How Hyundai keeps selling more and operates at over 100% capacity, despite not expanding capacity

Hyundai Motors will not be creating any further production capacity in India for at least two years, despite running its plants at more than 100 percent utilisation levels.

In October, with its total sales (domestic+exports) climbing to nearly 69,000 units, Hyundai surpassed its average monthly capacity of its Chennai-based plants, which are operating at 108 percent capacity currently.

The Korean heavyweight, which is the second-largest carmaker in India, after Maruti Suzuki, has a created a capacity of 765,000 units a year. It produces some segment best-sellers such as Hyundai Creta, Grand i10 Nios, Elite i20 and Venue.

Tarun Garg, Director (Sales and Marketing), Hyundai Motor India, said: “We have a capacity of 765,000 units a year, and this is good enough for a couple of years. Last month, we sold around 56,000 units in the domestic market and exported 12,000. So capacity utilisation is 100 percent.”

Since the past several years, Hyundai has refused to invest in a new manufacturing plant in India, which would typically entail an investment of Rs 4,000-5,000 crore. The company has managed to service demand through incremental capacity creation at its existing plants through de-bottlenecking processes and directing export-oriented capacity to the Indian market.

Hyundai has systematically brought down the share of exports from its total output over the years. From a peak of 50 percent a decade ago, it has come down to 17 percent as of September-end, as per data shared by the Society of Indian Automobile Manufacturers (SIAM). Sources said Hyundai can increase production capacity of its existing plants to 800,000 units a year.

Post the lifting of the lockdown and gradual ramp-up in production, Hyundai became the first automotive company to start the third and final shift at its plants in July. The company started with its second shift in June much earlier than Maruti Suzuki.

For most part of last year, the maker of Santro and Creta was operating its plants between 95 percent to 98 percent capacity. To avoid being under the financial burden of recovering investments made for the new plants, Hyundai has not shied away from bringing down the axe on some of its older generation models, which were low on profitability.

As a result, despite clocking sales of 5,000-7,000 units a month, production of the Eon (entry hatch) and i10 (mid hatch) were stopped to free up capacity at the plant. In addition to the fourth-generation premium hatchback, Elite i20, launched on November 5, Hyundai has introduced nine products in the last 18-20 months, including 4 this year. New Creta, Grand i10 Nios, Aura and Tucson made it to the showrooms since the start of 2020.

According to company officials, the Indian market is steadfastly moving to the premium category. “The premium hatchback segment is now the biggest segment within the hatchback space, with a share of 26 percent, surpassing the sales of entry-level and mid-level  hatchbacks. About half of the bookings done by i20 buyers came from first-time buyers, and 80 percent of i20 bookings have been for the middle and top-end variants. This proves the shift in demand,” added Garg.

Hyundai has even ruled out tapping into the manufacturing plant of its sister concern Kia Motor.