Tata Motors Ltd (TTMT) will make Indonesia a hub for export of its vehicles to Southeast Asia as the country is set to overtake Thailand as the region's biggest car market.
Tata Motors, which plans to start sales in Indonesia in two months, aims to sell enough vehicles in the country to make a local assembly factory feasible, Biswadev Sengupta, chief executive officer of the Indonesian unit, said in an interview with Bloomberg TV Indonesia on Monday.
The volumes would also help boost content of locally made components to 40%, a level that is required to sell to members of the Association of Southeast Asian Nations, or Asean, at zero duty, he said.
India’s largest automaker is entering Indonesia as the country is set to become Southeast Asia's biggest car market in 2014, according to IHS Automotive. Most of the region's 600 million people -- the combined population of the United States, Germany and Brazil -- will be middle class by 2020, and that will boost consumer demand, according to Bain & Co.
"Indonesia can act as beachhead for Tata's Asean strategy," Ammar Master, an analyst at LMC Automotive based in Bangkok, said. "And allow the automaker to expand volumes beyond its home market."
Tata Motors’ sales at home have plunged every month since November. Passenger vehicle deliveries at the Mumbai-based automaker fell 32% in June to 11,804 vehicles.
Shares of Tata Motors have declined 7.8% this year, compared with a 0.1% increase in the benchmark S&P BSE Sensex. The automaker's stock rose 0.1% to 288.15 rupees as of 2.01pm in Mumbai.
Toyota Competition
The Indian automaker will have to compete with Toyota Motor Corp, whose joint venture with PT Astra International controls about half of Indonesia's market. Domestic vehicle sales in May rose 4.2% from a year earlier to 99,568 units, Astra said last month, citing data from the country's automotive industries association.
Tata Motors aims to make Indonesia its biggest market outside of India and will invest to achieve that target, Sengupta said without explaining whether he meant market size by revenue or volume. The initial focus will be on selling vehicles on the islands of Java and Bali, he said.
Over the next two months the company plans to open as many as seven dealerships and increase that number to 15 by March, he said. Tata Motors expects to sell enough vehicles in Indonesia in three to four years to justify starting an assembly line, he said.
The company will target Indonesia's small car and pick-up van segments, Sengupta said. It will also sell passenger buses and mining related vehicles, he said.