By:
Sanjeev Garg, Practice leader, Automotive, and Aryaman Tandon, Director & Practice Leader, Automotive at Praxis Global AllianceIndia’s automobile sector is emerging out of the headwinds of COVID-19 and continuing on its path to becoming the third-largest automobile market. The pandemic reminds us that black swans exist. However, one still needs to endeavour to understand the larger trends and patterns to win in the evolving landscape. With COVID-19-led disruptions in the background, we have identified ten leading tends that disrupt the ‘normal’ of the automobile sector. The incumbents in the automobile sector must build a perspective on the Indian automobile sector, which is seeing disruptions across power trains, regulations, customer preferences, and digital technologies.
Rising adoption of personal mobility, increasing penetration of alternative-engine powertrain vehicles, rising connectivity in vehicles, digitisation in dealership models, telematics, digitalisation of the workforce, growth in the used car market, strengthening of compact and mid-size SUVs, shift in profit centres, and the impending implementation of scrapping policy are the disruptive top 10 trends in the automotive industry.
Rising adoption of personal mobility: COVID-19 has changed the preferred mode of commute among passengers, with 56% of people choosing to use a personal vehicle over a public or shared transport as per a recent survey done by PGA Labs. This increased preference for personal mobility vehicles is expected to drive vehicle demand in the post-COVID world.
Increasing penetration of alternate-engine powertrains: The alternative-engine powertrain segment is buzzing with lots of activity, especially in the 2W and 3W segment. It is gaining traction with the entry of new market participants and government incentives. During FY17-FY20, electric vehicles recorded a growth rate of 44%, with nearly one million units sold in FY20. In recent years, there has been a substantial change in consumers’ perspectives; preference for alternative-engine vehicles has increased by 10%, from 39% in 2019 to 49% in 2020. Also, 35% of buyers are willing to pay a premium of more than INR1 lakh for an EV as per a recent survey done by PGA Labs. Further, with support from the government policies like FAME-II, removing the battery from the new vehicle sales (leading to less upfront cost), reduced GST, and an increased preference for EVs among the consumers, alternative-powertrain vehicles are on the path of growing profoundly in the Indian automobile market.
Rising connectivity in vehicles: Connectivity in vehicles is still in a nascent stage, but the entry of global OEMs to the Indian automobile market has given it a push. New models from MG and KIA are coming with factory-fitted connectivity features. This connected car trend is expected to pick up the pace with a projected number of connected cars to be 1.7million in 2022 compared to 0.3million in 2016. Consumers are also excited about the concept of connected cars, with 80% of consumers supporting it while 50% + willing to pay a premium of up to INR 25,000 as per the PGA Labs survey.
Digitisation in dealership models: Digital dealership drives higher sales through more in-depth and personalised customer engagement, as a massive customer base shifts to online with increasing internet penetration and lower data charges. This fundamental shift in the dealership is being driven by social media and advancing technologies like AR/VR and data analytics. As of 2020, digital contributes to 50%+ in sales-mix for OEMs as per a PGA Labs report. Digital provides promising solutions in dealerships as it enables OEMs to adopt a targeted approach ost-efficiently.
Rising trend of telematics: The emergence of telematics devices in automobiles has enabled the commercial vehicles and car fleets to take a giant leap towards modernisation. It is currently one of India’s fastest-growing markets within the automotive components sector, with a CAGR of ~16% for 2016-2020, and it is projected to reach USD 301.23 million by 2021. Companies realise the benefits of telematics in efficiently managing and optimising their fleets while providing additional avenues for monetisation to fleet owners and OEMs. Some of the key growth drivers include the preference for connected vehicles among consumers, government push through new AIS 140 Motor Vehicle Order, insurance incentives, and the need for optimising the commute, especially in commercial vehicles.
Transformation of the workforce led by digitisation: Electrification and digitisation of the automobile sector have created a need for upskilling the workforce to meet the digital skills required in the industry. This fundamental change in the skill-set needed for the automobile industry has paved the way for new roles in the fields like data analytics, vehicle connectivity, autonomous drive train design, machine learning, and artificial intelligence.
Growth in the used car market: Consumer behaviour is changing rapidly in India as more and more millennials enter the workforce and start earning and spending more. This change in user behaviour has led to a reduced ownership period for cars; the average ownership period reduced to 3-5 years in 2019 compared to 8-10 years in 2009. Reduced ownership period and other factors like the transition from BS-IV to BS-VI, GST rates differential on purchase of a used car vs new car, etc. are some of the growth drivers for increasing used cars. The used car market sees a resilient growth rate of 6.2% for FY16-FY20 despite a slowdown in the new car sale during the same period, and there is still high headroom for growth as more and more consumers prefer their vehicle vs public modes of travel.
Compact and mid-size SUVs to gain strength: SUVs have gained a significant share in the personal cars market in the last five fiscal years. Compact and mid-sized SUV segments have led to a substantial increase in sales of SUVs as they are better aligned with the expectations of Indian consumers and road conditions. The mid-size SUV has seen the fastest recovery post-COVID after bottoming up in April 2020 with a YoY growth rate of 37% in September 2020. The entry of new players in this segment with new models lined up for upcoming years is expected to strengthen the compact and mid-sized SUV segment further.
Shifting profit centres: Profit centres are moving from conventional car sales to new models like car subscription, data monetisation, and shared mobility. The profit centres are shifting because of the rising utilisation of vehicles due to shared mobility as well as the saturation of vehicle ownership in developed countries. Data monetisation, in-vehicle connectivity, subscriptions, rental, charging, and long-term maintenance packages are expected to command a larger share in the profit pool.
India is all set to bring scrapping policy: The scrappage policy, expected to be launched by 2021, is crucial to support the recovery of the automobile sector in the post-COVID world, which has bottomed out in April. Under this policy, customers are entitled to get incentives to purchase new vehicles in exchange for scrapping their old cars. It is expected to be a growth driver for the auto industry by boosting new vehicle demand in the replacement market. Organised sector players are on-boarding this policy as they start their scrappage centres like CERO by Mahindra & Mahindra (2018) and Maruti Suzuki Toyotsu by Maruti Suzuki and Toyota (2019). This policy also supports India’s “Green India” mission as it creates space for a cleaner fleet of vehicles.
The bottom line
Overall, 2021 would be a year for recovery, transition, and expansion for the Indian Automobile industry as it continues its path to be among the world’s top three automobile markets. The opportunities created by the major disruptions like changing consumer preferences, digitisation, government reforms, and new business models will pave the way for adapting players to get ahead in this competitive market of automobiles.
There is a tremendous inherent potential for market growth in India, with only 18 out of 1,000 Indians owning a car compared to 800 in America and 500 in Europe. India has already displaced Germany as the world’s fourth-largest market for vehicle sales by volume in 2018, and now it is on its path to reach the next milestone.
(DISCLAIMER: The views expressed are solely of the author and ETAuto.com does not necessarily subscribe to it. ETAuto.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
