Apple May Move 20% Of Manufacturing Capacity From China To India, Boost Indian Tech Exports

Apple (AAPL) may be considering moving one-fifth of its Chinese manufacturing capacity to India amid the coronavirus pandemic.

India’s Economic Times reported that Apple’s senior executives and high ranking Indian government officials have held discussions over the last few months to not only shift some production to India, but to also increase its Indian manufacturing revenues -- through its contract manufacturers -- to about $40 billion over the next five years.

Should this move occur, Apple could become India’s largest exporter.

“We expect Apple to produce up to $40 billion worth of smartphones, mostly for exports through its contract manufacturers Wistron and Foxconn, availing the benefits under the [government’s] production-linked incentive scheme,” said a senior government official.

The production-linked incentive, or PLI, was designed to incentivize local handset manufacturing and boost exports. Under the PLI scheme, a company is required to manufacture at least $10 billion in mobile phones between 2020 and 2025 to receive the benefits of the PLI scheme.

However some details of the scheme still have to be ironed out to Apple’s satisfaction.

“There are some problems with some of the [PLI] clauses. For instance, valuing the entire plant and machinery already in use in its plants across China and other places at 40% of that value and the extent of the business information sought under the scheme are some of the irritants,” a source told India’s Economic Times.

However, the Indian government – and especially Prime Minister Narendra Modi – are eager to bring more high-tech manufacturing to India.

“India isn’t a big market for Apple as the company sells only a fraction of its total output in India. It is actually looking at India as a base to manufacture and export, essentially diversifying its production out of China,” a government official said.

At present, Apple sells phones valued at about $1.5 billion in India – of that figure less than $500 million is locally manufactured.

Apple currently produces iPhone 7 and iPhone XR in India.

In stark contrast, in fiscal 2019, Apple produced gadgets valued at $220 billion in China -- of which $185 billion were exported. Apple directly and indirectly employs some 4.8 million people in China.

“With [tax and other] incentives, we expect mobile phone exports out of India to cross $100 billion by 2025, [but] it could be earlier than that,” said a New Delhi official.

Mobile phone exports for India amounted to $3 billion in fiscal 2020.

But some analysts do not think India can quickly manufacture and export so many high-tech products.

“We don’t have [an] ecosystem ready, which could support any large-scale deployment. The ecosystem right from skilling to ancillaries is almost negligible. This weakens confidence of anyone wanting to plan big and long term,” said Faisal Kawoosa, founder at research agency TechArc.

Other major economies, including Japan, have already announced plans to move some manufacturing bases out of China.

Apple also seeks to partially exit China in order to avoid U.S. trade tariffs on Chinese goods.

Livemint reported that Apple – which currently sells its products in India through resellers – may be seeking to establish its first retail locations in the vast country.

In February, Apple CEO Tim Cook said the first Apple retail store is expected to open in 2021.