Honda’s India unit considers $1.2 billion investment to fund expansion, produce affordable hybrids

Nna/kyodo

The Indian unit of Japanese automaker Honda Motor Co. is considering investing over $1.2 billion as part of plans to launch new models, including electric vehicles, and fund its expansion in the South Asian country.

Honda Cars India Ltd., which has already announced its plans to launch six new models in India over the next three years, revealed this week that one of the models will be an “affordable” hybrid car catering to the mass market.

“We will launch the hybrid car in the next three years as part (of) our electrification strategy. It will be a mass market product … an affordable car, not like the (Honda) Accord hybrid with a very few (sales) numbers,” Gaku Nakanishi, president and chief executive of HCIL, told reporters during the launch of its fifth generation All New Honda CR-V in New Delhi on Tuesday.

Later, another senior company official said Honda is looking to invest further in India to fund these initiatives, including its future capacity expansion plans.

“We have invested over 9,000 crore rupees (90 billion rupees, or $1.2 billion) in the last 20 years since our entry into the local market,” said the official, who requested anonymity.

“Now, with the company taking these initiatives, we are likely to see a similar investment in the country in the near future.”

Nakanishi said HCIL will continue betting on its hybrid series in India despite the segment facing a demand crunch owing to high taxation on such cars under the Goods and Services Tax regime introduced in July 2017.

The GST rate on hybrid cars is 43 percent, up from a 28 percent tax imposed on the purchase of those vehicles before the sales tax took effect. The GST on electric vehicles is much lower, at 12 percent.

“With India pushing for electric vehicles in the near future, we believe hybrids will help bridge the gap between traditional ICE (internal combustion engine) and electric (vehicles) during the transition phase,” he said.

Indian sales of the Honda Accord hybrid model launched in 2016 have come to a grinding halt, with the automaker reporting “almost negligible sales.”

“Accord’s sales are almost down to zero mainly due to the high GST rate,” Shugo Watanabe, senior staff administrator of marketing and sales at HCIL, said.

“But we are not discontinuing the model. It will continue to be available for the local customers,” he said of the car that is being sold as completely built units imported from Thailand.

As part of its global strategy, Honda Motor is currently focusing on electrification, and has set a target to electrify two-thirds of global automobile sales by 2030 to help “achieve a zero-emission society.”

Honda’s Indian subsidiary sold 94,419 units in the first half of the 2018 fiscal year, posting a 3.5 percent gain over the same period of fiscal 2017.

The company reported last month it has touched the 1.5 million-unit mark in cumulative sales since its entry into the Indian market in 1998, and has built a strong sales and distribution network of 348 facilities across the country.