India’s Automotive Ecosystem: A Primer For Investors


Posted: 13th October 2021 09:16

India’s annual automobile manufacturing capacity in the financial year (FY) 2021 stood at 22.65 million vehicles, including passenger vehicles, commercial vehicles, three wheelers, two wheelers, and quadricycles, of which 4.13 million accounted for exports.

Industry estimates project the market size of the Indian automobile sector to reach US $300 billion by 2026, registering a significant growth from the existing US $118 billion in 2020. 

Additionally, the automotive sector contributes 7.1% to India’s gross domestic product (GDP) and employs a workforce of 37 million. The Automotive Mission Plan 2016-26 (AMP) envisages to raise the sector’s share in GDP to 12% and create employment opportunities for over 65 million people.

Indian Automobile Market: Key Players And Manufacturing Clusters

Regional Clusters In India

Over the past few years, four specific regions in the country have emerged as large automobifle manufacturing clusters.

Northern Region

Delhi-Gurgaon-Faridabad

The major players in the northern region are Ashok Leyland, Force Motors, Piaggio, Swaraj Mazda, Amtek Auto, Eicher, Honda SIEL, Maruti Suzuki, Tata Motors, Bajaj Auto, Hero Group, Escorts, ICML, JCB, Yamaha, Mahindra, Suzuki Motorcycles.

Eastern Region

Kolkata-Jamshedpur

The key players in the eastern region are Tata Motors, Hindustan Motors, Simpson and Company, International Auto Forgings, JMT, Exide.

Western Region

Mumbai-Pune-Nashik-Aurangabad

The major players in the western region are Ashok Leyland, Bajaj Auto, FIAT, Mahindra and Mahindra, Eicher, Skoda, Bharat Forge, Tata Motors, Volkswagen, Renault Nissan, John Deere, Mercedes Benz, Tata Hitachi West, Volvo Eicher.

Southern Region

Chennai-Bengaluru-Hosur

The key players in the southern region are Ashok Leyland, M&M, Toyota Kirloskar, Volvo, Sundaram Fasteners, Enfield, Hyundai, BMW, Bosch, TVS Motor Company, Renault Nissan, TAFE, Daimler, Caterpillar, Hindustan Motors.

Major Vehicle Market Players

Some of the leading players in India’s automobile industry are Tata Motors, Maruti Suzuki, Mahindra and Mahindra, etc. Leading foreign players, including Kia Motors and Volkswagen, have customized their products in terms of traditional structure and designs to cater to the large Indian middle-class population. This is essential for them to compete directly with domestic firms as the sector is highly competitive.

Tata Motors introduced the Ace Gold Petrol CX in July 2021, which is India’s cheapest and most compact commercial four-wheeler vehicle, starting at INR 3,99,000 (US $5,362).

Hyundai too entered a strategic alliance with shared mobility company, Revv, in 2018, under which it intends to provide cars on subscription in six cities in India. This will provide customers the opportunity to use Hyundai’s models with hassle-free ownership and limited commitment.

Leading Trends In India’s Automobile Market

The Indian automobile sector is categorized into four segments:

The two wheelers and passenger vehicles segments dominate the market, claiming highest demand share of 81.2% and 14.6%, respectively. In FY 2021, two wheelers and passenger vehicles accounted for a combined sale of over 17.8 million vehicles. In the passenger vehicle segment, small and mid-sized cars dominate the sales figure.

India automotive domestic market share

Annual production of automobiles in India show a compound annual growth rate (CAGR) of 2.36 percent. From an annual production capacity of 24.02 million in FY 2016, the production capacity peaked in FY 2019 with 30.92 million units. However, the industry has since been hit by the COVID pandemic-led slowdown, with annual production falling to 22.65 million in FY 2021. In June 2021, the automobile production in India, comprising of passenger vehicles, three wheelers, two wheelers, and quadricycles stood at 1,693,639 units.

India annual production of automobiles from 2016-2021

Simultaneously, a similar analysis of domestic annual sales of automobiles in India shows a CAGR of 1.29 percent. While the annual sales figures stood at 20.47 million in FY 2016, they peaked in FY 2019 at 26.27 before slumping to 18.61 million in FY 2021. However, the industry estimates look promising as the first quarter (Q1) of FY 2021-22 witnessed a 113% growth in the total domestic sales of vehicles. In June 2021, sales volume of passenger vehicles in India stood at 231,633 units.

India annual automobile sales 2016-2021

Passenger Vehicles

In FY 2021, passenger vehicles domestic sales stood at 2,711,000 units. As per the Federation of Automobile Dealers Associations (FADA), passenger vehicle sales in June 2021 stood at 184,134 units, compared with 1,28,360 units in June 2020.

Commercial Vehicles

In FY 2021, commercial vehicles production, domestic sales stood at 448,914 units. Tata Motors recorded sales of 22,100 commercial vehicles in June 2021.

Two Wheelers

As per June 2021 statistics, Hero MotoCorp and Honda Motorcycle and Scooter India (HMSI) surfaced as the top two players in the two-wheelers segment, with 44.65% and 21.14% market shares, respectively. Hero MotoCorp Ltd. recorded sales of 415,366 two-wheeler units in June 2021.

Three Wheelers

Bajaj Auto emerged as the leader in the three-wheeler passenger category with 33.43% market share in June 2021, followed by Piaggio vehicles claiming a share of 15.33%. Bajaj Auto’s three-wheeler sales stood at 4,925 units in June 2021.

Luxury Vehicles

The luxury car market in India registered annual sales of 19,781 units in FY 2021. This was a major drop from 60,637 units sold in FY 2020. In FY 2021, Mercedes Benz topped the list with 7,087 units sold, followed by Jaguar (1,696 units), Volvo (1,197 units), and Audi (404 units).

The luxury vehicle segment is expected to rebound in FY 2022, likely propelled by the introduction of new luxury products in 2021, which presently line up to a total of 70 new launches. New products include 25 new units by BMW, 15 units by Mercedes Benz, 10 units by Jaguar Land Rover, seven units by Audi, five units by Volvo, and the remaining from manufacturers like Rolls Royce, Lamborghini, Ferrari, and Porsche.

Electric Vehicles To Lead The Automobile Sector Recovery

According to industry projections, the Indian automobile industry is expected to record strong growth in FY 2021-22, suggesting a swift recovery from the COVID-19 pandemic.

Electric vehicles, especially electric two wheelers, are likely to witness positive sales in FY 2022, given the persistent push by both the central as well as state governments for a transition towards cleaner mobility in India, including the most recent production-linked incentive (PLI) scheme for the automobile sector to boost the manufacturing of electric vehicles and hydrogen fuel cell vehicles.

According to an independent study by CEEW Centre for Energy Finance (CEEW-CEF), the EV market in India will be a US $206 billion opportunity by 2030. This will necessitate a US $180 billion investment in vehicle manufacturing and charging infrastructure.

Opportunities In The Indian Automobile Sector

According to AMP 2016-26, India is expected to emerge as the third-largest automotive market in the world in terms of volume by 2026, followed by China and USA.

The foreign investors have a huge opportunity as India allows 100% foreign direct investment (FDI) in the sector under the automatic route, making it attractive for investors to set up their manufacturing units in India. The cumulative FDI equity inflow during April 2000 to June 2021 in the automobile industry is US $30.52 billion. This constitutes 5.58% of the total FDI inflow received across sectors.

BMW (Germany), Borgward Automotive India Private Limited (Germany), Daimler India Commercial Vehicles Pvt Ltd (Germany), FIAT (Italy), Ford (USA), General Motors (USA), Honda (Japan), Hyundai (South Korea), Kia Motors (South Korea), Mercedes (Germany), Nissan (Japan), Piaggio (Italy) etc. are major foreign auto investors. In the first three months of FY 2022, the automobile sector emerged as the top recipient of FDI in India with 27% share of the total FDI equity inflow. India further expects the automobile sector to attract US $8-10 billion in local and foreign investments by 2023.

Additionally, the government is fast revamping its infrastructural capacity through its National Infrastructure Pipeline and aims to leverage the expertise of foreign investors through its National Monetization Pipeline.

Several ongoing projects that can interest potential investors include the US $13.56 million Automotive Manufacturing Unit in Lucknow, Uttar Pradesh.

Meanwhile, the Uttarakhand state of India hosts two major projects: the Agricultural and Earth Moving Vehicle Project worth US $12.65 million and the EV Manufacturing Project worth US $6.1 million.

Auto Component Industry In India

The Indian auto component industry is a critical part of the original equipment manufacturer (OEM) value chain and has grown at a healthy pace over the past few years. The turnover of the auto components industry grew at a CAGR of 6% from FY 2016 to FY 2020. In the same period, domestic sales grew at a much faster pace of 9.6% CAGR.

As per industry estimates, FY 2022 is expected to witness a positive growth of 18 to 20 %, after two consecutive fiscals of de-growth as the newly introduced PLI scheme as well as the FAME II scheme will encourage investments in the industry.

Furthermore, the upgradation in the emission standards from Bharat Stage (BS) IV to BS VI norms will place the industry at par with international regulatory standards on safety and emissions, by significantly reducing the vehicular emission of air pollutants.

The organized segment of this industry includes OEMs who are involved in the manufacture of high-value precision instruments, while the unorganized segment comprises of low-valued products catering to after-market services. The various sub-sectors of the auto component industry in India are:

As per data from a report by CARE Ratings, in terms of segment-wise share in OEM supplies, passenger vehicles is the largest segment with 45.3% share, followed by two-wheelers (19.6% share), medium and heavy commercial vehicles (12.4% share), LCVs (11.8% share), tractors (6.5% share), three-wheelers (3.3% share), and construction equipment (1.1% share).

In the category of parts supplied to OEMs, engine components is the largest segment (26.1% share), followed by suspension and brakes (15.6% share), body and chassis (14.1% share), drive and transmission (13.2% share), electrical and electronics (12.4% share), interiors (10.8% share), consumables (6.4% share), and cooling (1.4% share).

India’s auto components industry is highly fragmented with limited foreign firms and joint ventures operating. It is mainly dominated by local players.

Among key challenges faced by Indian component manufacturers is the low-level of technology penetration and negligible research and development (R&D) capacity. According to an ICRA report released in September 2021, while the long-term growth drivers look resilient, short-term challenges like commodity inflation and semiconductor shortage persist.

Policy Measures Affecting The Indian Automobile Sector


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