Synopsis
• The domestic automobile sales grew by 20% on a year-on-year (y-o-y) basis in FY23, the first full year without any impact of the pandemic after a gap of two years. The growth in sales volume across segments was supported by healthy demand in the urban areas, increasing replacement demand, growing demand for utility vehicles in the passenger vehicle segment, vehicle scrappage policy, and higher infrastructure spending.
• Despite inflationary pressure throughout the year, preponing purchases before the implementation of new fuel emission norms (BS-VI Phase -II), easing of semiconductor chip supply, and pent-up demand supported the sales growth. All the categories saw double-digit growth, with two-wheelers at 17%, passenger vehicles at 27%, commercial vehicles at 34%, tractors at 12%, and 3-wheelers at 87% y-o-y growth in domestic sales.
• According to Tanvi Shah, Director of CareEdge Advisory & Research, “The domestic automobile sales volume is expected to show moderate growth by 7-9% in FY24, after witnessing double-digit growth in FY23. While passenger vehicle sales volume growth is expected to be healthy at 10-12% led by high demand in the sports utility vehicle segment, two-wheeler sales volume growth is expected to remain moderate at 7-9% due to the high cost of ownership and transition towards electric vehicles. Although consistently high inflationary and interest rate environment could dampen consumer sentiment, monsoons remain a key monitorable for rural demand growth going forward.”
• Two-wheeler sales volume is expected to grow by 7-9% in FY24, on account of high inflationary pressure, price hikes due to regulatory changes, and higher cost of ownership as well as a transition towards electric vehicles. Also, the risk of El Nino on the monsoon forecast could play a spoilsport and restrict the two-wheeler growth in the rural segment.
• The passenger vehicle sales volume is expected to grow by 10-12% in FY24, led by increasing demand in the premium and sports utility vehicle segment with new model launches and ease in availability of semiconductors. The commercial vehicle segment is expected to grow by 5-7% in FY24, on account of higher growth due to structural upcycle in the previous fiscals. The demand sentiments show some disruptions due to anticipated low order books on account of upcoming general elections in 2024.
• On the other hand, exports declined by 15% y-o-y in FY23, due to ongoing global headwinds. Barring the passenger vehicles segment, which grew by 15% on the back of increasing demand in the sports utility vehicle segments, the exports for two-wheelers, commercial vehicles, tractors, and three-wheelers declined by 1%, 15%, 3%, and 27% respectively. Exports are expected to remain subdued in FY24 due to recessionary pressures across key export markets.
Trend Watch
The growth in overall automobile domestic sales volume of 20% was supported by healthy demand in the urban sector, increasing replacement demand, higher infrastructure spending, growing demand for sports utility vehicles in the passenger vehicle segment, and the government’s vehicle scrappage policy in FY23.
Two Wheelers:
The two-wheeler segment sales volume grew by 17% in FY23, after witnessing de-growth in the last three consecutive fiscals. This segment is yet to reach the pre-pandemic level and domestic sales are still below the 2014-15 level. Owing to changes in consumer demand trends, new regulatory norms and the high cost of vehicle ownership, sales of entry-level vehicle category are expected to remain moderate in the near term. This segment is still below the pre-Covid level, as demand from rural India continues to remain moderate in light of the inflationary and high interest rate environment.
Passenger Vehicles:
The industry recorded the highest passenger vehicle sales with an annual volume growth of 27%. This segment posted the highest-ever domestic sales surpassing the previous peak of 2018-19. The steep growth witnessed by the industry was driven by post-Covid pent-up demand in the early part of FY23, a series of new model launches and better product availability due to the easing of the semiconductor chips supply. The demand for higher-end variants and premium SUVs helped sustain sales during FY23. However, the entry-level variant remains under pressure as customers in this category are still affected by high interest rates and an inflationary environment. Going forward, the demand for personal vehicles remains robust with the trend of electrification further strengthening the sales momentum. However, the growth rate of the passenger vehicle industry may moderate due to a strong base effect of the last fiscal as well as macro factors including high-interest rates, inflation, and cost impact from progressive regulatory norms.
Commercial Vehicles:
The commercial vehicles segment posted sales volume growth of 34% y-o-y in FY23, the 2nd highest domestic sales, and is close to the previous peak of 2018-19. Demand sentiments across the segment showed healthy growth led by infra spending by Central Government, freight movement across the country, and OBD Stage 2A price hike coupled with discount offers from OEMs that witnessed pre-buying across the segment. This growth was driven by robust demand for heavy trucks in light of the strong infrastructure push by the Government plus increased activity in e- commerce, construction, and mining segments. Higher replacement demand, advance buying in anticipation of price hikes, and year-end buying further buoyed the demand in the last quarter of FY23. With the government’s continuing thrust on infrastructure development, the overall CV demand is expected to grow in FY24; however, interest rates, fuel prices and inflation would remain the key monitorable.
Tractors:
Tractors showed a growth of 12% annual growth in FY23 Continued government focus on various schemes and subsidies for farming, favourable Minimum Support Prices (MSP), and ease in availability of finance led to growth in tractor demand. With continued support from the government, better crop prices, improved finance availability and good water reservoir levels, the demand momentum to continue across geographies in FY24. An increase in crop output, mandi prices staying firm and an increase in wages under the MGNREGA scheme will help improve the financial security of rural households and boost tractor demand in the coming months.
Three-Wheelers:
Three-Wheelers posted growth 87% y-o-y annual growth, driven by higher off-take of passenger carriers. The availability of finance, along with the availability of alternative fuels and state subsidies, has contributed to the growth of this segment. The subsidy provided by the Central and State Governments coupled with good scheme promotion done by various states led to further drastic growth in this segment. Various financing schemes will further drive the three-wheeler demand in the near future.
