'Clear Trend Shift Towards Utility Vehicles': Industry Expert Rajesh Menon On Indian Automobile Industry

The domestic passenger vehicle market has reached a remarkable milestone with sales hitting an all-time high of 9.96 lakh units in the first quarter (April-June) of financial year 2023. This figure outshines the previous year's Q1 sales of 9.10 lakh units recorded in FY-2022. This development comes at a time when India has overtaken Japan to become the world's third-largest automobile market and is positioned to become the largest market by 2027. 

Financial journalist and founder of The Core, Govind Ethiraj spoke to Rajesh Menon, Director General of the Society of Indian Automobile Manufacturers, to understand the changing dynamics of the Indian automobile market and what the future holds for an Indian consumer. 

Underlying this success is a transformative shift in the Indian automobile market driven by rising Indian incomes and an array of new choices for the Indian consumer. "Until three years ago, a large proportion of domestic sales were passenger cars. Now, there is a clear trend shift towards utility vehicles" Menon told The Core. 

Discussing the market shift ‘demand driven', Menon highlights how the current innovations and launches effectively cater to the market demands. Further, India is no longer a ‘small car market', with utility vehicles now occupying 51% of the previously car-denominated passenger vehicle market. 

While sales of passenger vehicles display strength, those of two-wheelers and commercial vehicles are less promising. Commercial vehicles still need to catch up to pre-Covid peaks. While the e-mobility sector is predominantly commercial, with the passenger segment occupying a minuscule 2% of the pie. 

Though commenting on the current furore of rains, Menon terms it as good news. "It is giving us more optimism because two-wheeler sales are hugely impacted by the rural economy. We are expecting that rural demand will pick up much stronger compared to the previous quarters which will help two-wheelers stage a faster recovery and back to the pre-Covid numbers."

Here are some edited excerpts of the interview: 

 

How are you seeing the car landscape and growth?

The overall domestic sales data for Q1 of the current fiscal year shows that the passenger vehicle trend is not the same as that of the previous few quarters. When compared to the corresponding quarters of the previous financial years, domestic sales in the passenger vehicle segment are at an all-time high. It is around 9.96 lakh compared to the 9.10 lakh last financial year. It is the highest ever domestic sales if you compare the Q1 of the previous financial year. So that is a trend observed for the last few quarters.

The other segment, which is also doing well is commercial vehicles. This segment is still lagging but is very close to the previous peak of 2018-19. So it is seeing good demand. We can clearly say that passenger vehicles are now hitting a new peak and commercial vehicles are coming close to the previous peak of 2018-19.  Two-wheeler sales are picking up quite a bit, vis-à-vis the last two financial years but are still behind pre-COVID years. The three-wheeler scenario is also similar. So those two segments are picking up over the last financial year, but it is still behind pre-Covid years-still recovering. 

 

What is the scenario within passenger vehicles-cars, sedans, and other utility vehicles? 

Until three years ago, a large proportion of domestic sales were passenger cars. However, we are seeing a change in the trend presently. Since the last few quarters, utility vehicles are now constituting 54.9 per cent of the overall passenger vehicle market. There is a clear trend shift towards utility vehicles. In the passenger vehicle segment, utility vehicles have a much higher share compared to passenger cars. 

 

How much of this, in a broad sense, is supply-led or demand-driven?

It is mainly demand-driven. Supply was a bit of a constraint a couple of quarters ago. But now it is no longer the case and the trend is mainly demand-driven. I think customers are wanting such products and you see many new models being brought into the market aligning with those demands. 

What are the big trends in the electric vehicle space in both cars and two-wheelers? 

Passenger vehicles are still very low in the electric vehicle space. If you look at the share of EVs in the passenger vehicle segment, it nearly touched 2 per cent in May, and in June it was 1.99 per cent. So, they have roughly a 2 per cent share.

When it comes to two-wheelers, it peaked in May and touched almost 7 per cent. It decreased to 3.6 per cent in June due to the new FAME subsidy guidelines-the reduction of subsidies led to an increase in vehicle prices. In the previous financial year it was around 4 per cent and this financial year it was averaging around 5 per cent. It peaked at 7 per cent because of pre-buying during the last ten days of May. It dropped in June but July figures are looking quite good. I think it will be around 5-7 per cent in the case of two-wheelers. It is too early to comment on the exact numbers but July is seeing a bit of a recovery. So let's see where it stabilizes. In the case of three-wheelers, if you include e-rickshaws, then you're nearly touching 50 per cent. 

You are saying 50 per cent of three-wheelers are now electric? 

50 per cent of three-wheelers are now electric if you include e-rickshaws. If you exclude them it stands at around 11 to 12 percent. 

 

What is the difference between an e-rickshaw and a three-wheeler?

There are different categories called L5, which is the conventional three-wheeler you are used to earlier. E-rickshaws are the ones used for last-mile mobility near metro stations, etc. Those are plenty. There are different types of regulations governing them.

 

Interestingly, you are seeing a likely turnaround in electric two-wheelers in July even though the prices had gone up by anywhere between Rs 20,000 - 40,000 for vehicles. Are people absorbing the prices? Or are manufacturers not passing them on? 

Vehicle prices have gone up and manufacturers have passed on the price to the consumer. We will have to wait and watch, as it is early to comment. There are ten more days in July, however, the initial feeling is that it will be better than what we saw in June. There was a dip in June, but we are expecting better sales in July. We will have to wait to see how it ends. 

 

Monsoons are here, perhaps with much greater intensity than we thought they would be. How is that affecting the sales?

It is giving us more optimism because two-wheeler sales are hugely impacted by the rural economy. We are expecting that rural demand will pick up much stronger compared to the previous quarters which will help two-wheelers stage a faster recovery and back to the pre-Covid numbers. So from a two-wheeler perspective, it will make a big difference. So we are quite hopeful of that. From an overall economic perspective, if it benefits from a good monsoon it will reflect in the overall demand for all segments of the industry.