Toyota puts Indian expansion on hold
Toyota Motor Corp won't expand further in India due to the country's high tax regime, a blow for Prime Minister Narendra Modi, who's trying to lure global companies to offset the deep economic malaise brought on by the coronavirus pandemic.
"India is planning to offer incentives worth $23 billion to attract firms to set up manufacturing,'' people familiar with the matter said last week, including production-linked breaks for automakers.
The South Asian country is the fourth-biggest car market in the world but international players have struggled to find a niche in a sector that's dominated by cheap, fossil-fuelled vehicles.
"The government keeps taxes on cars and motorbikes so high that companies find it hard to build scale,'' said Shekar Viswanathan, vice chairman of Toyota's local unit, Toyota Kirloskar Motor.
"The high levies also put owning a car out of reach of many consumers, meaning factories are idled and jobs aren't created,'' he said.
"The message we are getting, after we have come here and invested money, is that we don't want you," Viswanathan said in an interview. "In the absence of any reforms, we won't exit India, but we won't scale up."
Toyota, one of the world's biggest carmakers, began operating in India in 1997. Its local unit is owned 89% by the Japanese company and has a small market share -- just 2.6% in August versus almost 5% a year earlier, Federation of Automobile Dealers Associations data show.
In India, motor vehicles including cars, two-wheelers and sports utility vehicles (although not electric vehicles), attract taxes as high as 28%. On top of that there can be additional levies, ranging from 1% to as much as 22%, based on a car's type, length or engine size.
The tax on a four-metre long SUV with an engine capacity of more than 1500 cc works out to be as high as 50%.
The additional levies are typically imposed on what are considered to be "luxury" goods. As well as cars, in India that can include cigarettes and sparkling water.
General Motors Co quit the market in 2017 while Ford Motor Co agreed last year to move most of its assets in India into a joint venture with Mahindra & Mahindra Ltd after struggling for more than two decades to win over buyers.
That effectively ended independent operations in a country Ford had once said it wanted to be one of its top three markets by 2020.
"Such punitive taxes discourage foreign investment, erode automakers' margins and make the cost of launching new products prohibitive," Viswanathan said.
"You'd think the auto sector is making drugs or liquor," he said.
Toyota, which also has an alliance with Suzuki Motor Corp to sell some of Suzuki's compact cars under its own brand, is currently utilising just about 20% of its capacity in a second plant in India.
"Taxes on electric vehicles, currently 5%, will probably also go up once sales increase,'' Viswanathan said, referring to what he says has become a pattern with successive governments in India.
"While discussions are ongoing between ministries for a reduction in taxes, there may not any immediate agreement on an actual cut,'' India's Heavy Industries Minister Prakash Javadekar said earlier this month.
A Finance Ministry spokesman didn't immediately respond to messages seeking comment.