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India’s economy has long been touted by investors as the next China. In the field of electric vehicles, Toyota thinks so. The company plans to invest heavily in the manufacture of electric vehicle components in India. The move makes sense for the Japanese automaker, which counts the U.S. and China as its core overseas markets.
Toyota’s 48 billion rupiah ($624 million) investment will focus on producing parts for electric vehicles. Toyota has fallen behind its peers in the shift to pure electric vehicles. However, the automaker trades at 11 times forward earnings, double that of its German peers such as Volkswagen, and is well ahead in the battery-electric vehicle space.
India is also looking to catch up in the time it is being left behind, with plans to make 30 percent of all new cars sold by 2030 electric. Toyota aims to sell 3.5 million electric vehicles globally by 2030.
In India, the uptake of electric vehicles has been low. Blame it on high EV prices and a lack of charging facilities. India’s per capita GDP is less than $2,000, less than one-fifth of China’s, making price a big barrier to future EV adoption. Toyota’s relatively late entry into the EV market means there is room in the Indian market to build low-end cars from scratch. Mitsubishi Motors’ electric car in the Japanese market for under $18,000 shows it can be done.
As for charging stations, India and Japan have partnered to develop common standards for EV charging stations in emerging markets. A program to simplify building standards and reduce installation costs to less than $10,000 could cut current costs in half.
Electric vehicle sales in India have been sluggish, with a total of only around 300,000 units last year. When it comes to low-cost motorcycles, however, the country has shown no signs of being reluctant to switch to electric, with sales in the country up 370% in March. Producing more EVs in the supply chain in India will further reduce costs.
Toyota shares have risen by more than a third in the past year, beating estimates from the MSCI International World Auto Index. Capturing the Indian EV market early should help maintain its momentum and valuation premium.