While Foxconn assembles the iPhone in China for Apple, the contract manufacturer also puts some models together in India. This is done to avoid import taxes from being imposed on units imported into India from China. While India is the second-largest smartphone market in the world, it is a developing country and per capita income is low. That is why value for money manufacturer Xiaomi is doing so well in the region. It also explains why Apple is producing older, more affordable iPhones in the country. Not only are the older models cheaper, producing them in the country will save consumers from having to pay the import tax. The iPhone has a 1% share of the smartphone market in India where they are considered a status symbol.

Citing a pair of sources, Reuters said last week that Foxconn plans to invest as much as $1 billion to expand a factory in the southern part of India where iPhone units are manufactured. Besides expanding production to avoid the import tax and to fit in with Prime Minister Narendra Modi’s Make in India initiative, Apple also is seeking to slowly move iPhone production out of China due to the trade war between the country and the U.S. The relationship between the U.S. and China is in flux and there is no stability; at any moment, the Trump administration could decide to impose tariffs against products imported from China.

Back in May, a rumor published in India said that Apple is working with the Indian government to move up to 20% of current iPhone production to India from China. As a result, up to $40 billion of iPhone production would roll off of Indian assembly lines. The big question is whether Apple could put together a supply chain to cover the quantity and quality of parts it would need to build that many handsets in the country. The supply chain issue is why many believe that Vietnam could eventually replace China when it comes to iPhone manufacturing.

One of the two sources cited by the wire service with direct knowledge of the situation said, “There’s a strong request from Apple to its clients to move part of the iPhone production out of China.” The second source states that additional investment in the Sriperumbur plant, located a little more than 31 miles west of Chennai, will take place over a three-year period. This factory currently produces the 2018 iPhone XR. The plan is for Foxconn to add other iPhone models to assemble at the facility. Both sources chose to remain anonymous since the talks are secret and the final details have yet to be agreed on. 6,000 additional workers will work at the factory according to the plan. Foxconn also has a facility in the southern Indian state of Andhra Pradesh where it manufactures phones for Xiaomi.

Another contract manufacturer that Apple works with, Wistron, has a plant in the southern tech center of Bengaluru. The Taiwan assembler is building a new factory where more Apple products are expected to be made. India also is trying to get Chinese smartphone manufacturers to build handsets in the country through a production-linked incentive (PLI) scheme. Samsung already has plans to use a factory near New Delhi to produce phones for export.

Last month, Apple reportedly spoke with its supply-chain about shipping to India components needed to assemble the iPhone SE (2020). Eventually, Apple could turn India into a hub for exports. It all depends on the supply chain, according to Neil Shah of research firm Counterpoint. He says, “With India’s labor cheaper compared with China, and the gradual expansion of its supplier base here, Apple will be able to use the country as an export hub.