Finance & Economy

Car Sales to Increase by 7-9% in FY24 Due to Infrastructure Improvements

Published: March 30, 2023
Author: DIGITAL MEDIA EXECUTIVE

Synopsis  

  • In February 2023, domestic automobile sales volumes increased by 9.9% year-on-year, driven by rising  demand in urban markets, the wedding season, and increased semiconductor production and supply.  However, there was a 3.8% decline in sales volume on a sequential basis. 
  • The growth in sales volume across segments is supported by healthy demand in the urban sector, increasing  replacement demand, higher infrastructure spending, a growing demand for utility vehicles in the passenger  vehicle segment, and the government’s vehicle scrappage policy. The domestic demand is expected to  improve in March 2023, the last month of the fiscal year, due to upcoming festivals across India, sustained  healthy urban demand, and better inventory stocks. Additionally, the recent announcement of high  infrastructure spending and the development of clean and green fuel vehicles in Budget 2023-24 will drive  the growth of the automobile industry. 
  • On the other hand, exports declined by 35% year-on-year in February 2023 due to ongoing global  headwinds. Two-wheelers, three-wheelers, and commercial vehicles saw a drop in exports in recent months  due to the devaluation of currencies against the US dollar in key export markets, particularly in Africa and  other developing countries. 

According to Tanvi Shah, Director of CareEdge Advisory & Research, the domestic automobile industry’s  sales volume is expected to grow by 7-9% during FY24. The growth momentum is expected to continue  after the robust demand seen in FY23, supported by favourable demand sentiments and various government  initiatives for rural and urban development. Passenger vehicles and commercial vehicles are expected to  drive demand, while two and three-wheelers will gradually increase sales and cross the pre-pandemic level.  However, inflationary pressure and the mandatory implementation of BS-VI Phase II regulation from April  2024 may lead to steep price hikes across all vehicle segments, potentially affecting demand.

Domestic Sales Rise in 11MFY23 

In 11MFY23, the overall domestic sales increased by 21% compared to 11MFY22, primarily due to the commercial  vehicle and passenger vehicle segments. The sub-segment of utility vehicles under PVs saw significant growth. This  growth was supported by positive urban sentiments, the wedding season, and pre-buying due to the transition  towards BS-VI Phase 2 norms. However, exports decreased by 14% year-on-year in 11MFY23, as a result of  continued global headwinds and an inflationary environment across various international markets. 

Trend Watch 

Two-Wheelers (2W): 

During 11MFY23, the 2W segment experienced a growth of 17.8% as compared to the same period in FY22. The  scooter sub-segment grew by 27%, and the motorcycle sub-segment grew by 15% y-o-y in 11MFY23, owing to  improved urban consumer sentiments and wedding season demand. However, demand in the rural market remained  muted. The change in OBD norms from April 2024 is expected to further boost the demand for 2W. Exports for two 

wheelers declined by 16.7% y-o-y in 11MFY23, led by ongoing global headwinds and inflationary pressure. 

Passenger Vehicles (PV):  

The PV segment witnessed a strong growth of 29.3% in domestic sales during 11MFY23 vis-à-vis 11MFY22, supported  by new model launches, improvement in the supply chain, and healthy bookings due to wedding season demand.  The utility vehicle sub-segment grew by 38% y-o-y in 11MFY23, while the passenger car sub-segment grew by 22%  y-o-y in 11MFY23. The sales of passenger vehicles are expected to continue rising, driven by pre-buying due to  regulatory changes. Exports increased by 14.9% in 11MFY23 as compared to the same period in FY22, with the  passenger car sub-segment showing an increase in sales of 11% y-o-y in the export market. 

Commercial Vehicles (CV):  

The CV segment experienced a growth of 46% y-o-y in 9MFY23, with strong 64% growth in the Medium and Heavy  Commercial Vehicle (M&HCV) sub-segment. The growth was due to the improvement in freight movement across  the country and healthy infrastructure spending by the government. The Light Commercial Vehicle (LCV) sub segment also witnessed an increase of 38% y-o-y in 9MFY23. Domestic demand in the CV segment is expected to  surge due to the replacement of aging vehicles in the coming months. Exports in the CV segment declined by 6% y o-y in 9MFY23 due to challenges persisting at the global macroeconomic level. 

Tractors: 

During 11MFY23, domestic tractor volumes grew by 12.1% as compared to the same period in FY22, led by overall  positive sentiment, high Rabi sowing, better crop prices, good level of water reservoirs, growing construction  activities, and increased budget allocations to rural and agri sectors. Continued government focus on various schemes  and subsidies for farming, favourable Minimum Support Prices (MSP), and ease in availability of finance will further  lead to growth in tractor demand. However, tractor exports declined by 2.2% in 11MFY23 vis-à-vis 11MFY22, led by  ongoing geopolitical tensions. 

Three-Wheelers (3W): 

Domestic three-wheelers sales are returning back to the pre-pandemic level. The passenger carrier and goods carrier  sub-segments grew robustly by 112% and 29%, y-o-y in 11MFY23, respectively. The subsidy provided by the Central  and State government coupled with good scheme promotion done by various states led to a drastic growth in this  segment. Various financing schemes will further drive the three-wheeler demand in the near future. The export in  the three-wheeler segment declined by 25% y-o-y in 11MFY23 due to the unavailability of foreign reserves in various  nations, especially in Africa, Nigeria, and a few developing countries. The passenger carrier and good carrier sub segment exports declined by 24% and 55%, y-o-y in 11MFY23, respectively.

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