The price war in the motorcycle market is all set to worsen with large production capacities at tax-free locations in the north ready to go on stream.

While Bajaj Auto's new factory at Pantnagar in Uttarakhand will start commercial production on April 9, Hero Honda's facility at Haridwar, also in Uttarakhand, and TVS Motor's plant at Baddi in Himachal Pradesh are expected to commence operations by the middle of this year.

Together, the three plants will be capable of rolling out 1.8 million motorcycles a year -- more than a quarter of the current market of seven million.

The capacity additions come at a time when Hero Honda and Bajaj Auto are involved in an intense price war. The two players have put on offer discounts of 6-8 per cent on their best selling models.

Players are eligible for a host of incentives for investing in Uttarakhand and Himachal Pradesh, including waiver of the 16 per cent excise duty for a period of ten years.

All told, automobile analysts say that companies can improve their overall margins by up to 1.25 per cent by locating production plants in these states.

Bajaj Auto Executive Director Sanjiv Bajaj said, "There would be a significant change in our margins and this could reflect in changed prices. We are working on it."

To press home the first mover's advantage, the company has announced a cash discount of Rs 3,000 on its largest selling model, the 100 Platina, making it the cheapest bike in the market.