Can the Indian PV industry sustain its growth momentum in FY25 after 3 years of solid growth?

Once a distant dream for many Indians, owning a car has now become a common household item, particularly in urban areas. The expansion of the economy has put more money in the hands of young and aspirational Indians, which favors the growth of the automobile industry. This increased financial capability has allowed many to fulfil their desire for personal vehicles, driving up demand across various segments of the market.

This economic empowerment has led to a noticeable shift in lifestyle, with more individuals opting for modern, feature-rich vehicles that offer better safety, comfort, and technology. As a result, the auto industry has witnessed a stellar surge in sales, particularly in the SUV and electric vehicle segments, which are becoming increasingly popular among the younger demographic.

Additionally, increasing urbanisation, improving vehicle financing, and expansion of highways have further drove the demand for PV sales in India.

In FY24, the passenger vehicles (PV) industry in India achieved a significant milestone by surpassing the 4 million vehicle sales mark for the first time, reaching a record 4.2 million vehicles.

This marked 8.6% growth over FY23. The surge in demand for environmentally friendly powertrains, with CNG vehicle sales up 55% and EV sales up 70% from FY23, largely drove this growth. Additionally, the introduction of several new SUV models during FY24 also played a crucial role in expanding the industry.

SUV dominance continues

The popularity of SUVs has surged since 2016, consistently driving growth in the passenger vehicle (PV) market. From FY 2013–14 to FY 2023–24, the Utility Vehicle (UV) segment expanded at an impressive 17% CAGR, significantly outpacing the 5.4% CAGR of PVs overall. This robust growth has propelled the UV segment's share of PV sales to 59.7% in FY24, up from 21% in FY14.

As demographics shift, automakers are seeing a rising base of young and aspirational consumers emerge. Their preferences favor safe, technologically advanced vehicles with robust performance, fueling increased demand for SUVs and premium variants.

The surge in SUV volumes stems from the rising number of first-time buyers opting for SUVs. At the same time, the SUV space is becoming more competitive with the addition of more models, as most of the new models launched by the major automakers in FY24 were SUVs.

The SUV segment recorded a growth of 28% in FY24 as compared to FY23. However, the demand for hatches continues to decline as the volumes have decreased by 12% as compared to FY23.

Set to moderate

Automakers have recently announced notable discounts on their best-selling models up to ₹2 lakh, raising concerns about low demand in the PV segment and an overflow of inventory. According to FADA estimates, inventory levels have reached an all-time high, ranging from 62 to 67 days.

Multiple factors are affecting auto sales in the current financial year, one of which was the extreme heat, resulting in fewer walk-ins and delayed monsoons. Further, a high base effect and the easing of pent-up demand are also impacting demand.

Amid this backdrop, passenger vehicle (PV) wholesales during June 2024 recorded a growth of 3% at 3,37,757 units, according to SIAM's latest data.

On the other hand, passenger vehicle retail sales fell 6.8% year-on-year in June, a steeper drop than the 1% decline in May, according to data from the Federation of Automobile Dealers Association (FADA), which tracks monthly retail sales from dealers to buyers.

Looking at the quarterly performance, the PV wholesales registered a modest growth of 3% at 10,26,006 units in Q1 FY25. However, PV sales have crossed the 10 lakh mark for the first time in the June-ending quarter.

Passenger vehicle retail sales posted a growth of 2.53% to 9,20,047 units in the first quarter of FY25. Going forward, industry experts anticipate a moderation in PV demand after three consecutive years of robust growth.

"PV, already at an all-time high, is facing difficulties in maintaining high growth levels. We had anticipated that growth for this financial year would remain below 5 percent. Despite strong bookings and customer flow, high competition, excess supply, and discounting presented challenges for sustained growth," said Manish Raj Singhania, FADA president.

Despite PV wholesale volumes showing 8.6% growth in FY24, these rates have now returned to pre-COVID levels. In FY22 and FY23, PV wholesale volumes saw robust double-digit growth of 13.2% and 26.7%, respectively, buoyed by pent-up demand from the COVID-affected years.

Indian automakers also foresee a moderation in PV industry demand due to the high base effect and ease in pent-up demand. However, they project significant growth in environmentally friendly powertrains such as CNG vehicles and EVs, driven by increasing consumer adoption. The shift in consumer preference towards SUVs is also anticipated to persist.

Growth potential ahead

The long-term growth outlook for the Indian auto industry is positive, driven by a robust economic growth outlook, focused government policies with a vision for 2047, the government's focus on road and infrastructure development, increasing income levels, current low levels of vehicle penetration, rapid urbanisation and a large, young, and aspiring population set to drive the PV demand.

Globally, the Indian passenger vehicle market has climbed to 3rd position by volume in 2023. Auto sales are seen as a key indicator of private consumption in India. India's auto industry forms 7% of the country's GDP, as per government data.

Despite being one of the largest markets in the world, India lags behind China, which is six times its size. Estimates indicate that vehicle penetration in India, currently around 30 vehicles per 1,000 people, is significantly below global norms and is anticipated to increase further.

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