Indian automobiles industry is expected to reach US$ 251.4-282.8 billion by 2026. Two-wheelers dominate the market and is expected to grow at 9 per cent in 2018.
- Definition / Scope
- Market Overview
- Market Risks
- Top Market Opportunities
- Market Drivers
- Market Restraints
- Industry Challenges
- Technology Trends
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Competitive Landscape
- Key Market Players
- Strategic Conclusion
Definition / Scope
Automobile industry refers to the companies and organization that are involved in the design, development, manufacturing and selling of motor vehicles, passenger vehicles, towed vehicles, motorcycles and mopeds.
Automobiles made their debut in India as early as 1897. The Indian automobile industry, however, took birth in the 1940s with the inception of Hindustan Motors, Premier Ltd. and Mahindra & Mahindra. Before liberalization the industry was plagued by slow growth, dated technology and limited competition.
The real turnaround for the industry came in the 1980s when Maruti Udyog Ltd. and Suzuki signed a Joint Venture and the indigenously produced Maruti 800 model became hugely popular. Post liberalization, multinational automakers like Toyota, Nissan, Hyundai, Renault, General Motors, and Ford started investing, marking the beginning of the journey that has made India on of the vibrant automobile markets.
At present, the Indian auto mobile industry is the fourth largest in the world, with the country currently being the world’s fourth largest manufacturer of cars and seventh largest manufacturer of commercial vehicles in 2017.
The industry became the fourth largest in the world with sales increasing 9.5 per cent year-on-year to 4.02 million units (excluding two wheelers) in 2017. The two wheelers segment dominates the market in terms of volume owing to a growing middle class and young population.
The automobile industry in India broadly comprises of the following segments: Passenger Vehicles (including passenger cars, utility vehicles and vans) Commercial Vehicles (light, medium and heavy) Two-wheelers (motorcycles, geared and ungeared scooters, mopeds) Three-wheelers (including Auto rickshaws and tractors)
India is also a prominent exporter of automobiles and has strong growth expectations for the near future. Several initiatives by the government of India and the major automobiles players in the market are expected to make India a leader in the two-wheeler and four-wheeler market in the world by 2020.
Exchange Rate Risk
The movement in the value of rupees determines the attractiveness of Indian products overseas and the price of imports for domestic consumption. The trend of export and import has been increasing in the industry and thus importance of exchange rate risk has been increasing.
The industry is subject to regulations and legislation related to environment concerns. The Automotive Mission Plan 2026 mandates that a scientific and transparently conducted study be done of the cities where automobile-manufacturing plant are based, to outline the causes of air pollution. Import, export tariff, sales and excise duty also affects the price of the vehicle affecting the firm and industry as a whole.
Complex Tax and Custom Formalities
Automobiles are the most heavily taxed manufactured products in India and pose a lot of burden on both the sellers and buyers. The Curtain Raiser document for the AMP 2016-2026 plan mentions a 53 per cent to 73 per cent tax incidence for cars, which poses a major risk for the companies in this sector.
Poor Return of Invested Capital Values
McKinsey & Company reports that only 46 per cent of manufacturing companies and 42 per cent of automobile companies have an return on invested capital greater than the average cost of capital in 2006.
This makes investment in India a less lucrative proposition for foreign companies. This is a significant risk if India aims to increase the automobile manufacturing sector’s contribution to the country’s GDP TO $300 billion by 2026.
Top Market Opportunities
- India is expected to become a leader in shared mobility by 2030, providing opportunities for electric and autonomous vehicles. Recently, the focus has been shifting towards electric cars providing opportunities in this sector.
- India is the world’s largest tractor manufacturer, second largest two-wheeler manufacturer, second largest bus manufacturer, fifth largest heavy truck manufacturer, sixth largest car manufacturer and eight largest commercial vehicle manufacturer.
- The fact that South Korea’s Kia Motors, Daihatsu from Toyota, PSA makes from China, Beiqi Foton, SAIC, and Changan Automotive desire to enter the Indian market pivoted the India to become the third largest in the world by the end of the decade. This offers a highly attractive investment landscape for foreign investors and manufacturing firms.
- Vehicle penetration rate is still very low in India. Only 18 people per 1000 own vehicles in India compared to 809 people per 1000 in the USA, 519 people per 1000 in the UK, and 101 people per 1000 in China.
Foreign Direct Investment
The growing demand of automobiles in India has caused several auto makers to invest heavily in various segments of the industry. According to the data released by Department of Industrial Policy and Promotion (DIPP), Indian automobile industry has received FDI worth US$ 19.29 billion between April 2000 and June 2018.
Ashok Leyland has planned a capital expenditure of US$ 155.20 million to launch 20-25 new models across various commercial vehicle categories in 2018-19. Hyundai is planning to invest US$ 1 billion in India by 2020. SAIC Motor has also announced to invest US$ 310 million in India.
The rise in middle class income, young population and greater availability of credit and financing options, have resulted in strong demand for automobiles. According to Deutsche Bank Research, there are between 30 million and 300 million middle-class people in India.
By 2025-26, the number of middle class households in India is likely to more than double from the 2015-16 levels to 547 million individuals. Also, India has more than 50 per cent of population below the age of 25 years and more than 65 per cent below the age of 25.
Favorable macroeconomic factors
Currently, the automobile sector contributes more than 7 per cent to India’s GDP. The Automotive Mission Plan 2016-26 sets an aspiration to increase the contribution to 12 per cent. A number of economic trend could help in meeting this target.
Rapid urbanization means the country will have over 500 million people living in cities by 2030-1.5 times the current US population. Rising incomes will also play a role, as roughly 60 million households could enter the consuming class by 2025.
At the same time, more people will join the workforce. Participation could reach 67 per cent in 2020, as more women and youth enter the job market, raising the demand for mobility.
The Indian government aims to recognize India as a global auto manufacturing hub, and many NATRIP centers have been introduced to push the cause. Funds are allocated by government of India for R&D with an aim to manufacture low cost vehicles.
In the Automotive Mission Plan 2026, the government and industry set a target to triple industry revenues, to $300 billion, and expand exports seven fold, to $80 billion.
High capital costs
The automobile industry has high initial setup costs that include land, manufacturing plant, equipment, etc.
High market entry costs
Market entry costs refer to the initial fixed costs of entry into supply chains that precede the setup stage. These include information collection regarding target markets, marketing, technology expenses, distribution channels and regulatory clearances. These costs are more pertinent for market entrants and entrants to new segments.
Long gestation time
Auto sector projects are typically long term and have lengthy turnaround times. Along with long setup times, the gestation time (time between initiation of the project and production) and time for skilling is also protracted.
- The automotive industry is highly competitive in India. The factors affecting competition include price, product quality, reliability, safety, customer service and financing terms.
- Even with flexible policies and pro-investment market regulations, manufacturers like Tesla are shying away from setting up shop in India. At present, India does not have the infrastructure in place to set up charging stations for Tesla’s customers and build an EV network.
- With electrification catching up fast, the world’e economy may change from being oil-driven to lithium, cobalt, etc. India falls extremely behind in the lithium and cobalt reserves. It needs to speed up in securing lithium. What is rather detrimental is that it levies highest 28 per cent GST on import of this crucial item.
Electrification has just started to take off in India. Factors such as declining prices of batteries and supportive policies from the government are stimulating the segment’s growth.
In 2017, only 2,352 units of electric vehicles were sold. However, early signs of growth are visible through an order for 10,000 electric vehicles by the government’s energy-service company known as Energy Efficiency Services Ltd.
Connectivity is in the early stages of adoption in India. A minuscule share of vehicles sold in India come with factory-fitted connectivity features. There are several connectivity-linked applications that are picking up in India.
Basic in-car entertainment, navigation, and in-car connectivity have evolved rapidly over the last decade. More advanced telematics features that utilize car sensor data, driving behavior, and vehicle-health parameters are also evolving.
- The “Make in India” campaign, by Narendra Modi, was launched in September 2015 to bolster the contribution of the manufacturing sector towards the country’s GDP. The campaign’s goal is to put India at the forefront of global manufacturing by encouraging investments, motivating innovation, and supporting skill development.
- The government aims to develop India as a global manufacturing as well as a research and development (R&D) hub. It has set up National Automotive Testing and R&D Infrastructure Project (NATRiP) centres as well as a National Automotive Board to act as facilitator between the government and the industry. Under (NATRIP), five testing and research centres have been established in the country since 2015.
- The Indian government has also set up an ambitious target of having only electric vehicles being sold in the country. Indian auto industry is expected to see 8-12 per cent increase in its hiring during FY19. The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for the introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and EVs in India) scheme. The scheme has further been extended to March 2019 from September 2018. Number of vehicles supported under FAME scheme has increased to 192,451 units in March 2018 from 5,197 units in June 2015.
Other Key Market Trends
- The luxury car segment has been seeing high growth rate and expanded at 3 per cent CAGR between FY07-15. Sale of luxury cars stood at 33,279 in 2016. Mercedes-Benz India and BMW Group India recorded their highest ever annual sales in 2017 at 15,330 units and 9,800 units respectively.
- Car-makers such as BMW, Audi, Toyota, Skoda, Volkswagen have started providing customized finance to customers through NBFCs.
- The Indian government has shifted its focus on electric cars in order to meet the emission reduction targets. It aims to sell only electric cars by 2030 under the National Electric Mobility Mission Plan which was launched in 2013.
- Ashok Leyland is planning to launch couple of light commercial vehicles variants in every quarter of FY18.
Market Size and Forecast
- Two-wheelers dominate the industry and made up 81 per cent share in the domestic automobile sales in FY18. Overall, domestic automobiles sales increased at 7.01 per cent CAGR between FY13-18 with 24.97 million vehicles getting sold in FY18.
- Domestic automobile production increased at 7.08 per cent CAGR between FY 13-18 with 29.07 million vehicles manufactured in the country in FY18. During April-August 2018, automobile production increased 14.54 per cent year-on-year to reach 13.70 million units.
- During April-August 2018, highest year-on-year growth in domestic sales was recorded in three-wheelers segment at 44.27 per cent followed by 41.67 per cent y-o-y growth in the sales of commercial vehicles.
- Premium bikes sales in India crossed one million units in FY18. Two leading luxury car manufacturers, BMW and Mercedes-Benz, recorded their best-ever half yearly sales in India during January-June 2018. Sales of BMW grew 13 per cent y-o-y to 5,171 units and sales of Mercedes-Benz grew 12.4 per cent y-o-y to 7,171 units.
- Sales of electric two-wheelers are estimated to have crossed 55,000 vehicles in 2017-18.
- The Indian automobile industry constitutes 7.1 per cent of India’s GDP and employs approximately 29 million people.
- Indian automobiles industry is expected to reach US$ 251.4-282.8 billion by 2026.
- The passenger vehicle sales in India crossed the 3.2 million units in FY18, and is further expected to increase to 10 million units by FY20.
- Automobile exports grew 26.96 per cent during April-August 2018. It is expected to grow at a CAGR of 3.05 per cent during 2016-2026. Also, luxury car market in India is expected to grow at a 25 per cent CAGR till 2020.
- India is expected to emerge as the world’s third largest passenger vehicle market by 2021.
Automobile industry of India can be broadly classified under passenger vehicles, commercial vehicles, three wheelers and two wheelers, with two wheelers having a maximum market share of more than 75 per cent.
Automobile companies of India, Korea, Europe and Japan have a significant hold on the Indian market share. Tata Motors produces maximum numbers of mid and large size commercial vehicles, holding more than 60 per cent of the market share.
Motorcycles top the charts of two wheelers with Hero Honda being the key player. Bajaj is the number one manufacturer of three wheelers in India. Maruti since long has been the biggest car manufacturer and holds more than 50 per cent of the entire market.
Key Market Players
Maruti Suzuki India Ltd., subsidiary of Suzuki Motor Corporation, Japan , is India’s biggest car marker with more than 50 per cent market share in the passenger vehicles segment during 2017-18. The company had its highest sale in FY18 of about 1,779,574 units.
Tata Motors, established in 1945 under the Tata Group is the world’s leading manufacturers of automobiles. It was the market leader in commercial vehicles segment with about 44 per cent market share in FY18.
Hero MotoCorp Limited
Hero MotoCorp, formally known as Hero Honda, is the world’s largest manufacturer of two-wheelers. It was the first Indian two-wheeler to establish a manufacturing plant in Latin America. Its key products include Two Wheelers up to 350cc and spare parts.
The automobile industry in India has witnessed a tremendous growth in recent years and is all set to become the world’s third largest automobile market.
The automobile industry is supported by various factors such as low cost steel production, growing middle class and young people, availability of skilled labour at low cost and robust R&D centres.
- CAGR – Compound Annual Growth Rate
- FAME – Faster Adoption and Manufacturing of Electronic Vehicles
- FDI – Foreign Direct Investment
- GDP – Gross Domestic Product
- NATRIP – National Automotive Testing and R&D Infrastructure Project
- SIAM – Society of Indian Automobile Manufacturer
- US – United States
- Y-o-Y – Year over Year