In today’s Finshots, we tell you how Tamil Nadu became India’s automobile manufacturing hub and now wants to take the Electric Vehicle (EV) crown too.

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The Story

We told you yesterday that Tesla might set up shop in India. And guess who’s quite excited about it?

Tamil Nadu!

Now in case you didn’t know this already, Tamil Nadu is called the ‘Detroit of India’. It’s a nod to the American city of Detroit which was the world’s automotive centre, thanks to Ford.

But wait… how on earth did Tamil Nadu get this tag, you wonder?

Well, it all began in the early 1990s. After decades of a fairly closed-door policy that promoted only Indian companies and a lot of red tape even for them, India liberalised its economy. We opened up to foreign companies. We wanted them to come and invest their monies into the country and create jobs. And foreign companies were excited about the potential of a massive population in a new market. Carmakers such as Ford wanted in too.

And when Ford was looking for a spot to set up its manufacturing unit, Tamil Nadu rolled out the red carpet. The then Chief Minister Jayalalithaa decided that the state would have to incentivize the carmaker to look at the southern Indian state. Her government handed over 36 acres of land belonging to the Chennai municipality to Ford for just ₹30 crores and set up building roads, drainages, and everything else in the area. There were tax exemptions, subsidies for capital investment, and an initial discount on power tariffs. Ford was quite happy.

Maybe being in proximity to a major port helped too. It would make exporting cars easier.

Pretty soon, when Hyundai saw that setting up manufacturing in the state wasn’t hard and the government’s policies were quite friendly, it decided to flock to the region too. And that set the ball rolling for carmakers in the region — Nissan, Renault, BMW, everyone rushed to the state. An entire automobile ecosystem began to emerge.

Okay. You might be thinking that we already had Maruti Udyog, no? Didn’t it succeed in creating an automobile ecosystem by then?

Ah, we aren’t talking about just cars being part of the ecosystem. See, Maruti Udyog ran the show in the 1980s through a joint venture with Suzuki and it had its manufacturing facility close to Delhi. But the cars were ‘completely knocked down’ (CKD) versions. This meant that they’d get a CKD kit which included critical parts needed to make the car — engine, transmission, fuel tank, wheel rims, brakes, suspension, steering, etc. All the folks had to do was put things together and assemble it. So that never led to a proliferation of companies that supplied these parts in that region.

But in Tamil Nadu it was different. The foreign carmakers relied on suppliers to provide parts for their cars. So auto ancillaries boomed in the region too and it created the entire automobile value chain. Other states in India couldn’t quite boast of that and it gave Tamil Nadu the advantage.

And by 2010, the state government claimed that 1 out of 3 cars produced in India came from Chennai and its surrounding areas. Tamil Nadu had transformed into the Detroit of India.

Now sure, Tamil Nadu had its fair share of problems on the journey too. The shine began to wear off because, by the early 2010s, automakers began to complain about bureaucracy and red tape. The state was plagued by power deficits which raised the cost of doing business as electricity got more expensive. Auto ancillary companies had to pay 3 times more for generators to supply power. And real estate prices shot up too.

Tamil Nadu dropped like a rock in the Ease of Doing Business Rankings and carmakers began to rethink their proposition in the state. They were looking elsewhere.

People feared that towns in Tamil Nadu dependent on this automobile ecosystem would suffer Detroit’s fate too — become bankrupt.

And maybe Tamil Nadu’s government figured out what was happening. They knew they needed to flip the script again. So they doubled down on their efforts to stay relevant. They launched the Automobile and Auto Component Policy in 2014 with the intention to get the state into one of the top 5 automobile clusters in the world.

Did it work?

Well, just this year Tata Motors announced its first investment in Tamil Nadu with a massive ₹9,000 crore plant. So you’d want to say that the state did succeed, no?

But there’s something else that’s happening. Tamil Nadu doesn't want to miss the EV bus either.

It already has a special EV policy that’s doling out incentives and tax exemptions for EV makers. And around 40% of the country’s EV production comes from the state — we’re talking 2-wheelers, 3-wheelers, and cars.

That could only increase with the spate of EV investments in the state partly thanks to Ola Electric’s massive Tesla-esque factory. The taxi-hailing turned EV maker has promised a massive gigafactory that will be replete with vendor parks and ancillary facilities. It wants to build out what it says will be the world’s largest EV facility.

And maybe it’s this storied legacy as a carmaker and the state’s commitment to EVs that promoted Vietnamese EV maker VinFast to commit $2 billion to set up a manufacturing plant in Tamil Nadu too.

With so much happening, you can see why they’ll be quite intent on luring Tesla to the fold too, no?

Now we’ll just have to wait and see how it pans out.

Until then…

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