- NewBiz Report
Nepal currently boasts seven assembly plants of brands such as Bajaj, TVS, Suzuki, Yamaha, Honda, Hero, and Royal Enfield, assembling two-wheelers using imported completely knocked-down (CKD) parts.
"In collaboration with a Nepal company and Hyundai Corporation of South Korea, there is a plan to commence the production of 4,800 vehicles annually in Nawalparasi starting from the middle of 2024," South Korean Ambassador to Nepal, Park Tae-Young, wrote in his October 2023 opinion piece in Nepali daily Kantipur. He was referring to the assembly plant established by Laxmi Group - the authorised distributor of Hyundai Motors in Nepal. Located in Ramgram of Nawalparasi, Hyundai and its Nepali partner have invested approximately Rs 5 billion in the assembly plant. This is the first plant assembling four-wheelers in Nepal. Seven plants assembling two-wheelers and three-wheelers are already operational in different parts of the country.
When Shekhar Golchha, Chairman and Managing Director of Golchha Group, rolled out the first Bajaj two-wheeler to be assembled in Nepal from the Hulas Autocraft plant in Rupandehi in 2018, nobody could have predicted that there would be eight motorcycle assembly plants in the country in the next six years. Between 2018 and 2024, Nepal witnessed the establishment of assembly plants by all major two-wheeler brands available in Nepal. The Nawalparasi-based plant of Hero Motorcycles is the latest addition in the list.
Nepal boasts seven assembly plants, producing leading two-wheeler brands such as Bajaj, TVS, Suzuki, Yamaha, Honda, Hero and Royal Enfield. All these two-wheeler brands are assembled in Nepal using completely knocked-down (CKD) parts imported for the purpose. The surge in automobile assembly plants is mainly driven by government incentives like excise duty and customs exemptions. This strategic policy move has notably spurred the interest of Nepali business groups, particularly those already engaged in the automobile sector as authorised distributors of various vehicle brands, to invest in assembling plants. Despite challenges in automobile sales, including those of two-wheelers, Nepali business houses with authorised dealerships have remained undeterred in their investments in assembly plants. And, the impact of these assembly plants is now visible. The import of unassembled motorcycles has surpassed that of assembled ones in the current fiscal year. Given that many two-wheeler distributors have established assembly plants for their respective brands, there has been a notable decline in the import of fully assembled motorcycles and scooters in the current fiscal year.
Nepal imported 52,052 units of unassembled motorcycles and scooters, valued at Rs 6.74 billion, over the first nine months of fiscal year. By comparison, in the corresponding period of FY 2022/23, imports amounted to 29,600 units valued at Rs 3.42 billion. Conversely, the import of assembled motorcycles and scooters in the first nine months of 2023/24 stood at 41,766 units, in contrast to 49,928 units during the same period in 2022/23. This data highlights a nearly 25% increase in the import of unassembled two-wheelers compared to assembled ones in this fiscal year.
The inauguration of Hulas Auto Craft, a subsidiary of the Golchha Group, in September 2017 was a milestone moment for Nepal's assembly industry. The venture initially started by assembling Bajaj Discover 125 motorbikes in Nepal with an investment of more than Rs 700 million. This, however, was Nepal’s third endeavour to operate a two-wheeler assembly plant in Nepal.
Nepali companies started assembling Chinese two-wheelers in Nepal from the early 2000s. SOI Group collaborated with Chinese brand Yin Yang to establish an assembly plant in Nepal in 2004. Two-wheelers produced in the plant were marketed as Cosmic YingYang in the Nepali market. Another Nepal-China venture named Annapurna Lifan Company Pvt Ltd started assembling two-wheelers in Nepal in 2005. It branded its products as Anna Lifan. However, despite initial traction, the assembly plants of both Chinese two-wheelers ceased operations in the late 2000s.
Between 2018 and 2024, Nepal witnessed the establishment of assembly plants by all major two-wheeler brands available in Nepal.
Before that, Hulas Motors, a venture of the Golchha family, tried its hands at assembling four-wheelers in the Nepali market. Since its establishment in 2000, the company owned by Surendra Golchha, had been producing three models of four-wheelers - Sherpa, Mustang and Mini V. All these models were indigenous to Nepal. The Mustang model gained considerable attention after it was chosen by then Prime Minister Dr Baburam Bhattarai as his personal car. Hulas Motors shut its operations in 2015 after it was denied extension of licence by one year to transition to Euro-III emission standards.
Shekhar Golchha, Chairman and Managing Director of Golchha Group, said the decision to establish the assembly plant for Bajaj motorcycles was driven by the principle of enhancing value addition within the country. Hulas Autocraft has been rolling out two-wheelers and three-wheelers from its assembly plant in Ramgram, Nawalparasi.
Following in the footsteps of the Golchhas, the Shanker Group established an assembly line in Simra to manufacture TVS motorcycles in Nepal. The plant began assembling TVS two-wheelers and three-wheelers in fiscal year 2020/21. Jagadamba Auto Group, a subsidiary of Shanker Group, imports products from TVS Motorcycle India in a completely knocked-down condition (CKD) and assembles them in their plant in Simara. The group has initially invested Rs 245.5 million in the assembly plant which has an annual production capacity of 100,000 units of two-wheelers (motorcycles and scooters) and 10,000 units of three-wheelers.
With the assembly plants of Bajaj and TVS up and running, other automobile distributors felt the pressure to follow suit. Consequently, competing brands started investing in assembly plants one after another. Vishal Group entered the two-wheeler assembly arena by establishing a Suzuki assembly plant in Bindabasini Rural Municipality of Parsa, with an investment of Rs 464.5 million. The group's subsidiary, Global Automobiles, commenced trial production in the third week of February 2024 and aims to introduce all Suzuki motorcycle and scooter models to the Nepali market.
Jyoti Group's Syakar Trading Company, the official distributor of Honda two-wheelers in Nepal, inaugurated the Honda assembly plant in the first week of March this year. Jyoti Group’s subsidiary, Himal Moto Nepal Pvt Ltd will assemble Honda motorcycles and scooters. Jyoti Group has invested Rs 600 million in the new subsidiary. The plant has the capacity of producing 25,000 motorcycles and 75,000 scooters annually.
The NADA Automobiles Association of Nepal has suggested to the government that the exemption currently provided in the excise duty should be maintained for at least 15 years to protect the industrial investment made in assembly plants.
In June 2023, Royal Enfield started assembling motorbikes in Nepal. The Indian two-wheeler brand's assembly plant in Birgunj has been set up in collaboration with the Triveni Group of Nepal. The complete knocked-down (CKD) assembly unit has an annual capacity of 20,000 units. Royal Enfield also already launched its first set of locally assembled motorcycles - the new Classic 350 and the SCRAM 411 - in the domestic market. This is Royal Enfield's fifth CKD assembly unit in the world after Brazil, Thailand, Colombia and Argentina.
Morang Auto Works (MAW) Enterprises, through its subsidiary MAW Auto Pvt Ltd, has invested Rs 1.5 billion to set up a Yamaha assembly plant in Ramgram of Nawalparasi. The plant, which commenced operations recently, aims to produce 31,000 units of motorcycles and 19,000 units of scooters annually.
After the establishment of assembly plants in the initial phase, ancillary industries such as tire and battery manufacturing have emerged to strengthen the overall ecosystem of the automobile industry. Golcha of Hulas Autocraft says other industries will emerge gradually as the assembly plant evolves. "With the operation of the assembly plant, we anticipate the growth of industries producing vehicle parts," Golcha said. “With a forward-thinking and stable policy framework from the government, the assembly industry can evolve into a robust ecosystem for the automobile sector.” He added that significant value addition will occur within the country once assembly operations commence.
Businesspeople say that two-wheelers assembled locally are priced Rs 15,000-20,000 rupees lower compared to the imported ones. leading to increased affordability for consumers. Additionally, the assembly industry is generating employment opportunities, with more than 2,000 skilled workers directly and indirectly employed across the sector.
Driven by Govt Incentives
The growth of the assembly industry in the country has largely been driven by government tax incentives. The government announced a 50% exemption on excise duty on domestic production of motorcycles and a 25% exemption on excise duty on domestic production of other vehicles through the budget for fiscal year 2018/19. The concession for two-wheelers was later reduced to 25% arguing that the automobile companies did not reduce the price of locally assembled products.
When Janardan Sharma was the finance minister, he increased excise duty exemption to 50% from 25% through the 2021/22 budget. In addition, the government also decided to offer a 40% income tax exemption for five years if the electric vehicle manufacturing industry is established in Nepal. Likewise, the 2022/23 budget announced that a 1% percent customs duty will be applicable on the import of raw materials and parts required by companies producing electric rickshaw, motorcycle or scooter. Through the budget for the current fiscal year, the government announced a provision of a 50% discount on excise duty for five years from the day of commencement of the assembly plant. It has now been five years since Bajaj and TVS initiated commercial production.
Call for Continuation of Incentives
Those, who have set up assembly plants, have now started lobbying the government for the continuation of incentives. According to them, the assembly plants have come this far with the appropriate government policies backing local manufacturing, and the future holds promise. "Hence, the continuation of incentives for assembly plants could lead to a more vibrant automotive industry landscape in Nepal," argued Golchha of Hulas Auto Craft.
The NADA Automobiles Association of Nepal has suggested to the government that the exemption currently provided in the excise duty should be maintained for at least 15 years to protect the industrial investment made in assembly plants. According to automobile entrepreneurs, the establishment of the assembly industry would help facilitate the emergence of numerous supporting industries, which would contribute to cost reduction and local value addition. "The assembly industry kick-starts the ecosystem by generating demand for support industries. Without assembly plants, these supporting industries struggle to find a market for their products," Golchha added.
While the government is offering tax exemptions and other facilities to incentivize investment in the assembly industry, there are widespread complaints that consumers are not reaping the benefits. The 58th Report of the Auditor General has flagged concerns, noting that companies selling vehicles have availed themselves of government discount facilities to assemble vehicles domestically, yet neither the economy nor consumers are experiencing the anticipated benefits.
