French automaker Peugeot is heading back to India, a market it withdrew from 20 years ago, where car ownership is still relatively low but is seen as having huge growth potential.
PSA Group, which makes Peugeot and Citroen cars, on Wednesday said it had signed an agreement to set up two joint ventures with Indian conglomerate CK Birla, with production capacity initially estimated at 100,000 vehicles per year by 2020.
PSA said it has not yet decided which model it will build in India, but the project represents an initial investment of 100 million euros ($107 million, £85 million), of which the French group will put up around two thirds.
“If you want to be a global player, you can’t be absent” from the world’s second most populous country, PSA chief executive Carlos Tavares told a news conference.
The two joint ventures will manufacture engines and vehicles in the southern state of Tamil Nadu.
PSA will hold 80 percent in the car-building venture and 50 percent in the engine manufacturing operations.
CEO Tavares estimated that the Indian market, which currently represents around three million vehicles per year, could grow to “between eight and 10 million vehicles by 2025.”
“There are growth opportunities there,” he said.
In the 1990s, PSA had produced its Peugeot 309 model in India in partnership with Indian group PAL.
But sales fell short of target and PSA eventually threw in the towel in 1997.
It abandoned comeback plans in India five years ago at the height of an internal crisis within the firm.
In order to ensure the profitability of the two new joint sites, PSA chief Tavares said he was open to the idea of selling the engines on to other carmakers in India.
Car ownership in India is still very low, with around 22 cars per 1,000 inhabitants in 2014, 30 times lower than in western Eruope. But insufficient infrastructure is currently putting the brakes on more rapid growth.