India: Automotive sales impacted by Covid-19

Passenger vehicle sales in India (Source: MarkLines Data Center)

  2020 was a roller coaster year for the Indian car market. In 2020, India's passenger vehicle industry reported its poorest performance in recent years but towards the end of year, sales returned to normal. The main factors for poor performance were lack of consumer sentiment, an increase in purchasing costs, volatile fuel prices, tight liquidity, BS-VI norms and the impact of Covid-19. Covid-19 pushed sales to a historical low in the middle of the year. The government announced several stimuli for industries in the wake of Covid-19 with the expectation of boosting the automotive industry.

  This year also witnessed the emergence of new OEMs, and connected and electric vehicles in India. The boost in the agriculture market, new model launches, as well as better offers and vaccination programs are expected to boost the market after historical low of sales due to the Covid-19 lockdown. However, towards the end of year, the semiconductor crisis and supply chain issue threaten to pull the sales back into negative territory.

Related reports:
CASE Development in India (Part 2): Mobility (Feb. 2021)
CASE Development in India (Part 1): Electrification (Feb. 2021)
Indian Auto Expo 2020: Indian and European OEMs announce new SUVs and electric models (Feb. 2020)
Indian Auto Expo 2020: GWM and Haima announce new entry into Indian market (Feb. 2020)
India: Muted market growth and jump to BS-VI regulation (Sep. 2019)

  2020 was a very eventful year for passenger vehicles in India. The year witnessed the introduction of new emission norms, and a Covid-19 lockdown, resulting in zero sales in the month of April 2020, as well as a bounce back of monthly sales towards the end of 2020 that overtook the respective month's sales of the previous year.

Monthly sales comparison between 2019 and 2020 (Source: SIAM, MarkLines Data Center)

  The year started on a low note as the passenger vehicle segment experienced huge demand contraction due to weak consumer sentiment, muted demand in rural parts, stress in the NBFC (non-bank financial institution) sector, vehicle price increases due to BS-VI regulations, and the impact of Covid-19 etc.

  Towards March 2020, due to Covid-19 cases and lockdown announcements by the Indian government, sales were completely halted in India. As the restriction started to lift from May onwards, domestic sales gradually began to improve. At the time of the festive season (September - October 2020), sales superseded those of the previous year, and there was huge demand for personal mobility as well as new model announcements by OEMs. Demand remains high compared to last year, towards the end of 2020.

Impact of Covid-19

  According to FADA (Federation of Automobile Dealers Associations), there is a reduction in customer foot fall from February onwards. The dealers expected a good demand and discount for BS-IV vehicles in February - March 2020. But the cases of Covid-19 resulted in an alarming drop in customer walk-ins in auto showrooms. Further the lockdown announcement in the last week of March 2020 completely stopped retail sales in India for almost two months. Towards the second half of 2020, dealers began to open up and sales improved further. The dealer inventory level for passenger vehicles stood at 15 - 20 days in December 2020, which was 20 - 25 days in December 2019.

  The lockdown also affected OEM operations. Several OEMs also reported supply chain issues due to the initial outbreak in China which affected the availability of components imported from China. The nationwide lockdown from March 23, 2020 completely stopped all sales. According to the Society of Indian Automobile Manufacturers (SIAM), the closure of auto OEMs and components suppliers' plants will lead to losses of more than INR 23 billion in turnover for each day of closure. The lockdown also hurt the export of vehicles from India due to higher freight costs.

  Covid-19 also impacted the shared mobility market in India. Major shared mobility service providers like Uber and Ola witnessed a huge drop in their rides. Due to safety and hygiene concerns, people shifted towards affordable personal mobility.

Stress in the NBFC sector

  In India, over 80% of cars are sold on finance, so stress in vehicle financing considerably affected the sales. In 2020, tight credit conditions arising from stress in the NBFC (non-bank financial institution) sector affected dealers as well as customers. Indian consumer witnessed an increase in the down payment amount along with high insurance premiums and road taxes.

BS-VI regulations and its impact

  During FY 2019-20, several regulations like BS-VI for emission norms and safety regulations like ABS, airbag, pedestrian safety etc came into force. These new regulations forced OEMs to increase their vehicle prices up to 20%. This was further aggravated by subdued economic growth and weak consumer sentiment.

  The Indian government announced several measures for the automotive industry as well as the overall economy to counter the slowdown and ill-effect of Covid-19 in India. Here are some of the key announcements.

Relief packages for Covid-19

  The government of India announced three major relief packages to fight the battle against Covid-19. On March 26, 2020, the government announced a INR 1.7 trillion relief package. On May 15 2020, it announced a relief package of INR 20 trillion and on November 14, 2020, a INR 2.7 trillion stimulus package was announced. The relief packages cover all the industries and are expected to boost the overall Indian economy. The government also introduced the "Atma-Nirbha Bharat" campaign to boost local manufacturing in India and reduce dependency on import goods. It is expected to increase localization for the automotive industry.

Production-Linked Incentive (PLI) scheme

  In November 2020, the Indian government gave its approval to introduce the Production-Linked Incentive (PLI) Scheme for the automotive sector to enhance India's manufacturing capabilities and exports. The Indian government has approved a INR 570.4 billion financial outlay over a five-year period.

  Advance Chemistry Cell (ACC) Battery will be boosted by an approved financial outlay of INR 181 billion, over a five-year period. ACC battery manufacturing represents one of the largest economic opportunities of the twenty-first century for several global growth sectors, such as consumer electronics, electric vehicles, and renewable energy. The PLI scheme for ACC battery will incentivize large domestic and international players in establishing a competitive ACC battery set-up in the country.

Scrappage Policy

  Although a vehicle scrapping policy was announced in the union budget for FY 2021-22, the Indian government already started hinting about it in 2020. It will phase out old and unfit vehicles. The scrappage policy will lead to a new investment of around INR 100 billion, and create as many as 50,000 jobs.

  The policy will cover an estimated 5.1 million light motor vehicles (LMV) that are above 20 years of age, while another 3.4 million LMVs that are above 15 years. It will also cover 1.7 million medium and heavy motor vehicles, which are above 15 years, and currently without valid fitness certificates.

New definition of MSMEs

  The Indian government issued a new definition for Micro, Small and Medium Enterprises (MSMEs). The definition of micro manufacturing and services units was increased to INR 10 million of investment and INR 50 million of turnover. The limit of small units was increased to INR 100 million of investment and INR 500 million of turnover. Similarly, the limit of medium units was increased to INR 500 million of investment and INR 2.5 billion of turnover.

  With this new classification, a significant number of auto component manufactures stand to benefit as the sector is dominated by smaller enterprises. The new definition will help the MSME sector to grow without the fear of losing their MSME Status and they will continue to enjoy the schemes and tax reliefs announced for the MSME sector.

Indian passenger car market (Source: MarkLines Data Center)

  The passenger car market is showing a negative trend from the last two-years due to a slowdown in the economy as well as the impact of Covid-19. If we compare data of the last five years, the export, production and sales of cars are growing until 2018, after that the downward trend starts. The pandemic has only made the situation worse for the industry.

  FADA (Federation of Automobile Dealers Associations) said that a good crop season, better offers, new launches and vaccination programmes will keep the passenger vehicle demand going. However, it raises concern over supply chain issues, and hikes announced by all OEMs. FADA expects a temporary blip in demand as customers take time to adapt.

  In the future however, sales are expected to rise on account of a shift to personal mobility, introduction of new OEMs and advance technology models and adoption of electric mobility. In recent years, the Indian market is leaning towards the compact SUV segment for personal mobility.

Indian passenger car market: production, sales and export (Units in Thousand)

(Source: SIAM, MarkLines Data Center)

High taxes

  The taxes on Indian vehicles are among the highest in the world. The Indian government apply a GST of 28% to new vehicles with cess that ranges from 3 to 22%, taking the effective tax rate to up to 50%. Although the Indian government announced a tax cut for electric vehicles in FY 2019-20 it has failed to translate this into any success for green vehicles with electric vehicles contributing to less than one percent of total new vehicles sales.

  India also has the highest taxes on gasoline and diesel in the world. There is a sharp reduction in the gap of gasoline and diesel prices in India recently. The high fuel prices have further delayed the consumer's decision to purchase automobiles.

  (Reference report) Government support for electric mobility, GST structure for passenger vehicle in India

Semiconductor shortage

  Towards the end of the year, Indian OEMs also faced the problem of a shortage of semiconductors or microprocessors which was caused by a disruption in the global supply chain. It is expected that it will lead to the disruption of production in the first half of 2021.

  India is one of the major importers of semiconductors and has been impacted with severe supply shortages. It led to a reduction in the ability to meet automotive market demand in India. The demand in the consumer electronics industry has seen steep increases driven by safety and hygiene sentiments as well as the rise of 5G connectivity.

  The recently launched and upcoming models use advanced technological components, thereby increasing the demand for semiconductors. This has led to a surge in global demand of semiconductors, a critical component in manufacturing of automotive electronics. All major OEMs in India such as, Maruti Suzuki, Tata, Hyundai, Kia, Mahindra etc. are engaging with their suppliers to mitigate the impact on production.

  The Indian passenger car market is dominated by compact cars and compact SUVs. Compact cars themselves contribute to around 45% of total sales while compact SUVs have a market share of 20%. These two segments are responsible for around two-third of the sales of passenger cars. Here are the segment type sales of passenger cars in India in 2020.

(Source: MarkLines Data Center)

Tata Altroz premium hatchback (Source: Tata Motors)	Kia Sonet compact SUV (Source: Kia)

New Model Launches

  Below are the major product launches by Indian OEMs in 2020. The year witnessed the launch of electric vehicle SUVs for the first time in India. Most of the OEMs launched vehicles in compact SUV, premium hatchback and the MPV segments while entry-level cars and sedans were neglected. New entrants like Kia, MG Motors expanded their portfolio with new launches. MG Motor also introduced India's first L-1 autonomous SUV- Gloster.

Mahindra Thar SUV (Source: Mahindra & Mahindra)	Nissan Magnite Compact SUV (Source: Nissan)

  In 2020 major OEMs have reported a fall in sales other than new entrants such as Kia Motors and MG Motor. Almost all major OEMs reported double digit declines in their sales. Tata Motors was an exception as its new models successfully created an impact on the market and placed it in third place for overall sales. Kia Motors and MG Motor benefited from a low base year as they launched their first model in the middle of 2019.

OEM sales comparison (Source: MarkLines Data Center)

(Source: MarkLines Data Center)

Passenger car market share in 2020 (Source: MarkLines Data Center)

  Maruti Suzuki remained the market leader in terms of passenger car sales in India. In 2020, it held close to 50% of the market share in domestic sales in India. Hyundai came distant second with a 17.3% market share. The success of Maruti Suzuki and Hyundai was also related to segment wise sales in India. These companies are some of the major producers of compact, mini and compact SUVs in India. Tata Motors was third in sales with a 7.7% market share. But a surprise entry in India was Kia Motors, which was fourth in overall sales in 2020. Kia Motors debuted in 2019 and with three models they achieved more than a 5% market share within a year of launch.

Great Wall Motor

  In January 2020, Great Wall Motors (GWM) and General Motors (GM) reached an agreement for the sale of GM India's Talegaon manufacturing facility, subject to requisite government and regulatory approvals. The plant will be equipped with the latest world-class technology and along with the R&D centre in Bengaluru, it plans to provide an estimated 3,000 direct employment openings in a phased manner.

  Great Wall Motors officially debuted its Haval brand and GWM EV at the Delhi International Auto Show, and launched its Indian market plan. GWM plans to invest an estimated total of 1 billion USD (approx. INR 70 billion) in India in a phased manner, covering manufacturing plants, vehicle research and development, production of power batteries and electric drives, as well as vehicle and component manufacturing.

  At present, this project is delayed due to tension in diplomatic relations between India and China. General Motor has already announced closure of this plant in Talegaon.

Haima Automobile

  China based Haima Automobile announced its foray into the Indian market by showcasing its next generation family electric car - Bird Electric EV1. The five-seater hatch-back will be available in the range of INR 1 million on Indian roads.

  Haima New Energy (a wholly-owned subsidiary of Haima Automobile Group), has entered into a technical collaboration on EVs with Bird Electric - a wholly-owned subsidiary of Bird Group, an Indian conglomerate to manufacture Bird Electric EV1. The battery-powered vehicle will be manufactured at the soon-to-be-established plant in Manesar (Haryana). The first lot of Bird Electric EV1 will take at least 12-15 months for the roll-out.

PSA Group / Citroen

  In January 2017, the PSA Group announced the signing of joint-venture agreements with the CK Birla Group to produce and sell vehicles and components in India by 2020. The partnership entails two JV agreements with an initial capital investment close to EUR 100 million for vehicle and powertrain manufacturing in the State of Tamil Nadu. The initial manufacturing capacity will be set at about 100,000 vehicles per year.

  PCA Motors India Private Ltd, part of Groupe PSA, also opened its new India Technical Centre (ITC) in Chennai. The new centre will house departments of Research & Development, Programs and Projects, Global Purchasing Hub, Supply Chain, Process and Manufacturing Engineering, Quality, KD Excellence Centre and Product.

  In January 2021, it started the commercial production and rolled out the first Citroen C5 Aircross SUV. It is the first product from the Citroen brand for Indian customers and is slated to be launched in the first quarter of 2021.

Lexus

  In January 2020, Lexus announced local production, under the parts and components category, an enhanced product portfolio and the expansion of its guest experience centre network in India. Lexus India has set up an assembly line at Toyota Kirloskar Motor's (TKM) Bidadi plant in Karnataka. The production of ES 300h commenced in January 2020.

Tesla

  In December 2020, Tesla owner Elon Musk confirmed that Tesla will start operation in India from 2021. Tesla incorporated its Indian subsidiary Tesla India Motors and Energy Private Ltd in Bengaluru on January 8, 2021. Tesla has appointed three directors in this firm. Chief Minister of Karnataka also announced that Tesla will establish an R&D unit in Bengaluru.

  Below are the major announcements by Indian OEMs for new infrastructure and R&D development in 2020.

Plant Closures

  During the calendar year 2020, Honda Motor and General Motor announced they would reorganize their manufacturing In India.

(LMC Automotive, Quarter 4, 2020)

  According to LMC Automotive's sales forecast (Q4 2020), Indian light vehicle sales in 2021 will recover to 3.36 million units, up by 20.5% year-over-year (y/y), compared to 2.79 mn units in 2020, which fell sharply under the COVID-19 pandemic. LV sales will continue to increase after that, but will not reach 4 mn units (2018 level) by 2024.

  Following zero sales in April 2020, due to India's nationwide lockdown, the market has continued to rebound strongly from previously weak levels, thanks to pent-up demand and stockpiling by OEMs (most notably Suzuki Group and Hyundai) to prepare for the festival season, which ended in November.

  Cumulative LV wholesales in the first eleven months of 2020, however, shrank by 23% YoY to 2.48 mn units. This tally consisted of 2.08 mn PVs (-20% YoY) and 401k LCVs (-37% YoY).

  PV sales, in particular, were also bolstered by higher demand for personal mobility, new model launches, and offers during the festival season. LCV demand, meanwhile, was helped by the near normalization of goods transport, especially in rural India.

  Despite the still-spreading pandemic, economic activity seems to have largely returned to normal. Industrial production and the unemployment rate have already returned to pre-pandemic levels, while consumer confidence has also started to pick up.

  At the same time, the global economic outlook has brightened somewhat, with vaccination programs being rolled out in a number of countries. In India, vaccines are not expected to be widely available until mid-2021, but their arrival should boost confidence, job creation and vehicle sales.

  Total LV build in November 2020 registered single-digit YoY growth, compared with double-digit expansions in the two preceding months. This indicates a degree of scaling back in production, now that India's festival season is over. Having said that, inventory levels are reportedly low and output in the next few months may not fall by much. We therefore estimate monthly output of about 340-400k between December 2020 and March 2021.

  Of note, the shortage of imported semiconductors (micro-processors) from major supplier Bosch could impact output for certain OEMs in the January‐March 2021 quarter, with Mahindra & Mahindra already warning that its production is likely to be reduced during the quarter. This shortage is the result of a global surge in demand in the consumer electronics industry, particularly due to the rise in 5G connectivity.

Indian light vehicle sales forecast by make (LMC Automotive, Quarter 4, 2020)

(Units)

Source: LMC Automotive "Global Automotive Sales Forecast (Quarter 4, 2020)"
(Note) 1. Data indicate figures of only small-size vehicles, including passenger cars and light commercial vehicles with a gross vehicle weight of under 6 tons.
2. All rights reserved. Reproduction of any data will require permission of LMC Automotive.

------------------
Keywords
India, COVID-19, BS-VI, GST, Semiconductor Shortage, SUV, Maruti Suzuki, Great Wall Motor, Haima, Tata, Mahindra, Hyundai, Kia, PSA, FCA, Tesla, VW, Isuzu, Lexus, Toyota, Honda, GM

<Automobile Industry Portal MarkLines>