Gears Up for Automobile Assembly Industry

  7 min 46 sec to read
 Gears Up for Automobile Assembly Industry

Prospects look bright for vehicle assembly in Nepal. Now the government needs to support it to further realise the potentials.


When the Investment Board Nepal (IBN) approved a proposal of Motrex, a South Korean vehicle accessories manufacturer, to set up an automobile assembly and manufacturing plant in Nepal in March this year, it caught domestic automobile dealers by a surprise.

While details of the Motrex business plan is yet to be known, the company has planned to invest initial investment of Rs 10.54 billion to set up auto assembly plant in Motipur Industrial Park, Rupandehi and vehicle production from 2021.

Given the size of automobile market in Nepal, the proposal from Motrex was something audacious. However, it has opened the discourse whether auto assembly plant can be profitable venture in Nepal. After Motrex received approval from the IBN, Laxmi Intercontinental, the authorised distributor of the Hyundai, announced its plan to have Hyundai assembly plant in Nepal. Of late, major business houses representing foreign automobile brands in Nepal are either already starting assembly of vehicles or announcing their plans to establish vehicle assembly plants. The last fiscal year also saw the highest number of companies registering for auto assembly plants. Eight new companies were registered in last fiscal year. Among these, eight companies are of local investment, eight are of foreign investment and four joint venture investments of Nepali and foreign investors.

One of the early movers in two-wheeler segment is Hulas Auto Craft, a Golchha Organisation company, which has established assembly plant of Bajaj discover motorbikes in Ramgram, Nawalparasi. The company has also been distributing Bajaj two-wheelers in Nepal for the last two decades through one of its companies Hansraj Hulaschand and Company (HH Bajaj).

Shanker Group that has core interest in steel and cement sectors is already working to establish an assembly plant in Birgunj to produce TVS two-wheelers in Nepal with an investment of Rs one billion.  The group has been the authorised distributor of TVS two-wheelers through one of its companies Jagdamba Motors for the last couple of years. The company’s Vice President Deepak Agrawal says the plant, which is under construction, will have an assembly capacity of up to 500 bikes per day. "The plant will begin commercial operations towards the end of 2019," informed Agrawal. Agrawal says that Jagdamba Motors has already acquired government approval and has ordered the required machinery and equipment for the assembly of TVS bikes. The company has collaborated with TVS India for technical support which includes bringing in highly skilled workforce from TVS India. In its first phase, the plant will employ around 300 people. Laxmi Intercontinental plans to invest Rs 5.10 billion for an Hyundai assembly plant to be set up at Ramgram Municipality-6, Nawalparasi. The company’s director Nirakar Shrestha says they are looking to have a manufacturing unit with a capacity to assemble 8,000 vehicles annually. “We are in the initial phase as the feasibility study is being done,” says Shrestha. The company will employ 440 people through the project.

Past Efforts in Vehicle Assembly in Nepal
It was in January 2015 when the country’s first automobile assembling company Hulas Motors formally announced to cease production of vehicles at its plant in Biratanagar. The government’s dismissal of Hulas Motor’s demand to give it an extension of one year in using the Euro-III emission standard engines was cited as the key reason behind the closure of the plant. Since 2000, the company, which is owned by Surendra Golchha, a member of Golchha family, was manufacturing three four-wheelers models; among them the most notable was the Hulas Mustang which was used by the then Prime Minister Dr Babauram Bhattarai as his official vehicle during his premiership in August 2011 to March 2013.

 Since 2016, Hulas Motors has been engaged in the assembling and sales of electric cars under the brand name Hulas Da Vinci and two commercial three wheelers namely, Hulas e-Rickshaw and Hulas Cargo. A significant moment for the domestic automotive assembly industry development came in September 2017 when Hulas Auto Craft, a Golchha Organisation company, started operation of a complete knock-down (CKD) assembly plant for Bajaj Discover 125 motorbikes with an investment over Rs 700 million. This is the third initiation to operate a two-wheeler assembly plant in Nepal. In 2004, SOI Group partnered with the Chinese two-wheeler brand Yingyang to start assembly of motorbikes and scooters under the brand name Cosmic Yingyang; in 2005, a Sino-Nepal joint venture named Annapurna Lifan Company Pvt Ltd started assembly of Anna Lifan two-wheelers. After a few years of operation, the assembly of both Chinese two-wheelers ceased in the late 2000s.

It is estimated that the automobile demand in Nepal has grown at a rate of 25 percent over the past decade. While the vehicles sales have slowed down over the last two years as a result of the recurring liquidity shortage in banking system and the central bank’s restrictive measures to control credit flow to the automobile sector, the demand is still strong as two-wheelers and four wheelers are gradually becoming necessity to more and more Nepalis.

By the end of the last fiscal year (FY2017/18), the registration of vehicles set a new record by crossing the 3 million mark with over 300,000 vehicles being registered in that year alone. In the first seven months of the current fiscal year, the figure stood at 3.53 million. Data provided by the Trade and Export Promotion Center (TEPC) clearly show the rising demand of vehicles in Nepal. The market looks like big enough to start domestic production.

The last fiscal year also saw the highest number of companies registering for auto assembly plants. Eight new companies were registered in last fiscal year. Among these, eight companies are of local investment, eight are of foreign investment and four of joint venture investments by local and foreign investors.

The Scope of Automobile Assembly
In India, renowned automotive manufacturers such as Maruti Suzuki, Hyundai Motor India Ltd, Mahindra & Mahindra and Tata Motors all started initially with vehicles assembly plants; today, India stands as the world’s fifth largest automobile producer.

Shekhar Golchha, managing director of Golchha Organization says, “Assembly industry is like the mother of all industries. It brings opportunities to set up other industries in the country.” Golchha, who is also the senior vice president at Federation of Nepalese Chambers of Commerce and Industry (FNCCI) further elaborates, “Automobile assembly comes first in terms of developing full-fledged vehicle manufacturing. Once such an industry gets established in the country and production of vehicles begins in large volume, activities in ancillary industries such as manufacturing of spare parts, accessories and knock-down kits develop automatically.” According to him, the value addition of automobile assembly industry will increase along with the establishment of supportive industries.

A Call for Government Support
At present, there is very little state support to the companies that have been working in the area of automobile assembly or looking to establish assembly plants. The government, in the Federal Budget for FY2017/18 had announced a 25 percent excise duty exemption on the import of knock-down-kit, a kit comprised of vehicle parts, for the assembly of two-wheelers. But it has not added any such incentive in the upcoming fiscal year’s federal budget.

Given the high cost of establishing automobile assembly plants in Nepal, industrialists see the existing incentive as insufficient. They say the absence of R&D centers and supportive industries add to the cost of operating such plants. According to Nirakar Shrestha, the government has been levying 80 percent customs duty on the import of both full vehicle and knock-down kits and excise duty varies from 60 to 100 percent on the import of readymade vehicle.  “This is not enough to grow and sustain the auto assembly industry,” says Shrestha.

Krishna Prasad Dulal, vice president of Nepal Automobiles Dealers’ Association (NADA) views that the earlier assembly plants shut down because of lack of strong policy and infrastructure support needed to sustain the assembly of vehicles. “Although, the government has emphasised on production of electric vehicles within the country, the concept is yet to be realised. There are many companies in Nepal ready to produce vehicles provided that the government supports them with much needed physical infrastructure and customs exemptions,” said Dulal.

Before the announcement of the federal budget for the next fiscal year, NADA had urged the finance minister to increase the tax exemption to 50 percent including excise duty and customs duty on the import of knock-down kits and accessories for vehicle assembly. Industrialists are imploring the government to have a clear vision and determination for the development of automobile manufacturing in Nepal.

“The government needs to have a long-term approach to help develop the nascent assembly industry. If the government really wants to foster an environment where full-fledged manufacturing of vehicles in Nepal becomes a reality, the facilities should be extended.  Automobile assembly should be included in the national economic policy,” opines Golchha.

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