Honda said last week it will make India a manufacturing and export base for one of its planned electric cars.
India’s low costs and vast labor pool have long been attractive to manufacturers.Now Japanese automakers are stepping up operations as they turn away from China, both as a market and a manufacturing base, several industry executives said. Another plus: India remains virtually closed to Chinese electric vehicles, so Japanese automakers won’t face stiff competition from BYD and others there — at least for now.
A brutal price war between Chinese EV manufacturers has made it difficult to make profits in China. Adding to the pain, Chinese automakers are now expanding overseas and taking market share from Japanese rivals in Southeast Asia. “India is a good choice as a replacement market for China,” said Julie Boote, an automotive analyst at Pelham Smithers Associates in London, citing low profit margins in China. “For now, the Japanese think it’s a much better market because they don’t have to deal with Chinese competitors,” she said.
Other benefits include improved quality of Indian goods and incentives from Prime Minister Narendra Modi’s government, executives say.
Toyota and Suzuki each have majority stakes in their Indian units. Honda owns 100% of its operations there.
TOYOTA GOES LOCAL IN INDIA
Japan’s annual direct investment in India’s transportation sector, which includes automakers, increased more than sevenfold between 2021 and 2024, reaching 294 billion yen ($2 billion) last year.
While Japanese automakers ramped up investment in India, they cooled in China: Direct investment in China’s transportation sector fell 83% over the same period, to 46 billion yen last year.
Toyota is working with Japanese and Indian suppliers to reduce costs and expand production of hybrid components. India is a market where hybrid parts are in short supply amid a surge in demand this year.
It has localized its offerings, said an executive at a major Toyota supplier. “It’s no longer about global specifications, but about local ones.”
The Japanese carmaker plans to launch 15 new and updated models in India by the end of this decade and deepen its nationwide network, Reuters reported last week. The goal is to have 10% of the passenger car market by the end of the decade, up from 8% today.
“The Indian market is extremely important and will grow in the future,” Toyota President Koji Sato told reporters at the Japan Mobility Show last week, noting that many other automakers were also paying attention to the market.
Last year, Toyota announced more than $3 billion in investments to expand production at its existing plant in southern India by about 100,000 vehicles per year and build a new plant in the western state of Maharashtra, expected to begin production before 2030.
This is expected to take Toyota’s Indian production capacity to over 1 million vehicles.
At its quarterly results on Wednesday, the automaker cited India’s growing importance to profits, especially as its North American operations have been hit by tariffs.
HELP FROM MODI GOVERNMENT
India’s economic growth has averaged 8% over the past three fiscal years, a rise that Prime Minister Narendra Modi’s government wants to support by luring more foreign manufacturers. It implements incentives to encourage them to produce goods for both the domestic and global markets.
India produced around 5 million passenger cars last fiscal, of which nearly 800,000 were exported and the rest sold in the domestic market.
Domestic sales grew by about 2% from a year ago, while exports increased by 15%.
Government restrictions on Chinese investment are essentially another form of aid, making it difficult for new Chinese automakers to enter and expand existing companies such as MG Motor and SAIC’s BYD.
“India’s protectionist stance towards its neighbors is a blessing in disguise for Japanese automakers,” said Gaurav Vangaal of S&P Global Mobility. “As a result, they see an opportunity to expand investments in India, increasing their cost competitiveness against domestic players.”
Local companies Tata Motors and Mahindra & Mahindra have expanded their offerings to include SUVs and taken market share from Suzuki. Before the pandemic, Suzuki had about 50% of the passenger car market.
And India is never an easy market. Foreign car manufacturers such as Ford and General Motors previously had a difficult time there and eventually left.
HONDA WANTS TO GO ON FOUR WHEELS IN INDIA
For Honda, India is the largest market for its highly profitable two-wheel business, and the company now plans to ramp up its four-wheel business, CEO Toshihiro Mibe told the mobility fair.
Honda said the top three focus markets for the automotive sector are the United States, followed by India and Japan.
It plans to make India the manufacturing and export base for one of its “Zero series” electric cars, with one model to be exported to Japan and other Asian markets from 2027. Suzuki’s $8 billion investment in India is mainly aimed at expanding local production capacity to 4 million cars per year from about 2.5 million now. Indian company Maruti Suzuki is the country’s best-selling car manufacturer and the largest car exporter.
“We are keen to grow India as Suzuki’s global manufacturing hub,” President Toshihiro Suzuki told reporters on the sidelines of the mobility show. “We would like to increase exports from India.”
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