Automobile Sector

Index
1. Industry Overview

2. FY23 Budget Highlights

3. Major Players

4. Industry Analysis

5. Growth Drivers

6. Market Shares

7 EV Overview
.
8 Challenges

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 Automobile Sector

Industry Overview
Over the past few years, the Indian auto sector has encountered numerous difficulties, particularly with the start
of Covid-19. The sector faced a number of challenges in FY2023, the first year of recovery following COVID-
19, including the ongoing Russia-Ukraine conflict, sharp rises in crude oil costs, and protracted worldwide
semiconductor shortages. Despite these obstacles, the sector has exhibited signs of development and
recovery.

The passenger car market finished FY23 with around 36 Lakh retail sales, a 23% increase over FY2022, with
the SUV segment making up the majority of the rise. This might be explained by a strong replacement market,
reliable semiconductor supply, and pre-purchasing before the second phase of the introduction of BS-VI
emission limits on April 1, 2023. The SUV segment could be the one driving the majority of growth in
passenger vehicles in FY2024 because to robust demand and alleviating chip shortages. The budget's actions
will also contribute to the expansion of the passenger car sector in FY2024.

Rising Trend of EV Vehicles:

Industry experts anticipate seeing more EVs on Indian roads in 2023 as a result of the Indian government's
drive for electric mobility and implementation of stricter emission standards. The extension of the exemption
from customs duties for imported machinery and capital items needed to produce the lithium-ion cells used in
electric vehicles (EVs) was announced in Budget 2023. The global push for supply chain diversification, the
expansion of domestic Tier 2 and Tier 3 suppliers, and 'Make in India' programs like the Production Linked
Incentive (PLI) and Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) schemes are
additional noteworthy elements boosting the momentum for EVs.

Two-wheeler Segment:

In contrast to passenger cars, the two-wheeler market has not yet reached its prior high of FY2019. Due to
rising on-road costs for entry-level vehicles during the past few years, the entry-level commuter category is still
facing challenges. Due to the rural sector not able to keep pace with the growth shown in the urban areas, the
demand for low CC vehicles hasn’t been able to pick up pace with the rest of the market.

Three-wheeler Segment:

In FY2023, sales of three-wheelers increased by 84 percent, and those of electric passenger rickshaws
increased by 119 percent. The availability of financing alternatives, alternative fuels, and incentives, according
to the Federation of Automobile Dealers Association of India (FADA), helped this category develop, raising the
share of electric three-wheelers in the three-wheeler segment from 42% to 49% from a year ago. The
passenger and cargo categories for three-wheelers also increased by 78% and 24%, respectively.

Commercial Vehicle:

Commercial vehicle sales grew briskly by 33% in FY2023. This was due to increased demand, particularly for
heavy commercial vehicles, as a result of significant public and private investment as well as initiatives to
enhance the mining and infrastructure. Light commercial vehicle sales increased as a result of the development
of e-commerce businesses.

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 Automobile Sector

Due to the high base effect, the satisfaction of pent-up demand in FY2023, inflationary pressures, routine price
hikes, and regulatory changes, future growth is predicted to be in the single-digit range in FY2024. Additionally,
the potential for growth in rural India may be impacted by the anticipated El Nino in 2023.

Major Trends:

Workshop assistance: Beyond the sale of new cars, the EV ecosystem has given rise to a number of new
challenges, including: what will happen to resale value? How should an EV battery be disposed of properly?
While efforts to localize EVs across the value chain will continue, we will also witness the emergence of new
business models, particularly related to EVs. For example, changes in how OEMs generate aftersales revenue
- With EVs coming in, revenue may be impacted due to fewer vehicles needing workshop assistance for
service. Alternatively, this revenue can rise if this market segment requires over-the-air upgrades and
subscription services.

Used Car Market: Acceptance of used cars has increased as a result of the significance placed on personal
mobility since the pandemic. In the next five years, the ratio of used to new cars, which is currently 1.4:1, is
anticipated to reach 2:1. The influx of organized players, the availability of certified vehicles, increased
discretionary incomes, a decline in the average length of car ownership, and a shortage of new vehicles on the
market are all contributing to the sector's growth. In 2023, we'll probably still witness growth in this market
category.

FY23 Budget Highlights

Hits:

Net Zero Carbon: An investment of INR 35,000 crore has been made in the energy transition with the aim of
helping India reach net zero carbon emissions by the year 2070.

Hydrogen economy: An investment of INR 19,700 crores for the National Green Hydrogen Mission is made in
order to enable the transition to a low carbon intensity economy. By 2030, the government hopes to produce 5
million metric tons annually.

Electric Vehicles: The customs duty on lithium-ion cells was reduced from 21% to 13%, and the subsidies for
EV batteries were extended for an additional year. These two factors have a significant positive impact on
demand. Additionally announced is funding support for 4,000 MWh of battery storage systems' viability gaps.
Manufacturing and acceptance of alternative fuel vehicles, particularly electric cars (EVs), have gained
momentum as a result of green mobility being named as one of the key sectors. The allocation for the FAME-2
scheme has now been quadrupled for FY24 as part of the already stated INR 10,000 crore investment.

Scrappage Policy: According to Nirmala Sitharaman, the federal government has allotted sufficient funding to
trash its outdated cars. States would also receive assistance in replacing these vehicles, which include
ambulances.

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 Automobile Sector

Due to the high base effect, the satisfaction of pent-up demand in FY2023, inflationary pressures, routine price
hikes, and regulatory changes, future growth is predicted to be in the single-digit range in FY2024. Additionally,
the potential for growth in rural India may be impacted by the anticipated El Nino in 2023.

Major Trends:

Workshop assistance: Beyond the sale of new cars, the EV ecosystem has given rise to a number of new
challenges, including: what will happen to resale value? How should an EV battery be disposed of properly?
While efforts to localize EVs across the value chain will continue, we will also witness the emergence of new
business models, particularly related to EVs. For example, changes in how OEMs generate aftersales revenue
- With EVs coming in, revenue may be impacted due to fewer vehicles needing workshop assistance for
service. Alternatively, this revenue can rise if this market segment requires over-the-air upgrades and
subscription services.

Used Car Market: Acceptance of used cars has increased as a result of the significance placed on personal
mobility since the pandemic. In the next five years, the ratio of used to new cars, which is currently 1.4:1, is
anticipated to reach 2:1. The influx of organized players, the availability of certified vehicles, increased
discretionary incomes, a decline in the average length of car ownership, and a shortage of new vehicles on the
market are all contributing to the sector's growth. In 2023, we'll probably still witness growth in this market
category.

FY23 Budget Highlights

Hits:

Net Zero Carbon: An investment of INR 35,000 crore has been made in the energy transition with the aim of
helping India reach net zero carbon emissions by the year 2070.

Hydrogen economy: An investment of INR 19,700 crores for the National Green Hydrogen Mission is made in
order to enable the transition to a low carbon intensity economy. By 2030, the government hopes to produce 5
million metric tons annually.

Electric Vehicles: The customs duty on lithium-ion cells was reduced from 21% to 13%, and the subsidies for
EV batteries were extended for an additional year. These two factors have a significant positive impact on
demand. Additionally announced is funding support for 4,000 MWh of battery storage systems' viability gaps.
Manufacturing and acceptance of alternative fuel vehicles, particularly electric cars (EVs), have gained
momentum as a result of green mobility being named as one of the key sectors. The allocation for the FAME-2
scheme has now been quadrupled for FY24 as part of the already stated INR 10,000 crore investment.

Scrappage Policy: According to Nirmala Sitharaman, the federal government has allotted sufficient funding to
trash its outdated cars. States would also receive assistance in replacing these vehicles, which include
ambulances.

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 Automobile Sector

Major Players
Maruti Suzuki India Limited:

Maruti Suzuki is the largest automobile manufacturer in India and is known for its wide product portfolio,
catering to various market segments. They offer diverse cars from entry-level hatchbacks to premium sedans
and SUVs. The company has maintained its market leadership through a strong dealer network, ensuring
widespread accessibility to sales and after-sales services. Additionally, Maruti Suzuki has focused on providing
fuel-efficient cars with low maintenance costs, which align with the preferences of Indian consumers.

Hyundai Motor India Limited:

Hyundai Motor India has established itself as a prominent player by understanding and addressing the specific
needs of Indian consumers. Their customer-centric approach emphasizes features, design, and technology to
offer a superior driving experience. They have been proactive in launching new and updated models to stay
competitive and maintain their market position. Effective marketing and branding campaigns have also
contributed to building strong brand awareness in the Indian market.

Tata Motors Limited:

Tata Motors, part of the Tata Group, has adopted a strategy centered on product innovation. They continuously
introduce modern and stylish designs, improved safety features, and advanced technology in their vehicles. By
diversifying their portfolio to cover a wide range of vehicles, including compact cars, SUVs, and commercial
vehicles, Tata caters to various market segments. Moreover, the company has shown commitment to electric
mobility, developing electric vehicles (EVs) and promoting them in the Indian market.

Mahindra & Mahindra Limited:

Mahindra has a strong presence in the SUV market in India and has capitalized on this strength to establish
itself as a leading player in the utility vehicle segment. The company has focused on penetrating the rural
market by offering rugged and reliable vehicles suitable for rural conditions. Furthermore, Mahindra has been
investing in electric vehicle technology, introducing electric versions of some popular models, indicating a keen
interest in sustainable and eco-friendly mobility solutions.

Honda Cars India Limited:

Honda has positioned itself as a brand that offers premium, reliable, and well-engineered vehicles, appealing to
customers seeking quality and performance. They have a robust network of service centers, providing timely
and efficient after-sales support to enhance customer satisfaction. Additionally, the company has emphasized
eco-friendly and fuel-efficient technologies in their vehicles, aligning with the growing environmental
consciousness among consumers.

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 Automobile Sector

Industry Analysis
The Indian automobile industry is a highly competitive industry, with a number of factors that influence the level
of competition. These factors can be analysed using Porter's Five Forces model, which identifies five forces
that shape competition in an industry:

Threat of new entrants:

The threat of new entrants is high in the Indian automobile industry, as there are few barriers to entry. This is
due to the fact that there is no need for significant capital investment to start an automobile manufacturing
business in India. Additionally, the Indian government has been supportive of new entrants, providing them with
tax breaks and other incentives.

The threat of new entrants is likely to remain high in the Indian automobile industry, as there are few barriers to
entry. However, the government could introduce policies that make it more difficult for new entrants to enter the
industry, such as increasing the capital investment required to start an automobile manufacturing business.

Bargaining power of suppliers:

The bargaining power of suppliers is moderate in the Indian automobile industry. This is because there are a
number of suppliers of components and parts to the automobile industry, which gives them some bargaining
power. However, the bargaining power of suppliers is limited by the fact that the automobile manufacturers are
large and have significant bargaining power of their own.

The bargaining power of suppliers is likely to remain moderate in the Indian automobile industry, as there are a
number of suppliers of components and parts to the industry. However, the bargaining power of suppliers could
increase if the automobile manufacturers become more reliant on a small number of suppliers.

Bargaining power of buyers:

The bargaining power of buyers is high in the Indian automobile industry. This is because there are a large
number of buyers of automobiles in India, and they have a wide range of choices. Additionally, the buyers are
becoming more price-sensitive, which is putting pressure on the automobile manufacturers to keep prices
down.

The bargaining power of buyers is likely to remain high in the Indian automobile industry, as there are a large
number of buyers of automobiles in India. However, the bargaining power of buyers could decrease if the
automobile manufacturers start to offer more differentiated products.

Threat of substitute products:

The threat of substitute products is moderate in the Indian automobile industry. This is because there are a
number of substitute products available, such as motorcycles, public transportation, and bicycles. However, the
threat of substitute products is limited by the fact that automobiles are seen as a necessity by many people in
India.

The threat of substitute products is likely to remain moderate in the Indian automobile industry, as there are a
number of substitute products available. However, the threat of substitute products could increase if the cost of
owning and operating an automobile increase.

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 Report Name

Intensity of rivalry among existing competitors:

The intensity of rivalry among existing competitors is high in the Indian automobile industry. This is because
there are a large number of competitors in the industry, and they are all competing for a share of the market.
Additionally, the competition is further intensified by the fact that the industry is growing rapidly, which means
that there is a lot of competition for new customers. The intensity of rivalry among existing competitors is likely
to remain high in the Indian automobile industry, as there are a large number of competitors in the industry.
However, the intensity of rivalry could decrease if the industry starts to consolidate, with some of the smaller
competitors being acquired by the larger competitors.

Growth Drivers
Two-wheeler sector:

Growing Disposable income: With the rising disposable income of the households and the middle-income
segment wishing to own a personal vehicle, two-wheeler seems to be a good bet for the price.

Convenience: The convenience they provide on busy city roads, their ease of parking and maintenance.
Demand in the Rural Area: Due to inadequate public transport facilities in the rural region, people prefer using
two-wheelers for personal transportation.

Increasing Women participation in work-force: The increase in women participation in the labor force is
expected to increase from current levels of 23.5%, creating a new demographic benefit and expected increase
in scooter sales.

Fuel-Efficient: As two-wheelers are fuel-efficient and sturdy, they are preferred for longer distances.

EVs: Government’s emphasis on green mobility and electric vehicles, especially for two-wheelers is a big
opportunity.

Personal Mobility post Lockdown: According to a report by ET Auto, post lockdown people are preferring
personal mobility over public transport because of which the sales of two-wheelers has increased across India.

Tractors:

Prediction of rainfall: Perhaps, one of the most important factors in tractor sales growth is the monsoon forecast
in any given year. Tractor sales see significant traction on the back of timely and average/ above average
predictions of rainfall due to farmers pursuing more aggressive sowing strategies in anticipation of a stronger
crop yield.

Government Initiatives: Domestic tractor sales are directly dependent on the prosperity of the Indian farmer.
Over the years, a plethora of schemes have been implemented in order to provide support to the agrarian
economy. In addition to Minimum Support Prices (MSP), some of the important government schemes for
farmers in 2020 are National Agriculture Market (eNAM), National Mission for Sustainable Agriculture (NMSA),
Pradhan Mantri Krishi Sinchai Yojana (PMKSY), Pradhan Mantri Fasal Bima Yojana (PMFBY)- Crop Insurance
Scheme and Paramparagat Krishi Vikas Yojana (PKVY). Additionally, subsidies given specifically to purchase
tractors are also in place.

Rise in income and adoption of agricultural equipment: Rising farmer incomes will enable them to not only
purchase more land and increase their area under cultivation but also to adopt mechanization tools, one of
which are tractors. The motive of efficiency gains and higher farm productivity is what encourages the shift
from a labor-intensive farming methodology to one that relies more on equipment Labour shortage: In mass
exodus of the rural population to urban India has left a void in the labor-intensive agrarian economy. In light of
this, an increasing number of farmers are turning to mechanization tools in order to compensate for the dearth
of manpower.

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 Automobile Sector

Market Shares
Passenger Vehicles Market Share

17.80% Maruti Suzuki

Others
Renaults
45.70%
Toyota
10%
Kia
M&M
6.70% Tata Motors
Hyundai
6.60%
3%
2.70% 2.30%

Sales, Production and Exports of Passenger Vehicles (in mn)

3.65

4 3.06 3.06
3.5

3 2.71
2.5

1.5

1
0.4 0.5
0.5

0
FY 2021 FY 2022
Production Domestic Sales Exports

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 Automobile Sector

Maruti Suzuki

0.90
5.90%

0.86
0.81

0.81
0.76
0.72

0.72
0.71

0.62
VECV 6.17%

0.57
14.20%

0.11

0.10
0.10

0.09
0.06

0.05
Mahindra and
Mahindra 21.77%
42.23% FY17 FY18 FY19 FY20 FY21 FY22
Tata Motors
Production Domestic Sales Export

Source: Siam Source: Siam

Market Share of Different Players in the Two Wheeler Industry

3% 4%

21% 5%
4%

14%

39%

India Yamaha Motors Royal Infield Suzuki

TVS Bajaj Auto Hero Motorcorp
HMSI

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 Automobile Sector

Future Outlook for EV

t
Exhibit: Future EV plans of Automobile Companies in India

Company Future EV Plans

Kia Kia plans to manufacture small SUV EVs in India for global markets
in 2025
Maruti Suzuki Maruti Suzuki plans to launch its first EV model in India by 2025.

Tata Motors Tata Motors bags an order worth US$ 678 million (Rs 5,000 crore)
order from the government for electric buses; it plans to launch 10
more EVs in India.
Hyundai Hyundai, Kia to bring six EVs to India by 2024

Hopcharge Hopcharge, a Gurgaon- based start-up has created the world’s first
on-demand doorstep fast charge service.
MG Motors MG Motors India has partnered with Bharath petroleum for
expanding the EV charging infrastructure.
Mahindra & Mahindra and Mahindra target to launch 16 EV models across its
Mahindra SUV and LCV categories by 2027.

Source: Motilal Oswal

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 Automobile Sector

Challenges
Overwhelming Compliance Requirements:

A small automobile manufacturing company operating in a single Indian state faces at least 489 one-time and
ongoing compliance requirements each year, with more being added as it expands geographically. The lack of
an accurate list of applicable compliances makes it difficult to keep track.

Poor Licence and Compliance Management:

Managing dozens, if not hundreds, of licenses such as factory licenses, shop registrations, and establishment
registrations poses a challenge for Indian automakers. Monitoring the applicability and status of compliances,
especially time-sensitive ones, requires significant effort and may lead to penalties if not adhered to.

Dynamic Regulatory Environment:

The Indian regulatory landscape is highly dynamic, with numerous updates affecting the forms, deadlines,
frequency, and legal aspects. The absence of a centralized regulatory update platform means Compliance
Officers must manually scour thousands of websites for important updates.

Lack of a Compliance Culture:

A survey revealed that a significant portion of Key Management Personnel in the automotive industry lacked
awareness of their compliance responsibilities. This lack of understanding extends to critical compliances,
deadlines, documentation, and the risk of noncompliance.

Manual and Paper-Based Processes:

Daily compliance activities involve multiple departments, resulting in a heavy reliance on human compliance
efforts. With the automotive industry exporting millions of vehicles globally, the need for compliance adherence
to various regional standards further complicates matters.

Indian automobile companies face formidable challenges in managing and tracking compliance requirements
effectively. The absence of an accurate and centralized compliance system, coupled with a dynamic regulatory
environment, demands a shift towards a compliance culture to ensure adherence to all applicable compliances
and avoid penalties. Implementing a comprehensive compliance management system will not only streamline
processes but also foster a culture of compliance at all levels, aiding the automotive industry in meeting its
compliance obligations efficiently.

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