Automotive industry’s prospects in times of a pandemic: Faster, more sustainable rebound on cards

We have come a long way since the zero sales of April 2020 (national lockdown days). The partnership between the government and Industry has been the key to coming out of these uncharted times.

July 12, 2021 5:17 PM
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The Indian automobile sector has strong linkages with the overall economy and is a major source of revenue for many industries such as Media, Rubber, Steel, Paint, Aluminum and so on. Indian auto industry today is capable of end-to-end product design, prototyping, mass manufacturing & selling (domestically & internationally). Today, it is one of the biggest success stories which Indian manufacturing ecosystem has seen in the past decades. This sector has been one of the largest recipients of FDI with an inflow of $24.5 billion in the last two decades, accounting for 5.1% of the total FDI inflows to the country.

We have come a long way since the zero sales of April 2020 (national lockdown days). The partnership between the government and Industry has been the key to coming out of these uncharted times. Timely re-opening of manufacturing plants, favorable monetary policies and government support packages for farmers further supported demand revival. Prior to the second Covid wave, the Auto industry had been witnessing a V shape recovery. Sales were on an upswing month on month since August 2020, compared with the same month of the previous fiscal year. In fact, march’21 saw almost doubling of sales viz a viz March’20 sales. Some of the reasons for this resilience include preference towards personal mobility during covid, traction in rural markets, pent-up demand and so on.

BMW, Mercedes, Tata Motors & Volvo Auto data is not available

We are expecting a similar revival & resilience from the industry post the second wave as well. We should see about 75% of normal vehicle sales by July 2021 and almost 100% of normal vehicle sales by August 2021 for most of India’s leading automakers. During the 1st covid wave, rural demand played a key role in the overall auto demand revival for the industry however, this time it should be a mix of rural and urban demand which will bring in the overall revival.

Based on the significant increase in online inquiries across all new car models, some of them being Maruti Suzuki Celerio, Skoda Kushaq, Hyundai Alcazar, Audi e-Tron, we are hopeful of a faster and more sustainable rebound. These new-generation passenger vehicles will provide the middle-class consumer access to things like luxury infotainment, safety features, connectivity and a sense of coolness at a cost that has never been possible in the history of this country. For example, a 16 lakh SUV today comes loaded with a 10-inch infotainment system, multiple sensors, sunroof, driver & passenger airbags, keyless entry and much more.

In fact, FY21 has been a remarkable year for the Indian passenger car industry. We touched 1 million SUV sales for the first time ever and SUV sales is one of the few segments which showed a growth in sale numbers in FY21. To put things into perspective, Kia Seltos took merely 11 months to cross the milestone of 1 lac unit sales viz a viz a Maruti Alto, which could not even cross sales of 50k units in any of the initial 3 years of its launch. This clearly shows us that the aspirations & purchasing power of the new young India are growing at a pace like never.

In the past few months, we have already witnessed Capex announcements from Indian and global players across areas of sunroof manufacturing, tires, electric scooter manufacturing, battery assembly, auto electronics etc. A lot of global investors and fund houses, we are working with, are looking to invest into both greenfield and brownfield opportunities, specifically into the areas of EV ecosystem and Auto Electronics.

Production Linked Incentives for Auto and Advanced Cell Chemistry will further drive localization in the country and contribute to India’s emergence as a global manufacturing hub. PLI for ACC has already been notified and we expect the final RFP document to be out very soon. Further, aggressive vaccination drives along with stringent regional lockdowns should further reduce the covid caseload and restore the economy again.

We firmly believe that India’s growth fundamentals are still strong in the medium to long term. India is expected to grow to USD 5 Tn by 2025-26 and to USD 8-10 Tn in the next 10-12 years. This means that the incremental USD 5-7 Tn of India’s economy is yet to come, and this will be added to the balance sheets of our investors. Manufacturing is going to be the core of this growth in the same way as IT was in the early 2000’s. 20% plus of India’s GDP by 2025 will come from manufacturing which means India’s manufacturing sector will need to grow by over 13% for the next 10 years and auto sector will be at the core of this growth. The future of vehicles will be electric, shared and connected to make driving greener, easier, and safer.

Author: Dev Ashish Aneja – AVP & Sector Lead and Abhishek Bansal, Investment Specialist are a part of Automobile and Electric Mobility Sector of Invest India, the National Investment Promotion and Facilitation Agency of Government of India.

Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or its employees.

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