Nissan issues termination notice to Ashok Leyland in LCV tech JV

A week after Ashok Leyland Limited (ALL) sent a notice to its partner Nissan, in the light commercial vehicle (LCV) joint venture (JV), the latter now sent a termination notice to ALL for the technology JV.

Both partners have formed three JVs — one for vehicle assembly, one for engine assembly and one for vehicle development. 

While engine development has already ceased production, the vehicle assembly JV hit a road block after ALL sent a notice to Nissan alleging that the latter was using the equipment, installed at Nissan's factory at Oragadam, to manufacture cars, but not LCVs. Nissan is set to contest it. 

On the termination notice, a spokesperson from Nissan said, “We are working with Ashok Leyland for a mutually agreeable solution. We have no further comments on the subject.” 

Meanwhile, officials from Ashok Leyland were unavailable for comment.  

Sources said that the JVs have not been profitable, and their operations have in effect been subsidised, with Ashok Leyland being alone on the receiving end as they are the only customer of the JV. The venture has launched five models, of which four are under ALL badge. These include Dost, Mitr, Partner, and Stile and one under Nissan badge (Evalia).

In May 2015, Nissan stopped production of Evalia. This was followed by halt in production by Ashok Leyland for its Stile a month later, while other products are continued.

Today, the products are rolled out by JV only for ALL. Sources said that the JVs, mainly ALL, have failed to make payments to Renault Nissan Automotive India Pvt Ltd (RNAIPL) and Nissan, which licensed its global technology and resources to the JV. The amount, which need to be as Royalty works out to around Rs 200 crore.

Nissan holds 51% in the technology JV, while in manufacturing JV, Ashok Leyland holds 51% stake. The third JV was to produce engine production, which already sized the manufacturing.

In 2007, ALL and Nissan announced a JV to develop and manufacture LCVs, in the 2.5-7.5 tonne segment. The JV was named as Ashok Leyland Nissan Vehicles, in which Ashok Leyland holds 51%. However the JV had a rough ride in the Indian market.

The partners had formed three companies include Ashok Leyland Nissan Vehicles Pvt Ltd, the vehicle manufacturing company in which Ashok Leyland has 51% Nissan has 49% stake in, Nissan Ashok Leyland Powertrain Pvt Ltd, the powertrain manufacturing company owned 51% by Nissan and 49% by Ashok Leyland and Nissan Ashok Leyland Technologies Pvt Ltd, the technology development company owned 50:50 by the two partners

In November last year, Nissan Ashok Leyland Technologies (NALT) filed an application with the Bureau of Industrial and Financial Regulation (BIFR). Nissan confirmed the development and said it was as per the Indian statutory process. The technology development company is owned 50:50 by the two partners.

According to the document filed with BIFR, the company was engaged in manufacture of automobile (LCVs). The company, which as per Form A, employed 57 workers, was established on May 22, 2008 and owns a factory located in Kanchipuram district. The company's audited balance sheet (ABS) for fiscal ended March 31, 2014 showed its net worth (NW) as Rs 52.05 crore consisting of paid up share capital Rs 52.05 crore and free reserves Rs nil.

The entire net worth was claimed to have been fully eroded due to the accumulated losses which stood at Rs 172.37 crore. The company's investment in plant and machinery was Rs 9.29 crore.

The company is engaged in the business of providing engineering design and development services for LCVs.

The aggregate investment in all three companies was planned to be around Rs 2,300 crore (around $575 million). The enterprise then announced that it will involve a capacity of 100,000 vehicles in the first phase, to be scaled up subsequently.

The JV was going through a rough ride. In May last year, Ashok Leyland said that it has decided to stop production of its manufacturing commercial passenger vehicle Stile, which has been produced by the JV company, with Nissan. The company decided to write down its investment in the vehicle JV by around Rs 224.19 crore. The joint venture reported a loss of Rs 791 crore in 2014-15.