Indian automobile industry of India is one of the largest in the world. The Two Wheelers segment dominates the market share; the reasons are attributed to existence of large middle class with growing income and a young population. The utility vehicles segment is driving the growth of the sector in the calendar year 2018. India is one of the prominent auto exporter in the world. The industry is expecting larger share in the auto exports in the near term. The growth of vehicle sales in India is promising for many of the global players who are looking at India as a key automobile market. The factors that are likely to have larger impact on the automobile industry include increased focus on production of electric vehicles (EVs), shared mobility, Bharat Stage-VI emission and safety norms. Sandeep Sharma takes a look at the auto industry.
Challenges Before Growth
According to IBEF, the total automobile production volume grew at a CAGR of 5.56 per cent between FY12-17. Around 25 million automobiles were produced in FY17. The Centre is quite optimistic about the turnaround of the economy and claims to be on course to achieve high growth of 8% plus as manufacturing, services and exports are back on good growth path. The GDP growth at 6.3% in the second quarter of 2017-18 signalled turnaround of the economy, and growth in the second half is projected between 7.2% to 7.5%. The Government of India is leaving no stone unturned in boosting the growth of the automobile sector. The focus has shifted clearly on the production of electric vehicles in India. The road and highways infrastructure is all set for a major revamp and build up in the near to medium term thus boosting the fortunes of the auto sector players. Technology is going to be the game changer of the industry. As the country move towards embracing Electric Vehicles completely by 2030, the investment in newer technologies would be critical for the industry profitability in the future.
In order to fight pollution and environment degradation, the Government of India plans to move towards implementing BS-VI norms by 2020. This would be a challenge for the automobile manufacturers, who need to invest heavily in clean and upgraded technologies to ensure compliance in a short span of time.
Foreign Direct Investment
The Government of India encourages foreign investment in the automobile sector and allows 100 per cent FDI under the automatic route. Today, 100% FDI is allowed in the sector through the automatic approval route. According to Department of Industrial Policy and Promotion (DIPP), the auto sector has attracted FDI worth US$ 15.065 bn during the period April 2000 to March 2016. The sector has attracted US$ 1609.32 million during 2016-17.
Automobile Sector Registers Positive Growth
Society of Indian Automobile Manufacturers (SIAM) is the apex Industry body representing leading vehicle and vehicular engine manufacturers in India. According to SIAM, the automobile sector has registered positive growth during the April - February, 2018. Details are as under:
The industry produced a total 26,402,671 vehicles including Passenger Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers and Quadricycle in April-February 2018 as against 23,078,120 in April-February 2017, registering a growth of 14.41 percent over the same period last year.
The sale of Passenger Vehicles grew by 8.04 percent in April-February 2018 over the same period last year. Within the Passenger Vehicles, Passenger Cars, Utility Vehicle and Vans grew by 3.62 percent, 21.34 percent and 4.25 percent respectively in April-February 2018 over the same period last year.
The overall Commercial Vehicles segment grew by 19.30 percent in April-February 2018 as compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) grew by 11.91 percent and Light Commercial Vehicles grew by 24.64 percent in April-February 2018 over the same period last year.
Three Wheelers sales grew by 19.11 percent in April-February 2018 over the same period last year. Within the Three Wheelers, Passenger Carrier & Goods Carrier sales registered a growth of 22.36 percent and 6.80 percent respectively in April-February 2018 over April-February 2017.
Two Wheelers sales registered a growth at 14.47 percent in April-February 2018 over April-February 2017. Within the Two Wheelers segment, Scooters and Motorcycles grew by 21.18 percent and 12.66 percent respectively, while Mopeds declined by (-) 4.83 percent in April-February 2018 over April-February 2017.
In April-February 2018, overall automobile exports increased by 15.81 percent. Two and Three Wheelers Segments registered a growth of 20.30 percent and 37.02 percent respectively, while Passenger Vehicles and Commercial Vehicles declined by (-) 1.80 percent and (-) 13.26 percent respectively in April-February 2018 over the same period last year.
The automobile industry is gearing up to set up new units or take up expansion of the existing ones. Few such proposed and under implementation projects are listed as under:
Honda Motorcycle & Scooter India Pvt Ltd (HMSI) has five manufacturing facilities in India at Neemrana (Rajasthan), Dharuhera and Gurugram (Haryana), Haridwar (Uttarakhand), and Vadodara(Gujarat). HMSI is setting up another Greenfield facility in Andhra Pradesh.
Suzuki Motor Corporation is exploring its plan to set up second two-wheeler plant in India. Talks are on with Government of Telangana and Andhra Pradesh for a suitable location. The completion would take around three years from the work commencement date.
Volkswagen Group plans to set up a new manufacturing line at its existing facility at Chakan in Pune.
Kia Motors, the South Korean automotive company, plans to set up greenfield plant in Anantapur district of Andhra Pradesh. The investment would be to the tune of US$ 2 billion. The commercial production is likely to start by end of 2019. The unit would produce 300,000 cars annually.
Italian automobile company, Tonino Lamborghini Group, has decided to l set up an electric vehicles manufacturing plant at Supe in Pune, India. MOU was signed with the Government of Maharashtra in this regard.
Maxion Wheels plans to set up a new manufacturing facility in Khed City spread over a 20 acre. As part of first phase, the plant will have an annual capacity of two million wheels. They also have plans to set up a manufacturing plant in Dahanu district, roughly 145-km north of Mumbai.
Lohia Auto Industries plans to set up a greenfield plant for the manufacture of two and three-wheelers. The proposed would also manufacture electric vehicles. The company is scouting for location in Southern India.
Okinawa Autotech, Gurgaon based electric two-wheeler manufacturer plans investment spread over three years in network expansion and new product development. The plans also include development of charging stations in metros near its dealerships by next year.
UM Lohia Two Wheelers plans to set up individual units for manufacturing two-wheelers and engines, spread over a 20-acre land near Hyderabad.
The automobile sector is likely to benefit due to the overall economic growth especially the turnaround in the country’s infrastructure. The roles of technology coupled with adequate capital availability are likely to decide on the fortunes of the sectoral players. According to IBEF, the auto industry has the potential to generate up to US$ 300 billion in terms of annual revenue by 2026. E-mobility is likely to drive the market in future with the Government of India having clearly spelled out its intention to only allow production of electric vehicles by 2030. According to Mckinsey & Company report titled, 'The future of mobility in India: Challenges and opportunities for the auto component industry', the automotive industry is already feeling the effects of electrification or e-mobility, both globally and in India. By 2030, electrification could lead to electric vehicles (EVs including battery electric vehicles, plug-in hybrid electric vehicles, and hybrid electric vehicles) holding a substantial share (up to 50 percent of new vehicle sales in a breakthrough scenario) of the global automobile sector. If India sees a similar momentum; it will significantly impact manufacturers across the automotive value chain.