Volvo-Eicher Commercial Vehicles (VECV) announced an investment of Rs 288 crore for a new engine plant at its existing facility at Pithampur, Madhya Pradesh. With this, India will now become a global manufacturing hub for Volvo's new medium-duty engine platform, with the only other factory for the engine type being present in Japan. After the full integration into the Swedish automaker's global supply chain, VECV would possibly be the largest commercial vehicle engine manufacturer in the country.

Starting 2013, the joint venture company would manufacture most of the engines for the European and Asian markets (except Japan). These will be used for Volvo's trucks and buses, besides Eicher's heavy duty commercial vehicle range.

Mr Siddhartha Lal, Managing Director and CEO, VECV, said that the new plant would add 85,000 units capacity a year to the existing 40,000 units for engines at the Pithampur facility. Out of the total, 30,000 base engines would be earmarked for the European market, while the rest will be for domestic consumption for both Eicher and Volvo branded products sold in India. Mr Par Ostberg, President, Trucks Asia, Volvo Group and Chairman, VECV, said that with demand for heavy trucks expected to rise in India, this move will enable the Swedish automaker to be closer to its target growth market of Asia. Other benefits of shifting manufacturing to the country include higher economies of scale and the lower cost of manufacturing. The five- and eight-litre medium duty engines will come in configurations from 215 hp to 350 hp. The engines manufactured and assembled in India would be Euro III and IV-compliant. The new factory would also make Euro V and VI complaint base engines, which would finally be assembled at a new Volvo plant in France.

Volvo AB has also invested Rs 276.6 crore for retooling its plant in France and Japan. Prior to this, Volvo had been sourcing its medium-duty engines from German company Deutz. The new medium-duty engine platform marks the first in-house manufacturing of the engine type for Volvo. It had actually been developed by Japanese company UD Trucks, which was acquired by Volvo in 2007. Volvo is also looking to increase its global sourcing from India over the next few years. For heavy duty engines, it sources 15-20 per cent components from India, while for Euro III and IV engines sold worldwide, close to 85 per cent of the components come from India.