Apple may shift more than 18% of its iPhone production to India by FY2025 up from 7% in FY2023, driven by the production linked incentive targets set by the government, a Bank of America research report, citing that the success of mobile phones would results in shifting of global supply chains.
“We believe India could be a credible global supply chain alternative for mobile phone/electronics. Success in other sectors is also likely. We believe India's efforts to cut imports/step-up exports, could improve its macro-outlook," said Amish Shah, managing director and head of India research at Bank of America.
“Apple may shift >18% iPhone production to India by FY2025 Targets under the PLI scheme may drive Apple to shift at least 18% of its global iPhones production to India by FY2025 (7% in FY2023, negligible pre-PLI). Apple's share may expand further if larger scale incentivizes its vendors to also expand in India," he said.
The share may rise even further if its vendors expand their operations in the country where it opened two direct retail Apple stores. India could contribute to over 5% of Apple’s global iPhone sales by FY2025.
Apple could also see gains in market share, up from 4% now, on improving affordability of locally made iPhones and shift in favor of premium products.
However, Shah said that 70% of mobile phones' cost which is display, memory and chips, was hard to localize near term as it requires large capex and high-end technology. Key criticism however, has been that India’s production value add was low at 18% versus China’s 38% and Vietnam’s 24%.
“Analysis of China/Vietnam's journey also shows that focus on higher scale initially, helped them expand value add ratio long term," he added in the report.
“We see India contributing >5% of Apple's global iPhone sales by CY25 & register 21% CAGR over CY22-25," Shah said in the report issued Tuesday, which talked about India addressing bottlenecks to become a credible global supply chain alternative on the back of mobile phone manufacturing as success story.
India's mobile phones' exports that doubled on-year to $1 billion a month lead to expansion in overall export mix in local production from 16% to 25%. India's efforts to cut imports could also lead to reducing the current account deficit by US$112 billion over 5 years, provide stability for rates and the Rupee and accelerate growth for capex, credit and logistics sector.
“Besides, it could help diversify supply chains for global brands/contract manufacturing firms. We see exposure for 68 stocks globally on the back of this theme," he added.
Mobile phones were 21.5% of India's electronics domestic demand pie and were growing faster at 15% CAGR. The report highlighted that mobile phones production and exports were up 3.9x and 65x, respectively, since FY17, while imports were down to a third.
India consumed US$158 billion of electronics in FY2023, growth of 11% CAGR over FY17-23, supply for which, was largely met by imports. At US$ 77 billion, it is India's second largest import bill and a fifth of its trade deficit, in-line with India's broader goal to cut imports or expand exports.
To push localization or exports, almost half of the US $37 billion production-linked incentives (PLI) has been allocated to this sector.
India's focus on scale and its PLI scheme targeting large players such as Samsung and Apple’s contract manufacturers can enable it to meet targets of mobile phones production of $126 billion, and mobile phone exports of $55 billion by FY2026, he added.
Samsung and contract manufacturers of Apple such as Foxconn, Pegatron and others, contributed 80% of its US $11 billion mobile phones exports in FY2023. The expansion in manufacturing could help create a vendor ecosystem overtime, even as a close watch would be required on key factors of policy stability, labour productivity and last mile connectivity.
Apple recently opened its first 2 exclusive Indian retail stores in Mumbai and Delhi. CEO Tim Cook personally inaugurated these outlets in April 2023. As part of its expansion strategy, the iPhone maker is now planning to open 3 additional stores in the country by 2027.
