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Indian Automotive Industry Sales Update – June 2022
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The performance of the Automotive Industry of India determines to a great extent the performance of the domestic economy. The automobile industry can be said as one of the biggest strengths of the country with a turnover of Rs. 7.5 lakh crore, exports of Rs. 3.5 lakh crore, a GDP contribution of 7.1% and manufacturing GDP of 49%. It also offers employment scope for over 4.5 crore people. India holds a strong position in the international heavy vehicle space as it is the largest tractor manufacturer, second-largest bus manufacturer and the third-largest heavy truck manufacturer in the world.
The industry is further segregated into various segments. The two-wheeler segment dominates the market in terms of volume owing to a growing middle class and a huge percentage of India’s population being young. Moreover, the increasing inclination of the companies in exploring the rural markets further aided the growth of the sector. Following it is the 4-wheeler passenger vehicle space that has seen tremendous growth across decades but lately has seen some consolidation due to multiple headwinds.
Commenting on how June’22 performed, FADA President, Mr. Vinkesh Gulati said, “Auto Retail for the month of June’22 continued to show its positive run when compared YoY with June’21, a month which continued to face the brunt of covid. When compared to June’19, a pre-covid month, overall sales were down by -9%.”
He added, “Apart from PV and Tractors which were already above pre-covid level for last few months and grew by 27% and 40%, CV for the first time showed a growth of 4% thus indicating recovery slowly creeping in for this segment. While 3W narrowed its de-growth and was at down by -6%, it’s the 2W segment which still remains the biggest cause of concern and is not picking as per expectation. The same was down by -16%. Poor market sentiment especially in rural India, high cost of ownership, inflationary pressure and June generally being a lean month due to rains kept 2W sales at low speed. In the 3W category, a major shift has happened in electric category. Apart from this, permit issues and frequent price increase remained the biggest dampeners. The PV segment continued to see robust growth. An increase in wholesale clearly shows that semiconductor availability is now getting easier. Waiting period, especially in compact SUV and SUV segment continued to remain high. New vehicle launches are seeing robust booking thus reflecting healthy demand pipeline. The CV segment showed strength for the first time as it grew by 4% when compared to June’19, a pre-covid month. Bus segment along with LCVs are showing good traction.”
[/vc_column_text][vc_single_image image=”70640″ img_size=”full” alignment=”center” css=”.vc_custom_1658400957356{margin-top: 10px !important;margin-right: 10px !important;margin-bottom: 30px !important;margin-left: 10px !important;border-top-width: 2px !important;border-right-width: 2px !important;border-bottom-width: 2px !important;border-left-width: 2px !important;border-left-color: #000000 !important;border-right-color: #000000 !important;border-top-color: #000000 !important;border-bottom-color: #000000 !important;border-radius: 1px !important;}”][vc_column_text]After running the numbers, we found that the sector to rebound the highest was the three-wheeler space and the and farm vehicles sector is where it began the year at. Commercial vehicles have seen tremendous growth across the year. Even the passenger vehicle space grew 40% from June 2021’s figures. However, the two-wheeler space has been a disappointment.
In terms of month-on-month sales, the automobile industry has been witnessing gradual improvement. This is because of curiosity about new launches, improved availability of semiconductor chips, lowering of commodity prices and optimistic consumer sentiments in rural areas. The issues related to raw material are gradually disappearing with correction in international competitive environment. The passenger vehicles segment will be supported by pent-up demand, new launches and greater penetration of electric vehicles. Besides, domestic steel prices have corrected due to the imposition of export duty.
Within 2-wheeler space, all listed companies have shown degrowth in volumes on a month-on-month basis. Out of the companies listed on the Indian exchange, TVS Motors and Eicher Motors have shown rise in volumes on a yearly basis. One essential factor that has reignited consumer interest in fossil fuel vehicle is the mishappening seen with regards to electric vehicles.
Within 4-wheeler space, listed companies have not shown good performance either on a monthly or on a quarterly base. However, YTD performance for them has been positive. Kia Motors, Hyundai Motors and Toyota Motors have been good performers.[/vc_column_text][vc_gallery interval=”3″ images=”70641″ img_size=”full” css=”.vc_custom_1658402464688{border-top-width: 1px !important;border-right-width: 1px !important;border-bottom-width: 1px !important;border-left-width: 1px !important;border-left-color: #000000 !important;border-right-color: #000000 !important;border-top-color: #000000 !important;border-bottom-color: #000000 !important;border-radius: 1px !important;}”][vc_column_text]The Russia – Ukraine crises has increased inflationary pressure world over. RBI Governor during the recent Monetary Policy meeting has also flagged high inflation as a major cause of concern. In the past few months, prices of almost all essential items have moved northwards, thereby putting pressure on the common man’s household budget and thus reducing his disposable income. Additionally, the high fuel prices have had a spill over effect on transportation and made it expensive. This will have a negative effect on entry level PV as well as 2W segment which are generally dominated by first time buyers. On the other hand, ease in availability of semi-conductors will see increased supply especially in PV segment and thus reduce waiting period. If Rural India stabilises, Auto retail will enter festive season on a good note.
The rise in operating costs has dented the operating margins of the companies whereas the issues relating to supply chains stretched the waiting period for vehicles and discouraged consumer sentiment.
A report from JPMorgan highlights that domestic steel prices have slipped over 20% from the peak in May 2022. This will augur well for the sector to slice the raw materials costs. Meanwhile, sales volume in the tractor segment is expected to gain traction due to the likelihood of a normal monsoon, higher agriculture prices and recovery in the rural economy. In terms of emerging market trends, the electric vehicle trend has been catching attention recently. The government is trying to curb carbon emissions while reducing reliance of petrol and diesel which is creating a substantial demand for electric vehicles.
It is estimated that from 2020 to 2027, the electric vehicle market shall grow at a CAGR of 44 percent to achieve 6.34-million-unit annual sales by 2027. By 2030, the electric vehicle industry is expected to create five crores direct and indirect jobs. The Indian automobile industry is expected to record strong growth in 2022-23, post recovering from the effects of the pandemic. Electric vehicles, especially two-wheelers, are likely to witness positive sales in 2022-23. India is aiming to have 30% of its passenger vehicles sales as electric vehicles by 2030. Already, home grown players such as Tata Motors and Mahindra Electric along with foreign players like MG Motor and Hyundai are competing for a share of this pie.[/vc_column_text][vc_zigzag][vc_column_text]
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