NEW DELHI: In Q1 2024, BMI tracked 38 new automotive manufacturing projects announced or inaugurated in Asia valued at over $ 44.4 bn.
India led Asia in Q1 (January-March) 2024 in autos-related investments, followed closely by South Korea and Thailand as India emerged as the favoured investment destination, recording nine investments, followed by Thailand and South Korea with six projects each, finds an auto industry outlook on investments in the Asia Pacific by BMI (a unit of Fitch Solutions).
In Q1 2024, BMI tracked 38 new automotive manufacturing projects announced or inaugurated in Asia valued at over USD 44.4 billion. Both the number of investments and the value of the investments tracked this quarter are down on a year-on-year basis while the number of projects in Q1 2024 dropped by 17.4 per cent y-o-y while the value of projects that disclosed financial details dropped by 36.6 per cent y-o-y from Q1 2023. As per the report, there was continued pullback from the mainland China market this quarter, while shifting investments to South Korea and Japan (re-shoring supply chains) and South East Asia in general.
Investment in India was seen ramping up with Red Sea crisis. This quarter, autos-related investments in India were primarily focused on localising more component manufacturing, with significant investments in the market’s developing semiconductor industry. Furthermore, India’s electric vehicle (EV) value chain continued to develop, with investments in mining, processing, research and development (R&D) and battery manufacturing. The Government has approved investments of over USD 15.2 bn for the construction of three new semiconductor manufacturing plants, including its first semiconductor fabrication (fab) facility, as part of a major drive to strengthen the domestic chip sector under the ‘Modified Programme for Semiconductors and Display Fab Ecosystem’ scheme launched in 2021, BMI reports notes.
As per the BMI projections, over the coming years, India will continue to reduce its reliance on imported components and materials for autos, as the local steel industry develops and expands. Investor interest in India has been strengthened since the Red Sea Crisis broke out in December 2023. Companies have moved to accelerate their supply chain derisking and logistics routes diversification, specifically for India, with the supply lines connecting India to Europe via Saudi Arabia, and to East Africa through Tanzania. This is partly due to India’s automotive strategy, which focuses on rapidly developing export markets in Africa, the Middle East and Europe. This strategy will continue to play out in India over the medium term, as the BMI report suggests that the 2024 elections in India will see policy continuity with the Bharatiya Janata Party set to retain control.
Nomura Ratings has maintained its base case of ‘no change in hybrid car taxation’ in India amidst less likelihood of the Finance Ministry taking up hybrid tax discussion in GST council. The Finance Ministry is not expected to discuss granting tax concessions to hybrid cars in the upcoming GST council meeting. Nitin Gadkari, Union minister for Road Transport and Highways previously indicated that a proposal to reduce GST on hybrid vehicles to 5 per cent had been submitted to the Finance Ministry. Hence, there were hopes that this would be taken up at the next GST council meeting.
Nomura suggests that a tax cut for hybrid vehicles can impact EV penetration. The Government has set a long-term target EV penetration of 30 per cent by 2030 vs the current penetration of 2 per cent. The recent offtake of EVs has not shown growth, and this has caused some concerns about EV penetration. The global rating agency is of the view that the Government will continue to support EVs, similar to the multiple schemes it has introduced to incentivise EVs ecosystem (auto PLI, battery PLI, EV import policy, lower road taxes).
Nomura sees 20 per cent EV penetration in India by FY30F, backed by falling cell prices and more attractive model launches. Indian companies like Tata Motors, M&M have already lined up a slew of EV-only model launches in FY25/26, which should continue to see strong traction. Other OEMs like Maruti Suzuki, Toyota, Hyundai, Kia, Skoda, etc., are also planning to launch more EVs, which should continue to drive up EV penetration, suggests Nomura.
In the APAC region, BMI reports that investment in South Korea in Q1 2024 has performed well, as the market retains access to the US EV market and subsidies through the US inflation reduction act, and local industry players increased their collaboration with Japan-based, Europe-based and US-based automotive sectors. On 3 May 2024, the US Department of the Treasury and the IRS stated that EVs and batteries with graphite sourced from China will still qualify for the IRA until 2027. Given that around 80 per cent of global graphite production takes place in China, cutting the Chinese suppliers out of the EV supply chain remains a daunting prospect.
That said, according to BMI, the clarity provided by the US IRA rules will see continued investment in South Korea’s EV value chain and the developing EV supply chain will support the planned ramp-up in EV and mild-hybrid vehicle manufacturing in South Korea, boosting the export growth potential for the market.
In Thailand, the Government’s lucrative incentives, including tax holidays spanning three to 11 years for EV production, attractive investment promotion policies and a stable geopolitical position, are expected to trigger a surge in EV production. Over the medium term, Thailand’s vehicle production sector is anticipated to undergo a significant transformation, driven by stringent production criteria and alluring incentives to boost the local and regional production of EVs and mild hybrid vehicles.
European investors such as BMW and Brembo have announced substantial investments in Thailand, while Japan-based Isuzu and China-based Chery plan to produce EVs in Thailand, for both the local market and exports.