Apple May Shift Nearly 18% Of iPhone Production To India By 2025: BofA Securities

Apple Inc. is seen moving nearly a fifth of its global iPhone production to India in the next two years, underscoring the growing importance of Asia’s third largest economy in the shifting sands that is the global supply chain for electronics manufacturing.

This is due to the production-linked incentive scheme for manufacturing of mobile phones in India. iPhone manufacturing in India was nil before the PLI scheme was introduced in 2020 and stood at 7% in the fiscal ended March 31, 2023, according to a BofA Securities report.

“Apple could move at least 18% of its global iPhone production to India by FY25. This is based on targets already committed by Apple’s contract manufacturing firms under the PLI scheme,” the report said. “But we see scope for Apple’s share expanding further if a larger scale incentivises its vendor ecosystem to also move/expand within India,” the report said.

India currently has just 14 Apple vendors, as compared with 151 in Mainland China.

Still, within just two years of the PLI scheme, iPhone exports from India rose to Rs 40,000 crore in FY23 from Rs 11,000 crore in the previous fiscal, according to the BofA report. That’s likely to accelerate further as it already has a run rate of $1 billion, or about Rs 8,200 crore, per month since February 2023.

“Apple manufactures its latest iPhones in India—a sign of growing confidence for India’s potential to be one of the large manufacturing destinations, as it aims to diversify manufacturing outside of China,” the report said.

The PLI scheme, in its current form, has drawn criticism from some quarters, in the sense that it promotes manufacturing of low-tech products such as cables, chargers, packaging, and display mounts, among others. 

“The low production value added at 18% remains a key criticism of the scheme, where China and Vietnam have 38% and 24% local value add respectively,” the report said.

The BofA analysis suggested that 70% of a mobile phone’s cost, which includes the display, memory and other semiconductors, are hard to localise in the near term since that needs high capital expenditure and high-end technology. Expansion of the vendor ecosystem, then, is critical if India has to move up in Apple’s value chain, the BofA report said. 

Still, the PLI scheme is a success story, in the sense that it can triple local manufacturing of mobile phones to $126 billion and grow their exports five times by FY26, the report said.

“Since FY17, mobile phone production/exports are up 3.9 times/65 times, while imports are down to a third.” That’s a plus for the country’s macroeconomic outlook as it can reduce the current account deficit by $112 billion over five years.

“We believe India could be a credible global supply chain alternative for mobile phones and electronics,” the report said. “India’s efforts to cut imports and step up exports could help diversify supply chains for global brands/contract manufacturing firms. We see exposure for 68 stocks globally on the back of this theme.”