Key Takeaways
Japanese automakers are turning to India to invest in its transportation sector due to the country’s low cost, skilled work force, and government incentives.
The automakers are turning away from Chinese markets as a price war among China’s domestic auto manufacturers is resulting in low profit margins.
Japan’s annual direct investment in the Indian transportation sector increased more than sevenfold between 2021 and 2024, reaching almost $2 billion last year, while its direct investment in China’s transport sector decreased by 83%, to $0.3 billion last year.
India’s economic growth averaged 8% over the past three fiscal years, making it an attractive market.
India manufactured about five million passenger cars last financial year, of which almost 800,000 were exported.
Domestic auto sales in India rose about 2% from a year ago, while exports rose 15%.
According to Reuters, Japanese automakers are investing billions in India’s auto market, the world’s third largest, to reduce their dependence on China. India’s low costs and incentives attract Toyota, Honda and Suzuki, who are building new cars and factories in India. Toyota, the world’s largest carmaker, and Suzuki, the leader in the Indian market with almost a 40% share, have separately announced investments totaling $11 billion to boost manufacturing and export capabilities there. Honda, who owns 100% of its business in India, intends to make the country a production and export base for one of its planned electric cars, attracted by India’s low costs, vast labor supply, and supportive government policies. Japanese automakers are pivoting away from China, both as a market and a manufacturing base. Global automakers benefit from India’s isolationism from Chinese electric vehicles (EVs), as the country remains all but closed to them.
According to ETAuto, Toyota also plans to launch 15 new and refreshed models in India by the end of the decade and to increase its share of the passenger car market to 10%, from 8% now. The planned 15 vehicles will include Toyota’s own cars, Suzuki-supplied models, upgrades of existing models, at least two SUVs that will compete with models from domestic manufacturers, and an affordable pickup truck targeted to rural customers. Toyota sold over 300,000 vehicles in India last year, with around 60% sourced from alliance partner Suzuki, which supplies vehicles rebadged under the Toyota brand.
Via Reuters, India is the biggest market for Honda’s highly profitable two-wheel business, and Honda now intends to ramp up its four-wheel business there. It plans to make India the production and export base for one of its “Zero series” electric cars, with one model to be exported to Japan and other Asian markets in 2027. The company is set to introduce ten new models in the Indian market by 2030, including seven SUVs.
As reported by Reuters, automakers in China find it difficult to turn a profit due to a price war among Chinese EV manufacturers and their expansion overseas, which has taken away market share from Japanese rivals in Southeast Asia. Due to the low profit margins in China, India is now turning into the replacement market. Japan’s annual direct investment in the Indian transport sector increased more than sevenfold between 2021 and 2024, reaching almost $2 billion last year, while at the same time, its direct investment in China’s transport sector decreased by 83%, to $0.3 billion last year.
According to Reuters, India’s economic growth has averaged 8% over the past three fiscal years, a surge that Prime Minister Narendra Modi’s government wants to sustain by attracting more foreign manufacturers. India is providing incentives to get them to produce goods for both domestic and global markets. India manufactured about five million passenger cars last financial year, of which almost 800,000 were exported and the remainder sold in the domestic market. Domestic sales grew about 2% from a year ago, while exports rose 15%. India’s limits on Chinese investment are also helping foreign automakers, making it difficult for new Chinese carmakers to enter and existing ones like SAIC’s MG Motor and BYD to expand.
Analysis
The Chinese government’s heavy-handed approach to the automobile industry is incentivizing foreign competitors to seek profits in India instead. Although China’s subsidies have lowered prices for consumers, increased competition among auto companies has lowered their profit margins — threatening their capacity for future innovation — and the subsidies have imposed a large burden on government revenue. According to the Rhodium Group, “The persistence and expansion of these subsidies has shifted the whole industry toward competition among models at lower price levels. These auto subsidies will be very costly in 2025, estimated at 3% of total central government fiscal revenue and equivalent to 7% of auto retail sales.”
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