Year 2024 has been one of good growth across most segments in the automotive industry. Over 30 million vehicles were produced, a 9.4 per cent increase over last year. Three-wheeler sales sped up with an ~43 per cent growth, followed by two wheelers (~14 per cent) and passenger vehicles (8 per cent). Tractor sales slowed ~8 per cent and commercial vehicles remained largely stagnant (0.6 per cent), according to SIAM, VAHAN and Tractor Manufacturers Association.
Overall, India continues to be the largest market in the world for two- and three-wheelers as well as tractors. It is also among the top three markets for passenger and commercial vehicles.
Utility Vehicles (UVs) and SUVs continue to dominate the market, now accounting for 60 per cent of passenger vehicle sales. While value for money still dominates the buying behaviour, today's Indian car consumer is open to blending aspirational luxury with a keen awareness of sustainability and mindful choices. There is a growing preference for hybrid vehicles and an exciting range of new EVs for consumers to evaluate.
There is increasing penetration as well as choice of electric two wheelers. By volume, the <125cc engine segment continues to dominate, but the presence of higher engine capacity segments is revving up (~15 per cent of sales in the first half of FY25 is in the >125 CC segment).
Commercial vehicles, too, may see some tailwinds as we get into the New Year with continued government focus on infrastructure development, increased manufacturing activities, capital investment cyclicity and a continued improvement in road connectivity.
Similarly, a combination of government focus on manufacturing, global buyers diversifying beyond China and an investment in capacity increase has helped the auto component sector cross INR 6.14 lakh crore in 2024. The sector grew by 10 per cent, with a significant share of exports. The portfolio of key exported items is expanding and now includes drive transmission and steering components (34 per cent), engine components, body/chassis (11 per cent), suspension and braking components (11 per cent). The industry is also committed to reducing import content by expanding domestic capabilities and capacities.
India will continue to be a multi-fuel market in the near future, leading to more intense competition for the consumer’s wallet. Government policies and consumer preferences will, however, play a big role. According to the 2025 vision from SIAM, India stands to gain from embracing electric mobility, which promises economic growth, sustainability and enhanced energy security.
Meanwhile, on 11 September 2024, the Union Cabinet approved two key initiatives in electric mobility, aimed at promoting electric buses, ambulances and trucks, with a combined financial commitment of INR 14,335 crore. While INR 10,900 crore was allocated for a two-year period to the PM Electric Drive Revolution in Innovative Vehicle Enhancement, INR 3,435 crore was announced for the PM-eBus Sewa-Payment Security Mechanism. These schemes are expected to help drive EV sales in the coming months.
Before that, Union Budget 2024 had underscored the importance of indigenous manufacturing and promotion of a green ecosystem, coupled with infrastructural support and employment generation and driven by the vision of 'Viksit Bharat'. The 'Make-in-India' initiative prioritises the automotive sector, allocating INR 6,921 crore for central sector schemes to empower both original equipment manufacturers (OEMs) and component manufacturers in terms of manufacturing capabilities and seizing growth opportunities. These measures are a part of positioning India as a preferred manufacturing destination for EVs. The EV policy sets a minimum investment threshold of INR 4,150 crore (US$500 million) and encourages manufacturers to achieve higher levels of domestic value addition (DVA).
India is also gearing up for Bharat Stage 7 (BS7) emission standards and introducing On-Board Monitoring (OBM) that will work with On-Board Diagnostics already installed in vehicles to monitor tailpipe emissions in real-time. Stricter emission norms for pollutants such as carbon dioxide, carbon monoxide and nitrogen oxides can be expected. Harmful pollutants like microplastics and brake dust from tyres and brakes will also be regulated and limited. BS7 implementation could therefore lead to more turbo-charged and direct injection vehicles. The potential for biofuels to reduce fossil fuel consumption is also being explored.
Rationalised GST on flex-fuel engine vehicles from 28 per cent would make them more affordable and facilitate faster adoption. To accelerate the introduction of flex-fuel vehicles, the government has already introduced a Production-Linked Incentive (PLI) scheme for local manufacturing.
In addition, the Corporate Average Fuel Efficiency (CAFE) rules – CAFE-III (2027-32) and CAFE-IV (2032-37) – also aim to further reduce CO2 emission/km and improve fuel efficiency of vehicles.
These rules are designed to push automakers towards producing more fuel-efficient and environmentally friendly vehicles.
India is at a crucial stage of urbanisation, with trends like shared mobility, alternative fuels and connected cars transforming cities globally. Passenger cars will be equipped with 5G M2M connectivity, on-device GenAI and cloud connectivity, making advanced technologies accessible across various price segments. The adoption of IoT, real-time tracking of parameters, online monitoring of equipment effectiveness and overall plant control visibility are just a few examples of how technology will revolutionise the auto sector processes.
Becoming self-reliant in semiconductor production is also a critical component of this journey. The automotive sector will also see a gradual shift towards lightweight materials, more fuel-efficient alternatives and a continued emphasis on safety and quality.
The above article has been written by Vinay Raghunath, Partner and Automotive Sector Leader at EY-Parthenon.
