Rich south India struggles to buy cars while northern and western states surge ahead

Four of the five south Indian states – Karnataka, Tamil Nadu, Andhra Pradesh and Telangana – reported a 2.5%, 1.5% and 10.9% (AP+Telangana) decline in passenger vehicle sales, respectively, in FY25. Kerala, which accounts for 5% of total car sales in India, saw marginal 2% growth in PV sales in FY25, against 6.3% growth in FY24.

Also read: India open to revising EV policy for foreign automakers. Conditions apply

Demand for passenger vehicles has declined year-on-year in the southern states for the past four quarters.

Data from the Society of Indian Automobile Manufacturers Association (SIAM), compiled by Kotak Institutional Equities, said total sales in the five southern states, including Kerala, was at 1.08 million in FY25, down from 1.12 million in FY24.

The fall in demand for passenger vehicles has hit the growth of top carmakers in the country, including Maruti Suzuki Ltd, Tata Motors Ltd and Hyundai Motor India Ltd.

Headwinds in services

Analysts attributed the sales slowdown in southern states to headwinds in the services sector. “Sales in the southern market are more urban-driven. The slowdown in urban demand and uncertainty in the job market amid global macro headwinds, particularly impacting the IT sector, is leading to cautious spending on discretionary items such as cars in the south," said Shruti Saboo, director, India Ratings & Research.

Moreover, lower penetration of cars does provide much headroom for growth in northern states, said Preetesh Singh, specialist, CASE and alternate powertrains at Nomura Research Institute. “Macroeconomic factors like the slowdown in the services sector, particularly the IT sector and the startup economy, may also have played a role in slowing down sales in the south."

Bengaluru, Hyderabad and Chennai are some of the top cities for the IT industry and startups. Owing to uncertainties about growth in the global economy and the emergence of generative AI, the $283-billion IT industry has seen growth slow down.

Also read: While budget buyers hold back, India’s rich drive luxury car sales to new highs

IT giants Tata Consultancy Services Ltd and Tech Mahindra Ltd have already deferred their wage hike cycle because of this. “Regarding wage hikes, considering the uncertain business environment, we will decide during the year when to make that happen," Milind Lakkad, TCS’s chief HR officer, said after the company announced its earnings on 10 April.

According to layoff tracker Layoffs.fyi, nearly 4,000 employees were let go from startups in south India during FY25.

India saw sales of about 4.3 million passenger vehicles in FY25, just 2% more than the previous year. With one in four cars being sold in the southern states, the market weighs heavily on overall growth.

“Our analysis of state-wise demand trends for Q4FY25 reflects muted demand trends in the passenger vehicle segment, driven by weakness in the eastern and southern regions," analysts at Kotak Institutional Equities said in a 7 May note.

North, west India fare better

While growth fizzled out in south India, northern and western states recorded 4.4% and 6.6% growth during the same period. Overall sales in northern states was 1.34 million units while western states saw sales of 1.4 million units.

Growth in the north Indian market was led by Rajasthan and a combination of Uttar Pradesh and Uttarakhand, which reported 9% growth during the year. Growth in Gujarat and Maharashtra was 5.9% and 4.2%, respectively.

Tamil Nadu serves as an important hub for auto manufacturing. India's second-largest car seller Hyundai Motor India and French carmaker Renault have manufacturing facilities in the state. Tata Motors also announced a new plant in the state last year to manufacture passenger vehicles.

Also read: How rebadged Maruti vehicles gave Toyota, and Maruti, a leg up in a slow market

India's largest carmaker Maruti Suzuki India Ltd reported a mere 3% increase in sales to 1.9 million in the domestic market in FY25. Hyundai and Tata Motors reported a 3% decline in sales during the year to 598,666 and 556,263 units, respectively.

“Growth in the domestic market has been very limited. For a country with such low penetration of cars, the growth rate of 2-3% is not going to increase it at all. It is a matter of some worry," said RC Bhargava, chairman of Maruti Suzuki, during a post-results media briefing on 25 April.

The Nifty Auto Index fell 0.5% during FY25, as against a 5% rise in the Nifty 50.