The half-yearly sales figure for the Indian automotive market is rocketing. As per data released by the Society of Indian Automotive Manufacturers, over two million vehicles were sold in the first six months of the current financial year and deliveries are ramping up in the ongoing festive season. It looks like domestic sales for the full year will cross four million.
But are things all that hunky-dory?
Sales growth has actually declined from double-digits in 2022-23 to a more moderate 7 per cent in the first six months of 2023-24. By all indications, the demand seems to be softening in some key areas of the market, not least of which are small, affordable vehicles. Sales for ‘mini’ cars like Maruti Suzuki Alto have cratered. Larger hatchbacks and compact sedans under four meters in length have seen stalled sales.
Although sales for utility vehicles, particularly C-Segment SUVs, have gone ballistic primarily due to the addition of smartphone integration and Advanced Driver Assistance Systems (ADAS), poor sales figures for lower-priced units is worrying. Moreover, this trend isn’t unique to the passenger vehicle market: In the two-wheelers segment, sales of bigger, more powerful and expensive motorcycles and scooters are rising while sales of 100cc units, still the largest category by far, remain tepid as they have for several years now.
This data can be interpreted in two ways. The more optimistic view would be that this is a sign of increasing disposable income among Indian consumers. Most mass carmakers will admit that sales for the top variants with sunroofs and touchscreen infotainment systems account for almost half of the sales volume. The pessimistic view is that the sale of more expensive models is a sign of what economists describe as a K-shaped recovery, where one segment of the economy climbs upward and another continues to suffer after a recession.
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Will the demand continue?
To lend credence to the latter point of view, one needs to look at sales for luxury vehicles in India. While still amounting to a minuscule part of the Indian car market, luxury carmakers have seen record sales in the first six months of 2023-24. Even a hitherto small luxury carmaker like Lexus expects to cross 200 units this October. Naveen Soni, president of Lexus India, told me that before the Covid pandemic, the carmaker sold 200 units in a whole year. BMW India president Vikram Pawah mentioned that the company has sold 9,580 units (BMW and Mini combined) in the six months (April-September) of the current financial year. “Our growth accelerated in the second quarter (July-September) when sales grew 17 per cent. And we are seeing huge demand for our luxury electric vehicles where demand is still more than the supply. We still expect to sell over 1,000 luxury electric vehicles in 2023,” he said.
Don’t forget that in the luxury segment, electric vehicles, on average, command a Rs 10 lakh premium over their petrol or diesel counterparts.
Clearly, the top of the market is booming and will continue to do so for some time. Some experts, however, are questioning the heavy discounts reportedly being offered by some players in the luxury segment and claiming that this is a sign that sales will start to decline soon. This could be the case in the fast-growing SUV segment as well as certain models are seeing their waiting periods come down to just a few weeks from six months earlier.
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Looking at a ‘sober’ year
A senior executive associated with a carmaker told me that he expects 2024 to be a more ‘sober’ year. “Most major manufacturers would be hitting their production limits, but beyond that, I believe the post-Covid bounce caused by many factors, including the YOLO (You Only Live Once) factor, which made people splurge as well as a distrust of shared mobility, will start dying down.”
And another key reason is government policy itself. Road transport and highways minister Nitin Gadkari’s proposal for a surcharge on diesel vehicles at the 63rd SIAM Annual Convention spread panic among some carmakers, especially domestic manufacturers such as Mahindra and Tata Motors, a bulk of whose sales of SUVs are diesel-powered. While the finance ministry was quick to respond by denying such a plan, the message was loud and clear — the government’s war on private diesel vehicles has not ended. Consumers looking at new diesel-powered vehicles, no matter how modern they are, such as the Tata Harrier and Tata Safari, are thinking twice.
The improvement in features has, of course, been a big driver of EV sales. Pawah tells me that EV sales have been particularly robust in the NCR region, where a Supreme Court ruling mandates that diesel car owners can use their vehicles only for 10 years. “While I think EV buyers are altruistic at a level, there is the unbelievable operating economics of an EV — as well as the fact that there is peace of mind about the vehicle’s usable life. While we continue to offer diesel, petrol, and EVs to our customers, I believe by 2025, EVs would account for a quarter of our volumes in India,” says Pawah.
And with most mass-market carmakers looking at 2025 to unveil their ground-up electric offerings, it is possible that some buyers are beginning to hold on to the money to see what comes. In the two-wheeler market, this is becoming clear. While SIAM does not collate data of all electric two-wheeler manufacturers, and the controversies surrounding subsidies notwithstanding, the emergence of slightly less powerful and more affordable electric two-wheelers is driving consumer adoption. Ather Energy’s Tarun Mehta said he expects it to only increase, as the company is set to launch a more conventional ‘family-style’ electric scooter in 2024.
Whatever it is, while sales are booming right now, those able to see over the horizon can see some dark clouds ahead. It remains to be seen if the industry can navigate its way around it.
@kushanmitra is an automotive journalist based in New Delhi. Views are personal.
(Edited by Humra Laeeq)