An Anatomy of the Indian Automotive Industry
The automotive industry in India is an essential pillar of the national economy and a key driver of macroeconomic growth and technological advancement. Currently, the automotive industry contributes more than 7% to the total GDP and provides employment to about 32 million people, directly and indirectly. Strong domestic demand coupled with supportive Government policies have led the Indian automotive industry climbing up the ranks to be among the global leaders. India became the fourth largest auto market in 2018 with sales increasing 8.3 per cent year-on-year to 3.99 million units.
Maruti Suzuki defining the Indian auto industry; pic credits:
Overall, the domestic automobiles sales increased at 6.71 per cent CAGR between FY13-19 with 26.28 million vehicles getting sold in FY19. Domestic automobile production increased at 6.96 per cent CAGR between FY13-19 with 30.92 million vehicles manufactured in the country in FY19, as shown in the data available from Society of Indian Automobile Manufacturers(SIAM).
The sales of passenger vehicles grew by 13.33%, commercial vehicles by 40.8% and two-wheeler sales by 20.3% over the period from 2017 to 2019. More than 3 million passenger cars, 1million commercial vehicles and 21 million two wheelers were sold in financial year 2019 alone as shown in the graph. The year-on-year growth in FY19 in domestic sales among all categories was recorded at 5.12%.
Automobile exports grew 14.50 per cent year-on-year during FY19, while during April-December 2019, overall export increased by 3.9 per cent.
Premium motorbike sales in India recorded a jump in domestic sales reaching 13,982 units during April-September 2019, while sales of electric two-wheelers estimated to have crossed 55,000 vehicles in 2017-18. The sale of luxury cars stood between 15,000 to 17,000 in first six months of 2019.
Automobile sales trends in India
Automobile consumption in India;pic credits:
The two-wheeler segment dominates the market in India in terms of volume sold owing to a growing middle class and a young population, with slow pace of cash-flow. Moreover, growing interest of companies in exploring rural markets and expanding their customer segment further aided the growth in this sector.
Passenger vehicles segment secures second position in terms of sales volume in India. Currently at just about 16.05% of the total two-wheeler units sold in India (FY19 data), the four-wheeler segment is continuously growing and expects expansion and growth in never seen before terms. Increase in incomes and spending abilities of the families have had a big role in this development, together with contribution from new generation and improved loan norms.
Market share of different products in the Indian automobile industry
Investments in the Industry
In order to keep up with the growing demand, several auto makers have showed interest and started investing heavily in various segments of the Indian automotive industry. According to data released by the Department for Promotion of Industry and Internal Trade (DPIIT), the industry has attracted Foreign Direct Investment (FDI) worth US$ 23.89 billion during the period from April 2000 to December 2019.
Recent investments seen by the idustry; pic credits:
Some recent planned investments and developments in the industry include:
In January 2020, Tata AutoComp Systems, the auto-component arm of the Tata Group entered a joint venture with Beijing-based Prestolite Electric to enter the electric vehicle (EV) components market.
In December 2019, Force Motors planned to invest Rs 600 crore (US$ 85.85 million) in the industry to develop two new models over the next two years.
In December 2019, MG Motor announced plans to invest Rs 3,000 crore (US$ 429.25 million) more into the Indian market.
Toyota plans to invest US$100 million focussed at self-driving and robotic technology start-ups.
Mercedes Benz has increased the manufacturing capacity of its Chakan Plant to 20,000 units per year, highest for any luxury car manufacturing in India.
The Government of India presently allows foreign investment (FDI) in the automobile sector by up to 100% under the automatic route.
Some recent initiatives taken by the Government of India include:
The government, under Union Budget 2019-20, announced to provide additional income tax deduction of Rs 1.5 lakh (US$ 2,146) on the interest paid on loans acquired to purchase EVs.
The government aims to develop India as a global manufacturing centre and an R&D hub.
Under NATRiP, the Government of India is planning to set up R&D centres at a total cost of US$ 388.5 million to enable the industry to be on par with global standards.
The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The government will also set up incubation centre for start-ups working in electric vehicles space.
The government has cleared roughly 2 lakh square Km area for new industrial development and aim to provide employment to thousands of local citizens in the ates of Uttar Pradesh and Madhya Pradesh.
Indian Government's initiatives for the Automobile Industry; pic credits:
The Indian automobile industry is distinctly dominated by only a fraction of all the brands that run operations in the industry.
The two-wheeler segment in India comprises of more than 80% market share of automobile sales in India, owing to a growing young population. As per SIAM (Society of Indian Automobile Manufactures), India has 11 motorcycle manufacturers and seven scooter manufacturers.
Scooters have seen an increase in their contribution to 33.27 percent in the Indian markets, whereas, motorcycles contribute to 62.4 percent of the total two-wheeler sales in India. Hero MotoCorp, Honda Motorcycles and Scooters India (HMSI), TVS Motor, Bajaj and Royal Enfield make up the top 5, followed by Suzuki Motorcycle and Yamaha Motor India etc.
Indian Government's initiatives for the Automobile Industry; pic credits:
Two-wheeler market share in the Indian automobile industry
Hero MotoCorp, the world’s largest two-wheeler manufacturer has continued to be the leader in the Indian two-wheeler industry as well by selling over 73.82 lakh motorcycles in FY18 and comprising market share of 36.56%. Hero Splendor has been India’s top-selling motorcycle and launch of new products like Hero Glamour and HF Deluxe continue to allure buyers, especially in the rural markets. Hero also exported more than 2 lakh units from India.
HMSI’s market share accounts for 28.60% of the two-wheeler market in India by selling 57.75 lakh vehicles in FY18. Scooters contribute to over 66 percent of Honda’s total two-wheeler sales in India. Honda Activa is the country’s most sold scooter with more than 22 million units sold till date.
Two-wheeler Market Players
The passenger car segment in India comprises of 13% market share of automobile sales in India. The segment is home to many national and international players competing in the market. The segment has seen 29% increase in sales over last 6 years, selling more than 33 lakh vehicles in FY19.
However, the industry is driven by two major brands which comprise a total market share of more than 68% of the entire passenger car segment. Maruti Suzuki, Hyundai Motor India, M&M, Tata Motors and Honda make up the top 5, followed by Toyota, Ford and Volkswagen.
Passenger car manufacturing in India; pic credits:Passenger car manufacturing in India; pic credits:
Passenger car market share in the Indian automobile industry
Maruti Suzuki, India’s largest carmaker has held its position securely for the past few years and continues to lead the market with hold of as much as 51% of the passenger car market in India, selling over 17 lakh (1.7 million) units in FY19. The company manages to sell gigantic volumes every financial year on the back of strong product performance and dependable brand image. The company has not only managed to sell high volumes of its product but has also expanded its customer base in both rural as well as urban markets over the years.
The brand has also given the country some of its favourite best selling cars like the Swift, Swift Dzire, Brezza and the country’s most sold car till date, selling over 39 lakh (3.9 million) units, the Alto series. In 2015, Maruti Suzuki introduced a premium branch of the company with the launch of global cars such as the Baleno, Ignis and Ciaz. The company exported over 1.06 lakh cars from India.
Hyundai Motor India enjoys the second position in the Indian automobile industry, by selling more than 5 lakh (500,000) units and with a market share of 17.5% in FY19. The market gap is quite significant between the top two players and goes to emphasize on the fact that in essence, only one brand actually controls the Indian auto industry.
Nonetheless, the Indian arm of the Korean automaker witnesses high sales with models such as the Creta, i10, i20 and the Verna for which the people go crazy. The brand marks majority clientele from urban sectors, with scope for growth in the rural sectors. The company also exported around 1.6 lakh cars to over 87 countries from India.
Mahindra & Mahindra, India’s indigenous automobile manufacturer fares well against the foreign brands that reign the Indian auto industry. M&M comprised an impressive market share of 8.34% in FY19 and recorded sales of more than 2.5 lakh vehicles. Being primarily focussed on SUVs and off-road vehicles, M&M owns multiple best-selling SUVs in India such as the Scorpio, Thar, XUV 500, etc.
Tata Motors, a part of the Tata group conglomerate, is another major Indian multinational automotive manufacturing company. Tata Motors sold close to 2.3 lakh vehicles in FY19 and successfully got hold of 5.90% of the Indian passenger car segment. Tata launched the Nano in 2009 which became an immediate success as India’s most affordable family car. Currently, Tata Motors own British auto brands Jaguar, Land rover and enjoys high sales volume with local products such as the Tiago, Nexon, Harrier, etc.
Honda Cars, Indian arm of the Japanese car maker, finishes the top 5 list with a market share of 4.63%. It sold close to two lakh cars in the Indian market in FY19 and saw growth with the launch of its crossover SUV, the WR-V. Honda City rules the mid-size sedan segment in India with a huge fan following and success.
Passenger Car Market Players
Commercial Vehicles Segment
CV segment sales registered a strong growth of 17.5% in 2018-19. Medium and heavy vehicles grew by 12.48% to 340,313 (0.34 million) units, while light vehicles grew by 25% to 516,140 (0.52 million) units. Tata Motors, Mahindra & Mahindra, Ashok Leyland, VECVs – Eicher and Force Motors stand in top 5 in terms of market share based on sales.
Tata is number 1 in commercial vehicle sales in India; pic credits:
Commercial vehicles market share in India
Tata Motors continued to hold the biggest market share I the commercial vehicle segment with 43.96% share and selling 376,456 units. The brand’s portfolio comprises of various bus and truck models which are purchased as industry standards in the business. The company has been actively overhauling its heavy vehicles, especially trucks, which have been highly appreciated in the market.
Mahindra & Mahindra retained its second slot with sales of 216,800 units and a growth market share of more than 25%.
Ashok Leyland turns out to be the third slot holder in the market with 18.52% market share selling over 1,50,000 units.
Commercial vehicles market players
The three-wheeler segment in India comprises of a mere 3% market share in India but makes up for a majority of small-public transport vehicles. Three-wheeler sales hit a new record of 7,01,005 (0.70 million) units, growing at a whopping 10.27% growth rate from the previous year. This came as a result with passenger carriers growing by nearly 29% and goods carriers grew just under 8%. Bajaj Auto, Piaggio Vehicles, M&M, Atul Auto and TVS Motor stand in top 5.
World's largest Three-wheeler industry is in India;pic credits:
Three-wheeler market share in India
Bajaj Auto, three-wheeler market leader in India sold a total of 369,637 units and maintained a majority market share of more than 58%. It included 346,846 passenger carriers (+7.36%) and 22,791 goods carriers (+7.27%).
Piaggio Vehicles, the second largest player in the segment with 24% market share sold more than 1,50,000 units.
Three-wheeler market players
The majority of India’s car manufacturing industry is based around four clusters, as per Invest India-a government operated National Investment Promotion & Facilitation Agency:
Andhra Pradesh-Tamil Nadu
Automobile clusters in India;pic credits:
The southern cluster consisting of Chennai (Tamil Nadu) contributes the biggest proportion to the Indian manufacturing industry with 35% of the revenue share. Chennai houses the India operations of Ashok Leyland, Hyundai, Kia Motors and many more.
The western hub near Mumbai and Pune (Maharashtra) contributes to 33% of the market and houses automakers such as Volkswagen, Toyota, Volvo, Bajaj Auto, FCA, etc.
The northern cluster around the National Capital Region (Haryana) contributes 32% and is the home to the country’s largest automaker, Maruti Suzuki among others like Honda and Hero MotoCorp.
The cluster in Gujarat and Madhya Pradesh overlooks the manufacturing facilities for CNH Industrial, John Deere and SAIC Motors.
Status of e-mobility
The Government of India has set an ambitious target of having 30% electric vehicle fleet on Indian roads by the year 2030 and has been taking various steps to promote and encourage the adoption of EVs throughout the country. The present scenario of pure electric vehicles in India is still negligible and works needs to be done in this area if the government is determined to achieve its target.
Pure electric vehicle penetration in India is barely at 0.1 % in passenger cars, about 0.2 % in two-wheelers and nearly zero for commercial vehicles, despite continued push from the state and the centre. The transport sector accounts for 18% of total energy consumption in India. This translates to an estimated 94 million tonnes of oil equivalent (MTOE) energy.
With all the major automotive players, industrial bodies as well as consumers shifting their attention from traditional fossil-fuel driven vehicles to green energy alternatives, the automotive industry is experiencing a major disruption in the existing powertrain technology to make way for a more viable contender, which is e-mobility. There are various issues in the play, according to a report from Seconded European Standardisation Expert in India (SESEI), that need to be checked upon to ensure a smooth ride in achieving the set goals on time.
Lack of adequate charging Infrastructure: The lack of proper electric vehicle charging infrastructure poses as probably the greatest obstacle for the adoption of electric vehicles in the country. It is a major concern that restricts people, who have the means, from moving ahead with buying decisions. People are not confident if their needs and requirements adhered to e-mobility will be adequately met, and as a result, hesitate in making commitments.
Currently, there are just over 200 public charging points in India. This stands as an oddity when compared to other countries, with similar automotive growth and consumption, like China, Japan and the USA that have over 30,000 to 50,000 public charging points.
India's EV infrastructure needs improvement; pic credits:
Lack of Consumer awareness and price sensitivity: One of the key challenges faced by the EV community globally is the lack of consumer awareness. Traditionally, the Indian consumer is extremely price sensitive and hesitant to invest in products that are too expensive, regardless of their social values. The lack of a proper e-mobility infrastructure also adds to the cost of the vehicles, as the brands introduce only a minority of variants, at high price points owing to huge import duties.
Another reason that adds to the premium of EVs is the cost of expensive batteries, which are mostly imported. Till the time the battery and other electro-mobility components are economically at par with the established ICE engine market, and widely available, it is difficult for EVs to make a dent in the Indian market.
Shortage of Battery Raw Materials: India is at a geographical disadvantage as it falls behind extremely in the lithium and cobalt reserves. It needs to speed up in securing lithium and cobalt. Cobalt reserves are scarce, limited only in Nagaland, Jharkhand and Orissa. This makes it evident to bring in either the raw materials or the technology to make batteries from outside of India, which attracts heavy duties leading to expensive batteries.
Cobalt is used to make EV batteries; pic credits:
Lack of battery technology: Electric vehicle and related components technology is critical in value around the world and not just in India. With advancements in technologies, batteries available today cost a fraction of what they used to when they were first launched. But they are still at a premium that every person cannot afford. Breakthroughs in battery technologies are due to bring down the cost of the batteries, which in some cases cost as much as half of the cost of the EV.
Long charging time: Moving towards a more general theme, people are reluctant towards electric vehicles because of their long charging times. The charging process for an EV can take anywhere from 30 minutes (super-fast charging) to 10 hours, depending on the capacity of the battery and motors. Most, however, take around four to six hours to get fully charged, which is much longer than the time it takes to refuel a petrol or diesel car.
Lack of local manufacturing: Localisation of EV components and inhouse manufacturing is bound to help a long way in bringing down the overall costs of the industry. India, currently, lacks behind in the manufacturing of such components and technologies which are crucial to an EV. Only with the setup of the government’s acclaimed ‘Gigafactories’ can we move towards an EV revolution.
Policies and regulation to be considered
Various regulations and policies have been introduced by the government to further fuel the adoption of EVs in the country. Many top companies have also announced their plans to enter the Indian electric mobility sector, in hope of mass opportunities to exploit.
The central government of India launched the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme for a two-year period at an approved outlay of INR 795 Cr in 2015. The scheme, extended till September 2018, focussed on technology development, demand creation, pilot projects and charging infrastructure. Under phase II of FAME, the government is planning to extend financial support of INR 8,730 Cr for three years. The government will be largely focussing on the deployment of electric buses on the Indian roads.
FAME scheme in India;pic credits:
Delhi/NCR EV Policy: Delhi updated its policy released in late 2019, aimed to lower emissions in the public transport sector. The policy aims at constituting 25% of all new vehicle registrations by 2023 with the adoption of battery electric vehicles (BEVs). It also plans to add 50% e-buses to public transport by 2023. Delhi’s policy provides a unique electricity tariff for EV charging and work with owners of residential and non-residential buildings to ensure adequate power supply infrastructure for the installation of charging points. The policy promises to install a public charging unit at every 3 Km.
Electric busses as public transport in capital City Delhi; pic credits:
Maruti Suzuki has flagged off electric vehicles for field testing in India.
MG Motor India recently launched its first EV in Indian markets, the MG ZS EV.
Honda cars India plans to invest over Rs 9,200 crore (over 1 billion euro) to set up a factory to launch hybrid and electric vehicles.
Suzuki Motor Corporation along with Toshiba would jointly invest Rs 1,135 crore (USD 180 million) for setting up a battery pack manufacturing plant in Gujarat.
MG ZS EV in India
Ola Electric Mobility acquired investments of up to USD 250 million from Soft Bank to devote to the Indian automotive market.
Ather Energy, a Bengaluru-based EV start-up, develops and manufactures its own e-scooters and offers charging infrastructure through its ‘Ather Grid’. It received a funding of USD 51 million from Hero MotoCorp in 2019.
Yulu, a technology-driven start-up, solves the problem of first and last-mile connectivity using Yulu Miracle smart, dockless e-bike which is designed for urban traffic conditions. Yulu has collaborated with Delhi Metro Rail Corporation (DMRC) to provide their services in and around metro stations in Delhi. Bajaj Auto invested USD 8 million in the start-up in November 2019.
DOT, a Gurugram based EV logistics start-up, supplies EVs to major e-commerce and food-tech players such as Walmart, Amazon, Grofers, Blue Dart, DHL, Lenskart, Swiggy and McDonald’s.
Ather electric scooters in India; pic credits:
Yulu e-bikes at Delhi, India; pic credits:
Factors driving automotive growth in India
There are several key drivers that have affected the automobile industry in India, as per a finding from SESEI.
Government regulations: The automobile industry in India has seen extensive support from the government to uplift the economy of India by increasing the local manufacturing capacity. The government encouraged up to 100% foreign direct investment (FDI) in the industry to further enhance the growth of the industry. There are also tax benefits for investors to attract them, which help in exporting manufactured automobiles out from India.
Low car penetration: India recorded 197 registered vehicles for every 1000 people across the country in fiscal year 2017. This figure is expected to rise to almost 300 registered vehicles per every 1000 people in the next 10 years. A majority of the mobility needs in India is served by public transportation and there is exponential scope to expand and penetrate the market there.
Surplus car stock; pic credits:
Easy availability of loans and Rising family income: In India, almost every bank offers loans for purchase of new vehicles at low interest rates. Nearly 70% of all automobile sales transactions are made using bank provided loans. These loans provide the people with the means to fulfil their dreams by selling the ‘personal car’ picture and allow them to satisfy their needs, for which they can pay back slowly and regularly.
Also, the country’s per-capita monthly income has risen by 6.8% to Rs. 11.254 in 2019-20 from Rs. 10,534 in 2018-19. The growing domestic income will make an effort to make automobiles more affordable for local consumers.
Young population: India is home to the world’s largest young population, with more than 50% population below the age of 25 years and more than 65% below the age of 35 years. A higher younger population, with modern psyche, might lead to increase in ownership of personal vehicles.
Easy availability of car loans in India; pic credits:
Research and Development: Aimed at improving the automobile industry in India, there have been numerous initiatives for research and development related to the automotive industry in the country. Intensive research, innovation and development is paramount to attain value to the industry, which is important to attract further investment and which ultimately is responsible for the success of the industry.
Homegrown brands such as Tata Motors and Mahindra & Mahindra have set up research centres in the country to enhance their services in country.
Stable economy: Experts predict that the future of the automobile industry in India is bright, subject to the economic stability of the country and currency inflation rates. Economic stability and low inflation is a key factor for any industry in any country, more so a developing country like India. It is bound to increase incomes for majority of working Indians and raise the domestic consumption of automobiles in the country.
Stable Indian Economy; pic credits: