India is taking a bite out of Apple’s supply chains, and it will end up at their core too.
Helped by generous subsidies, Taiwanese Apple suppliers are starting to churn out more iPhones in India. Wistron was the first to set up a factory to make the devices in 2017 around the technology hub Bengaluru. Foxconn, formally known as Hon Hai Precision Industry, and Pegatron followed. Analysts at JPMorgan reckon India will have 6.0 per cent of iPhone manufacturing capacity in 2022, and the rest will remain in China.
Shipment numbers are small, but India is at an inflection point. The newest iPhones used to be made in China first, with Indian factories only following with the same models some six to nine months later. This gap has narrowed substantially with the iPhone 14 and it could vanish over the next few years. JPMorgan reckons India might produce one in four iPhones by 2025. The product delivered $205 billion of revenue for Apple in the year to September, 52 per cent of the company’s net sales.
Trade tension between Beijing and Washington, and Covid-related supply chain snarls, are merely an accelerator. India has used hefty import taxes as a stick to get companies to set up factories on its shores: The country is no longer a net importer of mobile phones because budget handset makers like China’s Xiaomi (1810.HK) produce enough cheap devices locally to cater to booming domestic demand. New Delhi’s more recent, generous production-linked incentives are designed to address the premium market for products costing over 15,000 rupees, about $180.
Incentives and other subsidies partially compensate for inefficiencies in India, where demand for pricier devices is slowly picking up. A phone that costs $100 to make could be produced for $80 in China, $89 in Vietnam and $92 in India, factoring in local subsidies and other expenses, per the India Cellular & Electronics Association. Apple will continue to rely on China too because India is years away from making key components, including the finished circuit board that can comprise half the value of parts that go into handsets. HDFC Securities estimates that for an average smartphone, as little as 14 per cent of the value is added in India.
