Automobile sales to grow, but slower next year

Automakers are keeping an eye on potential dampeners such as a persistent high inflation, price increase on the back of regulatory changes and higher borrowing costs, notwithstanding a robust order book of nearly 750,000 units of passenger vehicles (PVs) as on November 30, said industry executives.

Sales growth is expected to moderate to mid-single digits, from high double digits this fiscal year, owing to the high base effect and easing of pent-up demand. Brokerage Nomura has forecast sales of 3.83 million PVs in 2022-23, up 25% from 3.06 million units in the previous fiscal.

Pressure at Entry Level

Nomura has projected sales growth of 6% year-on-year to 4.06 million units in 2023-24.

Demand for sport utility vehicles (SUVs), electric vehicles (EVs) and premium models will remain strong at the cost of entry level models, which are likely to be more impacted by the expected price hikes due to regulatory changes.

“Segment-wise, for PVs, we now expect industry volume growth to slow down from ~25% in FY23F (~21% previously) to ~6/8% in FY24F/25F,” Nomura research analysts Kapil Singh and Siddhartha Bera wrote in a recent report.

They said, however, that those with higher exposure to EVs will continue to see a strong operational performance. SUVs accounted for 54% of total PV sales in the first half of the current fiscal, according to the Society of Indian Automobile Manufacturers.

Some Detours

The two-wheeler market – which saw a protracted slowdown since 2018 owing to a combination of factors such as poor rural demand, price hikes led by regulatory changes and inflation – has seen a nascent recovery, but is expected to see growth taper off.

Credit ratings firm Crisil expects a normal monsoon – coupled with improved model availability and EVs – to drive two-wheeler volumes in 2023-24, albeit at an estimated lower pace of 11-12%, compared to a likely 21-23% in this fiscal.

The next fiscal year is also expected to see slower growth for commercial vehicles, particularly medium and heavy CVs (goods carriers), which have their fortunes tied to the overall economy and industrial growth. ICRA estimates the segment to grow 10-12% in 2023-24, down from 15-20% in 2022-23. It also expects softening of demand for light commercial vehicles.

EV sales, however, are expected to surge as various manufacturers launch models and the segment continues to receive policy push. Nomura expects EV penetration to reach 3% for passenger vehicles in 2023-24, against 1.6% estimated in this fiscal.