As India enters into 2024, the automotive sector stands ready to script a remarkable growth narrative. Backed by a buoyant demand in the passenger vehicle segment despite continuing rises in commodity prices, automobile makers are optimistic to embrace new technologies, especially in the electric mobility space which is expected to witness a number of new launches in both four and two-wheeler segments in the coming year.
India is now the world’s third-largest automobile market, with its automotive sector accounting for 7.1% of gross domestic product, 8% of the country’s total exports and providing direct and indirect employment to more than 19 million people. With the automotive sector currently undergoing an electrifying transformation, India is on track to fulfil its commitment to the United Nations Convention on Climate Change (UNFCCC), aiming to reduce emissions intensity by 45% from the 2005 level by 2030. Recent reports suggest that the country’s greenhouse emissions rate has dropped by 33% in 14 years.
The rise in popularity of electric vehicles among the public and the business communities in the post-pandemic world has significantly altered the overall landscape of the automobile industry in India. A large number of auto makers both domestic and foreign have shown interest to invest in electric vehicles, recognizing them as the sustainable transportation choice of the future.
The electrification of vehicles is gaining unprecedented momentum in India and this rise of EVs holds immense scope. This seismic shift to EVs has attracted the attention of global automakers. For the logistics sector, this trend means a paradigm shift towards eco-friendly transport options boosting the demand for electric commercial vehicles. In fact, India has been moving towards green automotive technology with a remarkable speed. Electric vehicles sales reached a record 1.53 million units in 2023 – an increase of more than 50% over about one million units sold in 2022. EVs accounted for 7.3 % of the total automobile sales according to the ministry of road transport and highways (Vahan Dashboard). India has over 2.7 million registered EVs as on September, 2023).
Growth of India’s auto sector
The automotive industry in India is one of the main pillars of the economy. With strong backward and forward linkages, it is a key driver of growth. Economic liberalisation followed by and conscious policy interventions by the government over the years created a vibrant, competitive market, and brought several new players resulting in unprecedented capacity expansion of the industry.
The industry has grown rapidly over the past two decades, capturing the attention of the global market and is considered as a contender for a top-table position. In terms of global rankings in manufacturing output, it was the second largest in two-wheelers, seventh largest in commercial vehicles, sixth largest in passenger vehicles and the largest in tractors in 2023. Over the last decade, India has emerged as one of the most preferred locations in the world for manufacturing high-quality automotive components and vehicles of all kinds, narrowing its gap over several established locations in the process.
India’s growing domestic auto manufacturing capacity, expanding market, a copious talent resource pool, low cost of material and labour, skilled manpower and the highly favourable investment climate made India a favourable investment destination for big global automakers.
A large number of world’s auto leaders have already set their manufacturing facilities in India and are now looking to expand capacities. Suzuki of Japan that began its journey with Maruti Suzuki is the biggest car maker in India and is a household name. Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of the Hyundai Motor Company, headquartered in South Korea is the third largest automobile manufacturer in India. It’s a long list that includes French automaker Renault, Volkswagen Group and Mercedes-Benz Volkswagen Group, which laid its electric vehicle (EV) foundation in India with a top-down approach, with offerings from in the high-end segments such as Porsche Taycan and the Audi e-tron range, is hiring specialists in emerging technologies. BYD, Citroën, Kia, BMW, Mercedes-Benz, Volvo, Audi, Porsche and Jaguar-Land Rover have firmed up their EV launch plans. This is expected to fuel not only hiring but also growth of the domestic EV market and make electric cars accessible to a wider range of consumers. The automobile sector has received a cumulative equity FDI inflow of about $34.74 billion between April 2000 and March 2023.
As of 2023, India is the 3rd largest automobile market in the world in terms of sales. In 2022 India became the fourth largest country in the world by the valuation of its automotive industry. However, the scope for its growth is enormous as very few Indians till date own any automobile. According to the 2021 National Family Health Survey, barely 8% of Indian households own an automobile.
India’s passenger vehicle market, valued at ` 4.5 lakh crore, has been outpacing volume growth regularly ever since the economy has come out of the Covid-19 agony. The industry has surpassed all past records to achieve an annual sales of more than four million units of cars, sedans and utility vehicles in 2023. As per the industry estimates, about 4.1 million passenger vehicles were sold in the local market in the last calendar year – an increase of about 8.2% compared with 3.79 million units sold in 2022.
The major factor behind the record car sales in 2023 is the positive macroeconomic environment in the world's fastest-growing major economy. Most of the rating agencies and banks both at home and abroad have predicted a steady GDP growth. Higher disposable incomes, growth of the middle class, better and more roads and highways, a propensity to travel more, and the pent-up demand from the pandemic have been accelerating India's car market.
The passenger vehicle segment is estimated to have posted its highest ever sales in the calendar year 2023 supported by a strong supply situation, new nameplates launched in the SUV segment, and a robust demand during the longer festive period. The Indian auto industry has witnessed impressive overall sales growth of 19% in the festive period of 2023 over the festive period of 2022 according to the Federation of Automobile Dealers Associations (FADA).
With the entry of foreign automakers and a steady upgrading of quality, safety measures and outlook India has steadily made its inroads to foreign markets. India is now a prominent auto exporter and has strong export growth expectations for the near future. In addition, several initiatives by the Government of India such as the Automotive Mission Plan 2026, scrappage policy, and production-linked incentive scheme in the Indian market are expected to make India one of the global leaders in the two-wheeler and four-wheeler market.
The passenger vehicle export market is on a recovery path after Covid-19 induced disruption, followed by a semiconductor shortage-led supply-side crisis. Export of commercial vehicles increased by about 15% last year from 5.78 lakh units in 2021-22 to 6.63 units in 2022-23. The biggest auto export markets from India are Latin America, Southeast Asia, Africa and the Middle East. However, some passenger vehicles are also exported to Europe and the developed markets. According to Siam, Maruti Suzuki India is the largest exporter of passenger vehicles with nearly four-fifths of the total passenger vehicles export followed by Hyundai India, Kia and Volkswagen. Nissan India reported strong exports too. In the two-wheeler segment, Bajaj Auto dominated the other key players, including TVS, with a significant margin.
Auto sector shifting to green technology
As India aspires to solidify its status as an auto manufacturing hub, it becomes imperative to address the pressing issue of transitioning to green energy to reduce dependence on fossil fuel. In fact, India has started focusing on transitioning to alternative fuels to curb pollution after expanding its consumer and vehicle bases. 2024 will be a crucial year, as the country — the third-largest automotive market — faces challenges to offer accessible growth capital to late-stage startups while trying to lure Tesla and other foreign EV manufacturers to enter its domestic market.
The "Policy Support & Enablers to Accelerate India's Electric Mobility" conference organized by NITI Aayog last July charted an effective roadmap for the growth of electric mobility in India. India's EV market is expected to grow at an impressive compound annual growth rate (CAGR) of 49% from 2022 to 2030. India is taking rapid strides towards achieving its target of 30% EV market share by 2030.
India sold almost 24 million vehicles in 2023, including commercial and personal four, three and two-wheelers, according to the latest data on the government’s Vahan portal. Of the total number of vehicles registered, more than 1.5 million were EVs, capturing 6.35% of the total base, including 813,000 electric two-wheelers. While the overall growth was nearly 10% from about 22 million vehicles sold in 2022, EV sales grew by close to 47% from 1.03 million EVs sold last year
This brings the total number of electric vehicle sales in the country to nearly 3.5 million. Two-wheelers accounted for more than 47% of sales, four-wheelers represented about 8% and the rest came from e-rickshaws and three-wheelers.
India’s EV sales in 2023 although was significant, but it was considerably lower than that of the previous two years. The main reason for this deceleration in growth was the cut in subsidies given to two-wheeler customers through the $1.38 billion incentive scheme called Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles, commonly called FAME-II. The decline in electric two-wheeler sales has arguably impacted the country’s overall EV market, as India is predominantly a two-wheeler market and has limited manufacturers in the electric car segment.
While India is still in the early stage for EVs, global EV companies including Tesla and VinFast are also looking to enter the Indian market to leverage the size of the world’s most populous nation. The Indian government is reportedly developing a new EV policy to attract foreign carmakers as well as the domestic auto companies to strengthen the country’s electric car base.
The hind side of EV growth
While almost everyone will agree that transitioning to EVs is a necessity considering the absolute need to cut use of fossil fuel as also the spiralling import bill of crude oil, there are challenges which may hinder the growth dynamics. One of the primary challenges for transitioning to electric vehicles in India is its higher upfront cost compared to conventional internal combustion engine (ICE) vehicles which may deter many potential buyers. The cost of components of EV too is considerably higher.
Another problem is the lack of standardisation in electric vehicle technologies across companies. Different manufacturers adopt varying battery chemistries, charging connectors, and power-train configurations. This lack of uniformity complicates the charging process and hinders the development of interoperable charging infrastructure.
Lack of compatibility of charging process among EVs apart, the charging infrastructure itself is still underdeveloped and limited. The scarcity of charging stations and the need for long charging times pose challenges for EV owners, leading to range anxiety and inconvenience. The establishment of an extensive and reliable charging network is crucial to encourage more people to switch to electric vehicles.