Economic Analysis of Automobile Industry

The automobile industry in India is the world’s fifth largest. India was the world's fifth largest manufacturer of cars and seventh
largest manufacturer of commercial vehicles in 2019.
Factors that affect the demand and supply of automobiles:
Demand factors for automobile industry:

 Higher the price of automobiles, lower the demand would be.

 Availability of finance option makes it affordable for consumers who don’t have enough money in hand and hence
increases demand.
 As income of people increases, their demand for automobiles also increases.
 Better the presence and quality of public transport, lower will be the demand for private vehicles.
 Demand for petrol and automobiles move together. Hence higher the price of petrol, lower will be the demand for
automobiles.
 If income distribution among the population favours the rich class, automobiles will be more in demand.
 Economic growth and development. As the economy grows, per capita income, education, urbanisation, lifestyle of
people also improves and this has a positive impact on automobiles demand too.

Supply factors for automobile Industry:

 Higher the price of automobiles, higher will be the supply.

 Higher cost of inputs (rubber, steel, labour, machinery etc) would lead to decline in production of automobiles.
 Technological advancement would make production more profitable and hence would favour production.
 Taxes. Change in government policies which are pro automobile industry like reduction in road tax, reduction in custom
duty over import of raw materials needed for manufacturing cars etc would increase supply of automobiles in the
market.
 Indian economic scenior of automobile industry
 Indian automotive industry (including component manufacturing) is expected to reach Rs. 16.16-18.18 trillion (US$ 251.4-
282.8 billion) by 2026.
 The industry attracted Foreign Direct Investment (FDI) worth US$ 25.40 billion between April 2000 and December 2020
accounting for ~5% of the total FDI during the period according to the data released by Department for Promotion of
Industry and Internal Trade (DPIIT).
 Domestic automobile production increased at 2.36% CAGR between FY16-FY20 with 26.36 million vehicles being
manufactured in the country in FY20. Overall, domestic automobiles sales increased at 1.29% CAGR between FY16-FY20 with
21.55 million vehicles being sold in FY20.
 Two wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car sales are dominated by small
and mid-sized cars.
 Two wheelers and passenger cars accounted for 80.8% and 12.9% market share, respectively, accounting for a combined sale
of over 20.1 million vehicles in FY20.
 Two-wheeler sales stood at 1,426,865 units in February 2021, compared with 1,294,787 units in February 2020, recording a
rise of 10.20%.
 Passenger vehicle (PV) sales stood at 281,380 units in February 2021, compared with 238,622 units in February 2020,
registering a growth of 17.92%.
 As per Federation of Automobile Dealers Associations (FADA), PV sales in December 2020 stood at 271,249 units, compared
with 218,775 units in December 2019, registering a 23.99% growth.
 Overall, automobile export reached 4.77 million vehicles in FY20, growing at a CAGR of 6.94% during FY16-FY20. Two
wheelers made up 73.9% of the vehicles exported, followed by passenger vehicles at 14.2%, three wheelers at 10.5% and
commercial vehicles at 1.3%.
 The electric vehicle (EV) market is estimated to be a Rs. 50,000 crore (US$ 7.09 billion) opportunity in India by 2025. Several
technology and automotive companies have expressed interest and/or made investments into the India EV space.
 Auto companies such as Hyundai, MG Motors, Mercedes, and Tata Motors, have launched EVs in the market. A recent study
conducted by Castrol found out, most of Indian consumers would consider buying an electric vehicle by the year 2022.
 The study also highlighted for an average Indian consumer, price point of Rs. 23 lakh (or US$ 31,000), a charge time of 35
minutes and a range of 401 kilometres from a single charge will be the 'tipping points' to get mainstream EV adoption.
 A cumulative investment of ~Rs. 12.5 trillion (US$180 billion) in vehicle production and charging infrastructure would be
required until 2030 to meet India’s electric vehicle (EV) ambitions.
 A report by India Energy Storage Alliance estimated that EV market in India is likely to increase at a CAGR of 36% until 2026.
In addition, projection for EV battery market is forecast to expand at a CAGR of 30% during the same period.
 The Government aims to develop India as a global manufacturing and research and development (R&D) hub.
 It has set up National Automotive Testing and R&D Infrastructure Project (NATRiP) centres as well as National Automotive
Board to act as facilitator between the Government and the industry.
 In Union Budget 2021-22, the government introduced the voluntary vehicle scrappage policy, which is likely to boost demand
for new vehicles after removing old unfit vehicles currently plying on the Indian roads.
 The Indian Government has also set up an ambitious target of having only EVs being sold in the country.
 The Ministry of Heavy Industries, Government of India, has shortlisted 11 cities in the country for introduction of EVs in their
public transport system under the FAME scheme. The first phase of the scheme was extended to March 2019 while in
February 2019, the Government approved FAME-II scheme with a fund requirement of Rs. 10,000 crore (US$ 1.39 billion) for
FY20-22.
 Under Union Budget 2019-20, Government announced to provide additional income tax deduction of Rs. 1.5 lakh (US$ 2,146)
on the interest paid on the loans taken to purchase EVs.
 EV sales, excluding e-rickshaws, in India witnessed a growth of 20% and reached 1.56 lakh units in FY20 driven by two
wheelers. According to NITI Aayog and Rocky Mountain Institute (RMI) India's EV finance industry is likely to reach Rs. 3.7
lakh crore (US$ 50 billion) in 2030.
 The Government of India expects automobile sector to attract US$ 8-10 billion in local and foreign investment by 2023
 Market overview

Number of Automobiles Sold in India (in millions)

Number of Automobiles Produced in India (in millions)
30.00
35.00
CAGR 1.29%
CAGR 2.36%
30.00 25.00 26.27
30.92
24.97
29.07
25.00 26.36 20.00 21.86 21.55
25.33 20.47
24.02
20.00 15.00

15.00 10.00

10.00
5.00 0.00
FY16FY17FY18FY19FY20
5.00

0.00
FY16 FY17 FY18 FY19 FY20

 The Indian automobile manufacturing industry comprises the production of commercial vehicles, passenger cars, three-wheelers and
two-wheelers.
 Domestic automobile production increased at 2.36% CAGR between FY16-FY20 with 26.36 million vehicles manufactured in the country
in FY20.
 Overall, domestic automobiles sales increased at a CAGR of 1.29% between FY16-FY20 with 21.55 million vehicles being sold in FY20.
record strong growth in 2021-22, post recovering from effects of COVID-19 pandemic. Electric vehicles, especially two-wheelers, are
likely to witness positive sales in 2021-22 .By India Energy Storage Alliance estimated that EV market in India is likely to increase at a
CAGR of 36% until 2026. In addition, projection for EV battery market is forecast to expand at a CAGR of 30% during the same period thrin
the

Market overview Number of Automobiles Exported (in millions)

5. CAGR 6.94%
Segment-wise Domestic Market Share in FY20 (%)
0 4.77
4.63
4.
5 4.0
3% 3% 3.64 4
4. 3.48
Two Wheelers 0
13%
3.
5
Passenger
Vehicles 3.
Commercial 0
Vehicles 2.
5

Three Wheelers 2.
81% FY16FY17FY18FY19FY20
0
1.
5
Indian Car Sales Figures - February 2021
1.
0
 T w o w h e e l e r s a n d passenger vehicles dominate the domestic India
0.
auto market. Passenger car sales are dominated by small and mid- sized
5
0.
0
OEM February 2021 February 2020 Growth
Maruti Suzuki 144,761 133,702 8.3%

Hyundai 51,600 40,010 29.0%

Tata 27,224 12,430 119.0%

Mahindra* 15,380 10,756 43.0%

Kia 16,702 15,644 6.8%