Mahindra, Renault and Nissan have confirmed Chennai (formerly Madras) as the location for a 400,000 capacity production site in India, following the signing of a memorandum of understanding on Monday.

The automakers said the factory, in the state of Tamil Nadu, would potentially be one of the largest automotive production sites in India, with an installed capacity of 400,000 units per year, seven years after the start of production.

Renault, Nissan and Mahindra are committed to investing a minimum of EUR686m ($US902m) in the 925 acre (400 hectare) site during the next seven years, with an equity holding of 50% by Mahindra and 25% each by Renault and Nissan.

The project, said to be a unique industrial complex, will build vehicles for each car maker, plus powertrains for Renault and Nissan.

A range of car and SUV models will be manufactured at the new site where production is expected to begin in the second half of 2009.

The automakers said Chennai was chosen as the location for the new production site for reasons including its well developed automotive and components industry, high education levels in its workforce, and its overall infrastructure including its port facilities.

 “The addition of this ‘greenfield’ project will help make Chennai a truly global player in the automotive business,” the three said in a statement.

The area is already home to BMW, Ford and Hyundai plants.

Nissan, Renault and Mahindra will optimise production costs through economies of scale thanks to joint investment in plant and infrastructure, as well as purchasing synergies.

Renault will contribute its expertise in engineering, manufacturing and adaptation to meet customer requirements in different markets, Mahindra will contribute its in-depth understanding of the Indian market and supplier base as well as manufacturing through years of market leadership. Nissan will contribute with worldwide export opportunities and manufacturing technologies.

Keshub Mahindra, chairman of the Mahindra Group, said: “This is a red letter day in the globalisation of the Indian automotive space. The choice of location and the expansion of our strategic partnership with Renault to include Nissan are designed to bring world class platforms to the evolved car buyer.

“The consortium’s state-of-the-art green field facility… speaks of our long-term commitment to India’s evolution as the favoured global destination for manufacturing.”

Patrick Pelata, executive vice president of Renault, said: “India is a key market for Renault’s international growth ambitions both up to and beyond the limit of Renault Commitment 2009.”

Carlos Tavares, executive vice president of Nissan said: “Through the strong partnership of Renault and Mahindra, Nissan is able to leverage the Alliance and gain a rapid entry advantage for local manufacturing in India. Nissan was able to evaluate several different options for our first manufacturing base in India – but the advantages of working with our Alliance partner and their local Indian partner was compelling.”

Nissan vehicles to be produced at the plant will initially be for the Indian market, but the automaker is considering exporting them to other countries in the future.

Nissan had previously held talks with Suzuki about forming a production tie-up in India but then turned to discussions with the French and Indian manufacturers.

Renault and Mahindra in 2005 formed a joint venture to produce and market the French automaker’s budget-priced Logan sedan in the first half of 2007.

Nissan entered the Indian market in 2004 with its X-Trail SUV and established a wholly owned Indian subsidiary in 2005 but its annual sales volume of the fully-imported model has been very low – just 190 units in 2006.