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How automobile industry is clawing back to pre-Covid figures

The SUVs are clearly powering passenger vehicle sales this year

mercedes-amey Martin Schwenk (R), MD and CEO Mercedes-Benz India Pvt. Ltd., and Santosh Iyer, vice-president, sales and marketing, Mercedes-Benz India, at the launch event of the Mercedes AMG EQS 53 4MATIC+ sedan electric vehicle in Mumbai | Amey Mansabdar

When Mahindra & Mahindra opened the bookings for its brand new Scorpio-N SUV on July 30, little did it estimate the kind of response it would get. Within the first minute itself, 25,000 bookings were clocked and more than 1 lakh bookings were registered in 30 minutes. This alone would translate into an ex-showroom value of Rs 18,000 crore.

The Mahindra Scorpio has been a hit for the homegrown utility vehicle maker since it was launched back in 2002. Over the years, it has gone through several upgrades. The Scorpio-N is a brand new SUV, with a big makeover inside and out. But, the company also retained the existing Scorpio model with a few changes, renaming it the Scorpio Classic.

The strong response has helped. Veejay Nakra, president, automotive division at M&M pointed that the company registered highest ever SUV sales in August at 29,516 units, an 87 per cent year-on-year jump over August 2021 sales of 15,786 units.

Elsewhere, the new Brezza compact SUV launched by Maruti Suzuki in July has clocked bookings of more than 1.06 lakh units so far.

The country’s largest car maker also recently unveiled the Grand Vitara SUV, which has clocked over 50,000 bookings even before launch.

The automobile industry has been through a turmoil over the last two years. The Covid-19 pandemic and the related lockdowns hit sales in 2020 and while demand rose last year, companies were hamstrung by an acute semi-conductor shortage, and weren’t able to produce enough to meet demand.

With the pandemic ebbing, there has been a resurgence in demand and recent industry data indicates a good festive season.

“Last three months (June, July and August), the cumulative number (retail) is 9.92 lakh units, which is highest ever in the industry on three months cumulative basis. First time, we have seen such huge sales in a block of three months,” said Shashank Srivastava, senior executive officer, marketing and sales at Maruti Suzuki.

Maruti Suzuki itself has pending bookings of more than 3.77 lakh units.

Over the last few years, consumer preference towards SUVs has increased and automobile companies are cashing in with a slew of launches. In 2022 alone, over a dozen new and refreshed UVs have been launched in India.

Among some of the launches, South Korea’s Kia launched the Carens multi-utility vehicle in February. Its sibling Hyundai launched the Tucson in August and N-line version of the Venue compact SUV earlier this month. Jeep, which is a part of Stellantis, launched the all new Meridian SUV in June and German luxury car maker Audi drove in the Q3 compact SUV in September.

Citroen, which is also part of Stellantis, recently launched the facelifted version of its C5 Aircross SUV. It had earlier launched the C3, a hatchback with SUV design cues. Saurabh Vatsa, brand head, Citroen India, says it has been well appreciated by consumers with positive demand across its network. Next year, it has plans to launch a new model from the C-Cubed family that is designed and engineered in India.

The SUVs are clearly powering passenger vehicle sales this year. According to Society of Indian Automobile Manufacturers (SIAM) passenger vehicle wholesales in the April-August 2022 period rose 30 per cent year-on-year to 14,85,506 units, compared with 11,42,938 units a year ago. UV sales in the period surged 41 per cent from a year ago to 7,37,159 units from 5,23,012 units. Passenger car sales meanwhile stood at 6,88,440 units up 20 per cent over 5,75,779 units sold in the year ago period.

Retail PV sales in August were at 2,74,448 units, according to data from Federation of Auto Dealers Association (FADA). While, this just 6.5 per cent higher than compared with August 2021 retails of 2,57,672 units, its more than 41 per cent jump over August 2019 sales of 1,94,165 units, a clear indication that the passenger vehicle industry is back to its pre-pandemic growth.

Luxury vehicle sales are also seeing a strong demand this year. Mercedes’ sales in India accelerated 56 per cent in the January-June 2022 period. Audi India sales also surged 49 per cent in the first half. Even super-luxury car makers like Maserati are seeing a strong recovery in demand.

“This turnaround can be majorly attributed to the expansion of the elite class in tier II cities. Smaller cities like Mangalore, Jaipur, Chandigarh, Ahmedabad and Goa, among others have shown an increase in demand for luxury vehicles. These emerging markets are driven by the evolved customer base coupled with higher disposable incomes,” said Bojan Jankulovski, head of operations, Maserati India.

Manish Raj Singhania, president of FADA said that within passenger vehicles, sales of entry-level hatchbacks had remained in the slow lane, even as SUV sales were accelerating.

“There is a definite de-growth in entry-level cars. SUVs have kind of become an extension of people’s drawing rooms. The person wants the gadgets, facilities, touch and feel like in his drawing room in his car. People have also started travelling more by their cars. That is why the orientation towards SUVs, which give them sufficient space for families,” said Singhania.

While SUVs offer loads of space and comfort along with top features, they were also considered to be gas guzzlers. But, as the awareness towards the environment increases and companies set firm targets towards reducing carbon emissions, electric and hybrid vehicles are also gaining traction.

Tata Motors is currently the market leader in the electric passenger vehicle segment with a share of over 80 per cent, led by the popular Nexon EV compact SUV. Earlier this year, it launched the Nexon EV Max, which got a bigger battery pack and longer range compared to the standard Nexon, which remains on sale. Last year, the company had also launched the electric variant of the Tigor and soon it will rollout its entry-level Tiago hatchback in the electric form.

Tata Motors’ cross-town rival Mahindra & Mahindra is also accelerating its EV play, with the launch of the XUV400 all-electric SUV. Bookings for the e-SUV, which was unveiled on September 8, will begin in January 2023 and deliveries will also begin from the end of January. In the first phase, the XUV400 will be launched in 16 cities.

Just as the Tata Nexon EV is based on its ICE powered counterpart, the XUV400 is based on Mahindra’s XUV300 compact SUV, which is already available in the market. Both the companies, however, have announced electric vehicle specific platforms, which will underpin future Evs.

In April this year, Tata showcased the Avinya concept. This pure EV will debut in 2025. The company has also shown off the Curvv electric SUV coupe, which should enter the market in two years.

Mahindra on its part has also unveiled a new electric-only brand BE (Born Electric), based on an all new INGLO platform. Under BE and XUV brands, Mahindra will launch four electric SUVs between 2024 and 2026.

“What our research indicates to us… When we asked consumers what do you think your next vehicle purchase will be, 25 per cent of them ranked electric vehicles as number one. That’s how large the opportunity is,” said Rajesh Jejurikar, executive director (automotive & farm sectors), M&M.

German luxury car giant Mercedes, which had launched the electric SUV EQC back in 2020, is also upping its ante in the EV space in the country. It has now launched the AMG EQS 53 4MATIC+, an all electric luxury saloon.

The company has two more EV launches on cards. The EQS 580 4MATIC will be launched later this month, which will be followed by the EQB, its first seven seater EV in the country. The company has pinned a lot of hopes on the EQS 580 and it will be assembled at its plant near Pune. Mercedes hopes that EVs will account for around 25 per cent of its sales volumes in five years.

Volvo also drove in the XC40 Recharge SUV earlier this year. The Swedish car maker will assemble it at its plant at Hoskote near Bengaluru.

Balbir Singh Dhillon, the head of Audi India, also said its electric vehicles have received “overwhelming response” and it is currently leading the luxury EV segment in India. The company had launched the e-tron range of EVs last year and Dhillon said the company will bring more EVs to India, with the goal to achieve complete electrification by 2033.

Hyundai, the second largest car maker in India, is also gearing up to launch the all electric Ioniq 5 in India this year. This is Hyundai’s first product built on the electric-global modular platform (E-GMP).

Kia has already launched its all electric EV6, which the company has said is already overbooked. The company had alloted only 100 units of the EV6 for India and with the response that it has received, it is expected to be made available again next year. In comparison, Hyundai’s Ioniq 5 will be assembled here, so should be more widely available, while also being more competitively priced than the EV6.

Elsewhere, Citroen will launch the C3 EV in the Indian market in 2023, said Vatsa.

Globally electric vehicle sales are picking up pace. But, its been slow going in India. In 2021-22, around 4.29 lakh EVs were sold in the country. But, passenger electric vehicles accounted for just 17,802 units. This pales when compared to the overall PV sales of 27.26 lakh units last year.

By 2030, EV sales in India are expected to top 1 crore units, according to Arthur D. Little. However, passenger EVs are still expected to account for only 5 per cent of the total EV sales by then.

Limited charging infrastructure and high intial cost of acquisition are among the major reasons behind the slow adoption of electric cars. That is perhaps why, Japanese car makers feel its the hybrid cars, which have a dual-power mechanism of self-charging batteries as well as petrol engines, that will be more suitable for now.

Maruti Suzuki’s Grand Vitara will be available in strong and mild hybrid variants. Toyota has also launched the Urban Cruiser Hyryder hybrid SUV, which is made under the partnership it has with Suzuki. Rival Honda also sells its popular sedan City in a electric hybrid powertrain in India.

Maruti’s Srivastava pointed that 44 per cent of the bookings for the Grand Vitara were for the hybrid variant. That perhaps is an indication of the acceptance of the hybrid tech by car buyers in the country.

In August, Maserati started delivering the Levante Hybrid SUV, with the first one delivered in Mumbai.

While SUVs are gaining traction, there have been a few notable car launches this year. Maruti launched the all new models of its entry-level hatchback offerings - Celerio and Alto K10. The mid-size sedan space, which has contracted in the last few years, due to shifting preferences to SUVs, too is getting some traction with the launch of Volkswagen’s Virtus and sibling Skoda’s Slavia.

The new launches by the Skoda Auto Volkswagen Group in the last couple of years, which also include the Kushaq and Taigun SUVs, has helped it gain market share from 1.76 per cent in Aug 2021 to 2.39 per cent in Aug 2022, according to FADA data.

“Last year till August, we had sold close to 14,000 cars (Volkswagen brand only). This year we are already about 26,000 cars for the same period, January till August. This is not withstanding the huge supply-side challenges that we have had to face. The demand is at least 40 per cent higher for our products than supply,” said Ashish Gupta, brand director, Volkswagen Passenger Cars India.

Automakers are upbeat that the new launches will drive a strong festive season this year and are stocking up in anticipation of the demand. Srivastava said bookings during Onam rose 10-15 per cent year-on-year and he is hopeful that overall retail sales this festive season will see a 15 per cent growth, compared with the 3.48 lakh units sold in the same period last year.

Shailesh Chandra, MD, Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility believes the industry is well poised to surpass the peak achieved in 2018-19.

“Strong first quarter has given the much needed boost to the industry after two years of downturn. We expect the industry to further grow in the second quarter owing to strong order pipeline, new launches, low channel inventory and festive demand,” he said.

Vatsa of Citroen also expressed confidence on festive sales.

“The festive season demand is likely to be a lot more buoyant this year and going by the sentiments in the west and south during Ganesh Chathurthi and Onam, we are optimistic that this positive momentum will continue,” he said.

Dealers who were hit hard by the pandemic have their fingers crossed.

“Ganpati retails haven’t responded as well as we had expected. But, dealers have increased their stocks indicating they are expecting a good festive time during Navratri and Diwali. These 40-42 days contribute almost 35 per cent of our annual retail volume,” said FADA’s Singhania.

A big issue faced by automakers over the last 12-15 months has been shortage of semi-conductors. Vehicles these days come heavily equipped with tech, from large touchscreens to features like keyless entry, 360 degree cameras and sensors etc. Many of the in demand and particularly top-end models of companies currently have a long waiting list due to the chip shortage. For instance, Mahindra’s XUV700, where the top variants come with ADAS (advanced driver assistance systems), has a waiting period of up to 20 months. Several other popular models also have a high waiting period that stretches from up to three months to 8-9 months.

There is around 4-5 months waiting period for some of the variants of the Taigun as well as Virtus, added Volkswagen’s Gupta.

“There is a shortage right now. Dealers are only billing vehicles or getting vehicles, which customer has booked or there has been an enquiry for that,” said Singhania.

While, passenger vehicles, especially SUVs, are witnessing strong demand, two-wheeler sales have been slow for some time now. In the backdrop of rising costs and high fuel prices among other things, two-wheeler sales have been lackluster.

SIAM data shows two-wheeler wholesales between April-August were up 33 per cent to 66.63 lakh units, versus 50.12 lakh units in the same period a year ago. But, they are still 17 per cent lower than the sales of 80.38 lakh units recorded in the two-wheeler industry between the pre-pandemic period of April-August 2019.

Retail sales of two-wheelers in August also paint a similar story. While year-on-year sales were up 8 per cent from over 9.89 lakh to 10.74 lakh in August, they are still 16 per cent lower than the 12.76 lakh units sold in August 2019.

The entry-level segment, which accounts for over 65 per cent of the industry, is where the impact has been the most as not many in the mass-market where these bikes cater to can afford rising costs.

“Two-wheeler industry is facing two major problems. In the BS-IV (emission norms) era entry-level bikes used to cost around Rs 40,000. Now, they are costing around Rs 60,000. So, the cost of acquisition has gone up almost 45-50 per cent for entry-level bikes. That apart, fuel prices have also gone up to over Rs 100. So, daily running costs have gone up,” said Singhania.

Rishi Vora, analyst at Kotak Institutional Equities, noted that entry segment motorcycle volumes are down 50 per cent below levels in the same period in 2018-19, while overall motorcycle volumes remain 30 per cent lower.

In the last few years, several new companies selling electric two-wheelers have emerged, providing customers a greener choice, even as the incumbent two-wheeler giants have been slow to launch their EVs. While are growing, albeit on a low base, incidents of fires in some of the scooters launched by a few startups have raised some concerns.

Jeetender Sharma, founder and MD of Okinawa Autotech, which has been among the top two electric scooter makers this year, says the company has undertaken several service campaigns to making customers aware and responsive to maintaining electric two-wheelers, while also educating customers on maintenance of vehicles and battery packs.

“We are expecting an increase of up to 30 per cent in our sales during the festive season period, buoyed by the strong customer demand in the EV two-wheeler segment in the country,” said Sharma.

Within two-wheelers, there is definitely demand for the premium and high-end bikes, driving companies to not just launch new premium bikes, but also look at launching variants of existing bikes with more features.

“While focusing on building a robust portfolio in premium segment, we have also been doing premiumization of our existing models through Xtec variants, as you have seen through Splendor Xtec, Glamour Xtec, Passion Xtec and Destini Xtec. The demand for these variants is outstripping supplies as of now,” said Niranjan Gupta, CFO of Hero MotoCorp.

These premium variants cost up to 10 per cent more, yet the demand is more than anticipated.

“Clearly, it means, the customers are willing to spend, they need to have a reason to spend,” said Gupta.

But, more features also means more chips that go into a vehicle and supply shortages there are limiting production, say analysts.

Things though could be looking up on sales front for two-wheelers. First quarter sales, for instance, were better than the fourth quarter, and a good monsoon this year, could lift rural consumer sentiments in the next few quarters.

Mitul Shah, head of research at Reliance Securities expects a gradual pickup in volumes in the automobile industry.

“We expect volume improvement to continue steadily with likely normal monsoon driven rural recovery over the next 3-4 months, while it would pick up strongly in the second half of FY23 (2022-23) with likely healthy agri output and cool off in inflation, turning customer sentiment positive,” he said.

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