if things do not work out in Maharashtra," he added.
Apart from Pune, Chennai could be the other option for this project. Elaborating the business plan for the newly launched bus, Landmann said, "Mercedes-Benz enjoys a 17 per cent market share in the global luxury bus market.
"We have built the new bus on our versatile O500 R/RF chassis, which is being developed at the Pune plant. While most of the components are being imported from a Brazil-based unit, the chassis-building acitivity will happen in Jalandhar through an agreement with Sutlej Motors."
"The luxury bus market is growing in India. Volvo, so far the only significant player in India, sold some 350 buses last year. Our plan is to earn a significant market share within the first year," Mercedes-Benz India Managing Director Dr Wilfried Aulbur said.
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