Indian Automotive Industry (2022) – Overview and Outlook


An Overview of the Indian Automotive Industry

India’s automotive industry is among the major contributors to overall GDP, which stood at about 7% in FY 2020 and the same for manufacturing GDP was an impressive 49%. The impact of COVID-19 has been instrumental in forcing a decline of 0.5 percentage points between 2019 and 2020 for overall GDP contribution by the auto sector. As the situation with regard to the COVID-19 pandemic seemed to be stabilizing to some extent, the emergence of the Omicron variant has again put paid to hopes of any semblance of recovery that was being witnessed. Governments across the world are still grappling with how to tackle the situation and ensure people’s safety and security. India, too, has not been an exception in this respect, with overall vehicle demand likely to be impacted based on evolving scenarios. For the auto industry in India, the festive season of Diwali and marriages, too, brought little cheer, though expectations from the rural sector still remain buoyant, but not upbeat.

Sales of around 3.5 million units of passenger and commercial vehicles in India in 2020 made it the fifth-largest auto market globally, with the potential of being ranked third-largest by 2030. The two-wheeler market is the most dominant, accounting for over 80% of production and sales, which is followed by passenger and commercial vehicles and three-wheelers making up the balance. A large young and middle class population preferring ease of mobility and growing demand from the rural markets have resulted in increasing India’s two-wheeler penetration rate. Within the passenger cars segment, the demand is greater for small and mid-sized cars, though the market for SUVs has also seen considerable increase.

Despite the sizeable share of two-wheelers in India, the market witnessed a y-o-y decline of 26% in October 2021, with a month-on-month growth being a minimal 1%. This can, to a large extent, be attributed to the constantly rising petrol prices that have exceeded the psychological barrier of ₹100-per liter mark across the country. Virtually all major two-wheeler OEMs registered heavy decreases in volume sales, ranging from -16% for Suzuki Motorcycle India to -35% for Royal Enfield.

On the contrary, India’s electric vehicles segment has been witnessing significant and consistent growth in recent years, owing to wider availability, increasing fuel prices and eco-friendliness. The government has embarked on an ambitious initiative of achieving 100% electrification of vehicles by the year 2030, since it has recognized that relying on mobility based primarily on fuel is not a sustainable approach. Given that India’s electric vehicles market is projected to be in excess of US$205 billion by 2030, there would still be the need to infuse capital of over US$180 billion in vehicle production and charging infrastructure to realize the proposed target.

India’s number one global position in the two-wheelers market offers an enormous opportunity for the growth of electric bikes and scooters. Estimates suggest that by 2030, the country’s market for electric two-wheelers can reach between 8-9 million units, owing to urbanization and migration, beneficial government policies, a reduction in the currently high unit prices and greater awareness among consumers about the positives of electric bikes.

Some of the major players who have forayed into the market include Hero Electric, Okinawa, Ampere and TVS Motors, with Bajaj Auto also making its presence felt.

As regards the auto components sector in India, the market posted robust growth at a CAGR of 3.3% between FY 2016 to FY 2020 to reach US$46 billion in FY 2021 (a 3% decline over the previous year), which is projected to grow to US$200 billion by FY 2026. This sector accounts for roughly 2.3% of India’s GDP and has a direct or indirect employee base of about 1.5 million people. The auto components industry in the country operates within the organized and unorganized sectors. Original equipment manufacturers (OEMs) are the major buyers from the organized sector, while the unorganized sector’s output of low-value products is primarily destined for the aftermarket segment.

What Does 2022 Herald for India’s Automotive Sector?

The automotive industry in India has been one of the vital bellwethers for the country’s overall economic condition. The advent of COVID-19 was instrumental in taking a heavy toll of the sector over 2020-2021 and though the situation seemed to be improving, the Omicron variant’s appearance has again proved to be a dampener. Despite this, there are specific trends that have been significant in shaping the current status of India’s auto industry and which are expected to hold sway over the coming years, too.

Following is a summarization of a few that have played crucial roles in the Indian automotive industry.

Electric Vehicles Gaining Wider Acceptance

Policy initiatives have boosted the demand for electric vehicles in India, though considerable work needs to be done on the infrastructure front, such as installation of charging stations. Growing concerns about environmental pollution caused by burning of fossil fuels in automobiles have prompted the Indian government to stipulate targets for vehicle electrification. To this end, a number of companies have come forward with various versions of electric vehicles, be they battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs) or fuel cell electric vehicles (FCEVs). Prominent among them are Mahindra Electric, Tata Motors and MG Motors for cars and Hero Motors, Bajaj-Chetak, Ola Electric, Ather Energy, Kabira Mobility, Ultraviolette Automotive, Revolt Motors, Srivaru Motors and Simple Energy for electric two-wheelers.

All in all, the Indian demand for electric vehicles (including PCs, PVs and two- and three-wheelers) looks promising, with the prospect of growing at a CAGR exceeding 40% between 2021 and 2027.


Connectivity Expands the Definition of a Car


The number of “connected” smart vehicles on India’s roads, though still in the initial stages, has been growing at an impressive rate. In-built connectivity features, such as accessing the Internet and sharing data with external devices, have become standard offerings in car models from MG Motors and KIA, to which the consumer response has been overwhelmingly positive. Such vehicles offer capability of assessing driver and passenger requirements via embedded sensors and act accordingly. Estimates indicate that by 2022, India’s connected car parc could reach in excess of 1.7 million units.


The Time for Autonomous/Driverless Cars Has Come


Artificial intelligence, machine learning and deep neural networks are technologies that have grown exponentially over the past few years. The use of the same has enabled the auto industry in achieving what was hitherto unimaginable, i.e., the development of a driverless/autonomous car. Such vehicles work free from human intervention and can even navigate through the most complex of traffic bottlenecks. Autonomous driving relies on a vehicle sensing its environment and acting accordingly without any human involvement.

Several Indian start-ups, such as Flux Auto, Fisheyebox, Hi Tech Robotic Systemz and ATImotors have been working on developing and commercializing driverless vehicles, with global autonomous vehicles leaders, such as Tesla and Waymo also showing a keen interest in India. However, several challenges remain in the implementation of this technology in India. These include legislation, government support, lack of infrastructure and technology and a fundamental absence of civic sense.


Enhanced Consumer Experience through Digitalization


Even before the COVID-19 pandemic hit India towards the beginning of 2020, the number of online transactions taking place was at an all-time high, which got a further boost in the post pandemic period. Consumers increasingly shifted to searching for and booking vehicles online and the dealers were also positive in prompt enquiry responses and time-bound delivery schedules.

Digitalization in the auto industry has gained wide acceptance due to an approach based on consumer satisfaction, thereby increasing the use of social media platforms and advanced technologies, such as augmented reality (AR) and virtual reality (VR) that provide additional value. The digital aspect has also become a crucial part of offering after-sales services, such as maintenance and insurance to allow easier processes and problem-free vehicle management.


Telematics to the Fore in Fleet Monitoring and Maintenance


Telematics is a monitoring process that involves the use of GPS technology and on-board diagnostics (OBDs) for mapping an asset’s movement. With businesses on the constant look out for opportunities to improve mobility of their products, telematics and the data provided by this technology enables in optimizing company fleets. In India, it is anticipated that the connected trucks telematics market would maintain a high y-o-y growth rate from 2021 to over the coming medium term.

Commercial fleets include transport & logistics, oil & gas, construction, utilities, service & maintenance and retail & delivery, of which maximum growth is expected from transport & logistics and oil & gas. Furthermore, the mushrooming of e-commerce platforms across the country signify consistent and good growth for in-vehicle telematics in the retail & delivery sector, since home delivery of products and groceries has now become the norm rather than the exception.


Used Vehicle Demand on the Rise


Whereas the demand for new cars had not been quite upbeat during 2016-2020 in India, the market for used/second-hand cars had a steady progression of about 6.2% during the similar period. To this end, millennials have contributed to an increase in the use of used cars, along with a change in the mindset of consumers that a car (typically a used one) has to be changed within 3-5 years.

Additional factors to have influenced decision making include transitioning from BS-IV to BS-VI, the different GST rates specified on the purchase of a new car against a used car and the growing preference for personal, rather than public transport.


Car Leasing and Other Options Demand Further Attention


Car leasing, subscription, data monetization and shared mobility are some of the concepts in the auto industry being touted as the next mobility solutions and profit-making options. For this, shared mobility’s contribution to an increase in vehicle use and a widespread proliferation and ownership of private vehicles in North America and Europe are key factors. Over the coming years, it is anticipated that car leasing, in-vehicle connectivity, subscriptions and maintenance packages for extended periods would play a decisive role in purchase decisions.