Here’s Why Toyota Is Debuting Its Lexus Brand In India
According to our estimates, Lexus accounts for nearly 15% of Toyota Motors‘ (NYSE:TM) valuation and we expect a steady increase in the number of Lexus vehicles sold globally over our forecast period.
Lexus’s popularity, expected strong growth in China, and the overall growth in the luxury car market are likely to be the key drivers of this growth. Toyota is now looking to expand this brand into other emerging economies and recently announced that it will launch the Lexus brand in India. Two SUVs and a sedan will be the first models of Lexus to be launched in four big cities in India. While India’s luxury car market posted its first ever decline in 2016, high economic growth in the region is likely to drive sales in the luxury segment in the next few years. According to IHS automotive, luxury vehicle sales in India are likely to double between 2015 and 2020. While Mercedes and Audi dominate this segment in India, the low penetration of luxury cars and high economic growth provide ample opportunities for other players to penetrate this market. Toyota is launching the hybrid variants of the Lexus brand in India, to keep pace with changing consumer preferences towards cleaner energy. The company is already popular in the region and its Camry model is the largest sold hybrid in India.
Total luxury cars expected to be sold in India in 2020 stand at around 87,000 units. If Toyota is able to capture a 5% share in this market, it can expect to sell around 4,000 cars in the region in 2020. This will account for less than 1% of the total 770,000 Lexus vehicles we expect Toyota to sell globally in 2020. However, it can give the company a strong foothold in a growing economy where penetration of luxury cars is only 1%.
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While Toyota will face intense competition in the Indian luxury segment and is a late entrant, we believe the company is well poised to capture the growth in the region and drive sales of Lexus.
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