25-Jan-2023
2 mins read
Indian Auto Industry Introduction and Significance
- As per 2021 stats Auto Industry in India is the Fourth largest in the world in terms of valuation
- It is the third-largest market in the world in terms of sales
- It contributes approx. 7.1% of India’s GDP and between 40-49% of manufacturing GDP.
- This sector provides significant employment opportunities as well. Currently, it provides employment to approximately 4 crore people.
Achievements
- India is the world’s largest two and three-wheeler manufacturer
- It is the world’s second-largest tractor manufacturer
- It is the world’s second-largest bus manufacturer
- World’s third-largest heavy truck manufacturer
- World’s fourth-largest car manufacturer
The above-stated data clearly shows us why this sector is so important for India and this is the reason this sector is also used as a good indicator of the Indian Economy. Often a growing Auto Industry signifies a growing economy.
The Auto Industry worldwide is undergoing a huge transformation. The commitment of governments worldwide to The Paris Agreement on climate change and to achieve greenhouse emission reduction targets coupled with the shift in consumer demand from internal combustion engines to electric vehicles has disrupted the industry.
Globally policies are being framed to promote a shift towards greener alternatives and one of those is the promotion of mass adoption of EV vehicles.
Listed below are a few of the positive triggers that the industry has witnessed in the past few months.
Positive Triggers for the Industry
- Fall in the prices of commodities:
After the Russia-Ukraine tension last year, the prices of all the base metals, petroleum, and petroleum products increased sharply. This had a huge impact on the margins of the auto companies which saw the prices of their inputs rise sharply.
Now, in the past 3 months, the prices of all the commodities have softened. This serves as a relief to all the auto companies.
- Increase in the prices of automobiles across the spectrum
Owing to the rise of input costs, almost all the auto companies have taken several price hikes across all the models in a phased manner. The rise in the input costs has been fully priced in by the price hikes done by the companies, and now with the fall in the prices of the commodities/ inputs the OPM margins are set to improve from this fourth quarter onwards. We can already see this impact in the third quarter numbers also, as almost all the auto companies have reported a better-than-expected rise in PAT numbers.
- PLI Scheme
The Government has unveiled a 26000cr PLI Scheme for the Automobile and Auto Components Industry, which will boost this industry. As of now, a total of 95 applicants have been approved under the scheme 75 under component manufacturer and 20 under OEM. It is expected that over a period of 5 years, this incentive scheme can create 2 lakh direct employment opportunities and 6 lakh indirect employment opportunities.
- Global Semiconductor Chip’s supply chain shortages ease
Post covid the world witnessed a major semiconductor chip shortage. Global Auto players struggled to get the requisite supply of chips. This Global chip shortage led to a longer wait time for the new vehicles, while in some cases auto companies had to cancel some bookings and halt new bookings for a brief amount of time. This had an impact on the sales numbers of the Auto Industry, particularly in the passenger car segment. Now with the semiconductor chip shortages easing it is a positive trigger for auto companies.
- Growing EV adoption in India
The EV Market in India is expected to grow at a CAGR of 49% between 2022-2030. The sales of electric vehicles (EVs) in the country witnessed a great surge in the past 2 years. The sales of EV Vehicles in India have jumped from approx. 48k in 20-21 to 237k in 21-22 and to 442k in 22-23 (Till December 9th, 2022) and is expected to hit 600k by March 2023. Tata Motors is leading in the Four-Wheeler EV segment and Ola Electric in the Two-Wheeler EV space. Maruti Suzuki has also premiered their all-electric concept SUV, scheduled to be launched in the next few months. Almost all companies have launched/have plans to launch in this space.
From an investment point of view, EV Theme is one investment theme that is garnering the maximum traction as of now. Select companies in the Auto and Auto Ancillaries space are looking very attractive from a long-term investment perspective.
