Reimagining 2023: Preparing the Indian automotive industry to be future-ready
Reimagining 2023: Preparing the Indian automotive industry to be future-ready
The Indian automotive sector is a vital growth driver of the Indian economy. It contributes 49% to India’s manufacturing GDP and 7.5% to the total GDP. The sector is also, directly and indirectly, responsible for creating jobs for 36 million people. By 2026, this figure is expected to grow to 65 million. Hence, the Indian automotive sector is a core part of the Indian economy.
Despite significant global headwinds, the automotive sector in India and Europe remains resilient.
Automotive sector resilient in face of headwinds
In Europe, where war is waging for the first time since WW2 and energy prices have skyrocketed, demand for commercial vehicles is high; however, the global chip shortage is hurting the manufacture of commercial vehicles there.
In India, production of commercial vehicles has nearly climbed back to pre-pandemic levels. In the coming years and decades, the Indian automotive sector is expected to grow from strength to strength on the back of a young, more affluent, and aspirational consumer class. Consider that today, nearly 65% of new car buyers are under the age of 30.
Shifting consumption patterns in India
In the first nine months of 2022, demand for luxury vehicles has increased sharply over the same period last year. Buoyed by pent-up demand and more disposable income in consumers’ pockets, sales of luxury vehicles grew by 32% over the same period in 2021. Once again, demand for luxury automobiles is driven by younger consumers. These young buyers of luxury automobiles own startups or are successful professionals. Having endured the pandemic, they’re bitten by the YOLO sentiment and are splurging.
The personal vehicle market in India is expected to grow at a CAGR of 8.6% until 2027. Today’s consumers prize comfort and safety i.e., they favour SUVs. Automakers are meeting this demand by making SUVs even more attractive. Today’s SUVs have features that would have been unimaginable even five years ago at certain price points.
Today, the future of EVs looks bright.
A palpable shift toward EVs ahead
In the early part of the EV story, the question was how to create demand for EVs. This is no longer the case. Today, there is significant demand for EVs. EVs have a 0.7% market share in India and by 2027, this figure is expected to increase to 3.8%.
The question now is how to transform supply chains so that EV adoption continues to increase. In India, for EVs to become ubiquitous, new supply chains and physical infrastructure that undergirds EV manufacturing and operation will have to be built. The success of the world’s leading EV automaker, Tesla, is in large part due to the company’s ability to create such infrastructure.
To make EVs more popular in India, the government of India, along with industry players will have to work together. This should happen with both focusing on developing flex-fuel hybrid vehicles. Watching the evolution of this space will prove crucial. Also, at a given time, there will likely be multiple variants of EVs, each powered by a different technology. Each EV variant will cater to the needs of different consumer segments.
Another important change today concerns where consumers purchase automobiles.
The dealership model could give way to online purchases
During the pandemic, consumption patterns shifted. More consumers than ever before began buying products online. There is now a trend that suggests that consumers may be open to buying automobiles online as well.
For instance, as experience has shown, consumers are willing to pre-book vehicles even before they’re launched. Whilst before, visits to dealerships, seeing automobiles, sitting inside them, and test driving were part and parcel of the buying experience, today, some consumers are willing to forgo these to be the first ones to get their hands on a particular model. This is eye-opening to OEMs. They’re now using digital mediums to gauge consumers’ interest in automobile models before such models are launched. Consumers’ response is giving OEMs insights about which models are most desirable. This knowledge is helping them plan rollouts better than they could earlier.
Other important trends
In addition to the growing demand for EVs and more consumers buying automobiles online, other important shifts are underway too.
For instance, automobiles are more tech-laden than ever before, which is why the semiconductor shortage led to a supply crunch in the automobile sector. This trend is expected to continue with automobiles becoming more connected than before. Of the many benefits of connected vehicles, perhaps the most important is that such vehicles are safer for those travelling in the car and others on the road.
Also, with energy prices likely to remain high for the foreseeable future, the demand for CNG-powered cars and hybrid cars – which are midway between ICE-powered cars and EVs – is expected to grow.
Notably, the answer to the question, “will autonomous vehicles become a reality on Indian roads?” seems to be not for a very long time.
Autonomous vehicles are giant map-making machines. They’re trained using data that encompasses nearly every possible road situation a vehicle may encounter. In developed countries, with their efficient road networks and orderly traffic, the number of such situations is much smaller than in India. India’s chaotic roads, which have a surprise around every corner, make collecting data on which autonomous vehicles’ neural networks can be trained a herculean task. There is far too much variability on Indian roads. So, while autonomous vehicles roam in a few cities in the US, their presence on Indian roads seems to be a long way off.
Where the automotive sector stands today
Though over the past few years, several automakers have exited the market, there are plenty of opportunities for innovative incumbents. Innovation – especially concerning EVs, and hybrid vehicles – is happening at a record pace. New sales models that could transform the face of the industry are being rolled out. By the end of this decade, the industry will look significantly different than it was at the close of the previous decade.
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