South Korean auto giant Kia Motors is in talks with Tamil Nadu regarding the possibility of shifting its $1.1-billion Andhra Pradesh plant to the state,  Reuters  reported on Wednesday.

Kia Motors, being represented by an executive of its sister company Hyundai Motor Co, is pondering the possibility of shifting its plants out of Andhra Pradesh due to certain policy changes. The discussions are still at an early stage, the report said.

The issues arose from Andhra Pradesh’s policy changes related to employment regulations and incentives to companies.

In 2019, the Andhra Pradesh government passed a law making it mandatory for existing and upcoming industries to hire 75 per cent employees locally.

Furthermore, the AndhraPradesh government had announced its plans to review certain financial incentives being offered to companies, including breaks on electricity tax and deferred land payments. These incentives are currently being offered to Kia Motors. Moving to Tamil Nadu would reduce logistical costs for the company, but would lead to high cost of shifting, the report said.

The Andhra Pradesh government has condemned the report saying that Kia Motors and the government are working together for the development of the plant, India Today reported.

The Kia Motors plant in Penukonda in Anantapur was inaugurated by Andhra Pradesh Chief Minister YS Jagan Mohan Reddy in December 2019. At the inauguration, he had said that the government would “pro-actively support its growth in India,” as per previous reports.

Kia Motors had expressed its intention to further expand operations in India after the Andhra Pradesh plant had reached full capacity, said the Reuters report.

At full capacity, the car plant would employ about 18,000 people, including 11,000 direct jobs and about 7,000 indirect jobs, the company had said according to previous reports.

Kia, in January, had announced plans to accelerate growth in the Indian market, taking its annual production to 3 lakh units by 2022. Starting with the launch of its maiden dedicated EV model in 2021, the auto manufacturer plans to establish a line-up of 11 EV models by 2025.

Andhra Pradesh IT & Industries Minister Mekapati Goutham Reddy said reports in media about KIA Motors planning to relocate its manufacturing plant from Andhra Pradesh to the neighbouring state of Tamil Nadu was incorrect.

"After the online reports came to my notice, I spoke to Kia Motors' representatives and they too expressed shock as to how such baseless rumours were being circulated in the online social media platforms in the very first place. Kia motors will be releasing an official statement strongly condemning the reports," the AP Industries Minister Mekapati Gautham Reddy clarified. 

Separately, Kia said in a statement it has a long-term commitment to the Indian market and it aims to utilize the full capacity of its Andhra plant “before considering further expansion”.

“We do not have any plans to shift the manufacturing facility from the current location,” Kia said.

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