Passenger vehicle sales seen growing 5-7 pc in 2024-25; SUV sales accelerating at twice the pace

Strong demand for sports utility vehicles has been driving sales of passenger vehicles in the country to a record this year. This trend is likely to continue in the next financial year ending March 2025 too with a slew of new launches expected in this segment, even as car sales are likely to remain subdued.

According to ratings agency CRISIL, passenger vehicle sales in 2024-25 are likely to grow 5-7 per cent, which will be on top of the 6-8 per cent growth that is expected in the current financial year. SUV sales are seen accelerating at almost twice the growth rate expected next year.

"While the overall PV volume is seen rising 5-7 per cent next fiscal, we expect demand for SUVs to accelerate at twice the pace at over 12 per cent driven by an array of feature-laden launches at competitive price points, varied technology options, including hybrid and electric, and increased access to credit," said Anuj Sethi, senior director at CRISIL Ratings.

SUVs accounted for around 28 per cent of the total domestic volume in financial year 2019. That has doubled to nearly 60 per cent this year amid significant changes in consumer preferences.

Several new SUVs are expected to hit the road over the next few quarters, from the Tata Curvv to Mahindra's Born Electric SUVs. This is expected to further drive SUV demand in the country.

But, even as SUV sales are accelerating, passenger cars are lagging behind. CRISIL expects demand for cars will slow down this financial year. More stringent regulations related to emissions and safety as well as higher commodity prices have driven up vehicle prices in the past 3-4 years.

The lowering affordability in the entry-level segment as well as the ongoing weakness in the rural market is seen hurting passenger car sales. The share of cars in the overall market is seen slipping from around 66 per cent in 2018-19 to 38 per cent this financial year and further to 35 per cent in 2024-25, according to CRISIL.

Slowing car sales is not the only worry. Vehicle exports from India are also slowing. CRISIL expects passenger vehicle exports to have slowed to 14 per cent in the current financial year, compared to 17 per cent in 2018-19 fiscal. Inflationary headwinds and limited availability of foreign exchange in key export markets of Latin America, Africa and Southeast Asia in the past two years are hurting exports, and CRISIL expects the slowdown trend to continue in the coming financial year as well.

Despite the headwinds, the increasing share of SUVs, which have higher realisations, and full benefit of earlier price hikes are set to boost operating margins of automakers by around 200 basis points this financial year to 11 per cent. More improvement in sales mix in favour of SUVs could further drive the margins up next year to 11.5 per cent to 12.5 per cent.

With capacity utilisations expected to touch 85 per cent this year and strong demand for SUVs continuing, passenger vehicle companies are set to spend around Rs 44,000 crore on capital expenditure in financial years 2024 and 2025, according to CRISIL. This will be almost double compared with the past two years.

The CRISIL study was based on analysis of six passenger vehicle makers, accounting for over 80 per cent of the market.

How the monsoon pans out, which will weigh on rural demand, commodity price movements, inventory levels and global macroeconomic conditions will be key things to monitor in the coming financial year.