Toyota Motors halts expansion plans in India, blames high tax regime

 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.

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-meter long SUV with an engine capacity of more than 1500 cc works out to be as high as 50%.

Ford, GM Out

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.

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. International automakers have struggled to expand in the world’s fourth-biggest car market.

General Motors Co. quit the country 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 utilizing just about 20% of its capacity in a second plant in India.

Automobile, manufacturingAutomobile sales in India were weathering a slump before the coronavirus pandemic, with at least half a million jobs lost.

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.

EV Challenge

Automobile sales in India were weathering a slump before the coronavirus pandemic, with at least half a million jobs lost. A lobby group has predicted it may take as many as four years for sales to return to levels seen before the slowdown.

The biggest players are the local units of Suzuki and Hyundai Motor Co., which have cornered the market for compact, affordable cars. Maruti Suzuki India Ltd. and Hyundai Motor India Ltd. have a combined share of almost 70%.

Toyota in India has largely pivoted toward hybrid vehicles, which attract taxes of as much as 43% because they aren’t purely electric.

But in a nation where few can even afford a car, let alone a more environmentally friendly one, EVs or their hybrid cousins have yet to gain much acceptance. Elon Musk, the billionaire founder of Tesla Inc., has said import duties would make his vehicles unaffordable in India.

“Market India always has to precede Factory India, and this is something the politicians and bureaucrats don’t understand,” Viswanathan said. Modi’s much-touted Make in India is another program aimed at attracting foreign companies.

India needs to have demand for a product before asking firms to set up shop, yet “at the slightest sign of a product doing well, they slap it with a higher and higher tax rate,” he said.

Toyota, Suzuki to acquire stake in each other, strengthen alliance

Japanese auto majors Toyota Motor Corporation and Suzuki Motor Corporation on Wednesday said they will acquire stake in each other as they seek to strengthen their alliance.
As part of a capital alliance agreement, Toyota will acquire 2.4 crore shares of common stock in Suzuki (4.94 per cent stake) for 96 billion yen (over Rs 6,510 crore), while Suzuki plans to acquire shares in Toyota equivalent to 48 billion yen (around Rs 3,255 crore).

On October 12, 2016, the two companies had first announced their business partnership.
In March this year, they agreed to engage in joint product development and collaboration in production, in addition to promoting mutual supply of products by bringing together Toyota's strength in electrification technologies and Suzuki's strength in technologies for compact vehicle.
Elaborating on the reasons for their capital alliance, Toyota and Suzuki in a joint statement said that the automobile sector is currently experiencing a turning point unprecedented in both scope and scale, not only because of enhanced environmental regulations but also from new entries from distinct industries and diversified mobility businesses.
"The two companies intend to achieve sustainable growth by overcoming new challenges surrounding the automobile sector by building and deepening cooperative relationships in new fields while continuing to be competitors, in addition to strengthening the technologies and products in which each company specialises and their existing business foundation," they said.
Toyota and Suzuki will jointly take up challenges together in this transitional era and plan to establish and promote a long-term partnership for promoting collaboration in new fields, including the field of autonomous driving, the statement added.
"The execution of the capital alliance agreement is a confirmation and expression of the outcome of sincere and careful discussions between the two companies, and it will serve for building and promoting their future partnership in new fields," it said.
As part of their earlier pact, the two partners had agreed to extend their collaboration to Europe and Africa over and above their partnership in India.
Suzuki will supply Ciaz sedan and Ertiga multi-purpose vehicle to Toyota in India in addition to the already agreed supplies of premium hatchback Baleno and compact SUV Vitara Brezza, which will be rolled out from Toyota's plant in India from 2022.
Moreover, Suzuki will also supply its India-produced vehicles -- Baleno, Vitara Brezza, Ciaz, Ertiga -- to Toyota for the African market as well.
Toyota, on the other hand, will provide Suzuki its hybrid electric vehicle (HEV) technologies in India through local procurement of HEV systems, engines and batteries, while also supplying THS (Toyota Hybrid System) to Suzuki in global markets.

Toyota shifting to petrol-only fuel strategy; no diesel version of Yaris

Japanese car maker Toyota is making a shift to a petrol-only strategy for its non-SUV future vehicles in India. The Yaris sedan, which will be launched next month, will have a petrol only option. This marks a shift from Toyota’s earlier approach where it rolled out both diesel and petrol variants for smaller cars like the Etios sedan and Liva hatchback.
“We have been monitoring this segment for some time now. In the past three years, there has been a rise in customer sales of petrol variants. Traditionally, customers like a diesel engine on bigger vehicles like SUV, MPV as higher torque is required to enjoy and handle bigger cars,” said N Raja, Deputy Managing Director, Toyota Kirloskar Motor, the Indian arm of Toyota.
Indian car buyers have shown an increasing preference for petrol cars and the share of diesel variant in new car sales has fallen to 23 per cent from almost 50 per cent in FY13. The narrowing gap between petrol and diesel prices, an uncertainty around the future treatment and low resale price of diesel cars are apparent reasons for the shift. In case of SUVs, however, the bulk of the sales come from diesel variants.
The Yaris does not have a diesel option globally but the company would have considered one for India had the demand for diesel cars been strong enough. Toyota has made investments of Rs 11 billion in a local diesel engine manufacturing unit that can produce more than 100,000 diesel engines a year. This unit was inaugurated in June 2016. “We will evaluate diesel options in Yaris on the basis of changing customer needs and favorable policy,” said Raja.
Diesel engine technology has been at the receiving end of bans from policy-makers and courts in recent years. A ban on sales of diesel vehicles (2,000cc and above) in the NCR, imposed by the Supreme Court in December 2015, had negatively impacted Toyota more than any other car maker. The ban, which hit sales of its bestsellers Innova and Fortuner, was lifted in August 2016 after imposition of a cess of one per cent.
While the price advantage in diesel has waned to a great extent, a bigger challenge for diesel cars is expected after April 2020 when Bharat Stage VI or BSVI emission norms kick in. Raja said that the price of diesel engines will see a substantially bigger increase compared to petrol engines and the share of petrol engines is expected to rise further.
In the last few years, Toyota has the demand for its petrol Corolla sedan moving up from 75 per cent to 89 per cent now. The Liva hatchback has also seen a surge in demand for petrol variants. It is only in the Etios compact sedan that diesel demand has remained firm due to higher purchases from the taxi fleet segment.
The company said it is focussing on creating more awareness amongst customer about clean and green strong hybrid technology. “The government’s move to extend FAME Scheme will help to boost the demand for strong hybrids, encouraging faster adoption of environment-friendly vehicles,” said Raja.

Toyota and Suzuki sign mutual agreement to supply certain models in India

Japanese automobile major Toyota has an India-specific small car strategy in place, finally. Its India unit will source two cars manufactured by Maruti Suzuki, the Baleno and Brezza, including their hybrid variants, and in return Toyota will offer its Corolla sedan to Maruti. These vehicles, with some changes, will be badged under the name of the company selling them.
With this move the two companies aim to strengthen their position in a car market that is touted to become the third largest globally by 2020. The carmakers had signed a business partnership in February 2017. In November, they said they would jointly develop electric vehicles for the Indian market by 2020.

“By challenging and competing with each other with the goal of mutual improvement, Toyota and Suzuki aim to invigorate the Indian automotive market to further enhance their respective products and services to be offered to customers,” the companies said in a joint statement.
With a sub-5 per cent market share, underutilised capacity, relatively smaller product portfolio and smaller sales network, Toyota’s India unit is likely to be a bigger beneficiary of the mutual supply deal. Maruti Suzuki, which already corners more than half of the passenger vehicle market in India and boasts of a large product portfolio, doesn’t seem to gain much from the deal.
R C Bhargava, chairman of Maruti Suzuki, said the announcement should be looked at in the larger context of the cooperation between Toyota and Suzuki globally. “The partnership is of great importance to Maruti Suzuki. It provides access to technologies that are not available readily. Toyota is much advanced than others in electric and hybrid technology and safety of vehicles. They also need to gain in return,” he said.
He said these cars need not look identical and the names like Baleno and Brezza are indicative. “Buyers can buy from a Toyota or a Maruti Suzuki dealer. Common sense says there cannot be a significant difference in prices of the vehicles sold by the respective dealerships,” said Bhargava.
Toyota has not been able to crack the small car segment in India, dominated by Maruti and Hyundai. It thrives on its large SUVs (Innova and Fortuner) and sedans (Corolla and Camry). Maruti has marked a successful presence in the mid-size sedan market with Ciaz but will also benefit from Corolla.
The joint statement did not specify details of each model, supply pricing, schedule of supply, number of units, etc. According to Japanese news agency Nikkei, Maruti Suzuki will supply Toyota 30,000 to 50,000 units of its premium hatchback Baleno and Vitara sport utility vehicle annually, while Toyota will provide Suzuki with around 10,000 Corollas in both hybrid and gasoline models. Maruti is learnt to be manufacturing a mild hybrid variant of Baleno for exports.
“What we gain out of it is incremental sales, better utilisation of our existing capacities,” Shekar Viswanathan, vice-chairman and whole-time director at Toyota Kirloskar Motor, told Business Standard.
Toyota and Suzuki sign mutual agreement to supply certain models in India For the year 2018-19, Toyota is targeting 150,000 vehicles, he said. It has an installed capacity to make 310,000 vehicles. “Some increment sales can happen through this partnership in 2019-2020. There is potential of an additional 150,000 units if these two (Brezza and Baleno) come in,” said Viswanathan.
The supply of models from each company is likely to commence in the first quarter of 2019, said Viswanathan. Toyota and Suzuki would also step up local procurement for the three models, the statement said, adding the two “remain committed to the widespread acceptance and use of less fuel-consuming vehicles to help India reduce its environmental footprint and enhance energy security”.
The Japanese duo will continue to explore other collaborative projects “that will contribute to the attainment of a sustainable mobile society in a manner that ensures fair and free competition,” the statement said.
Intensifying competition, rising costs, stricter regulations and an emphasis on green technologies by the Indian government are prompting auto firms to collaborate and share costs. If anything, such non-strategic partnerships are a precursor to the auto companies working together to tide over the technological disruptions that are set to unfold over the next decade.
Earlier this month, Mahindra and Mahindra and Ford India signed a slew of non-binding agreements to collaborate on future technologies and joint product development. “Today’s announcement is a win-win for both,” said Puneet Gupta, associate director at IHS Markit, a sales forecasting and market research firm. “While Toyota will benefit from Maruti’s reach and cost efficiency, an association with Toyota will help Maruti in bolstering its presence in the premium segment.
Since the conclusion of last year’s memorandum towards business partnership, the two companies have been exploring concrete projects for collaboration in areas, including environmental technology, safety technology, information technology, and the mutual supply of products and components.