Several factors, particularly a revival in rural demand, is helping the two-wheeler industry get back on its feet after being hit hard by the Covid-19 pandemic and economic slowdown that followed.
02 Jan 2025 | 7610 Views | By Kiran Murali
The year 2024 was one of recovery for two-wheeler makers in the country. Following a rough patch after the pandemic, the industry is now gradually getting back on its feet. Two-wheeler sales in the country have been growing since the latter half of 2023 and their upward trajectory has continued ...
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The year 2024 was one of recovery for two-wheeler makers in the country. Following a rough patch after the pandemic, the industry is now gradually getting back on its feet. Two-wheeler sales in the country have been growing since the latter half of 2023 and their upward trajectory has continued with unwavering momentum.
The domestic two-wheeler market, which soared to a record 2.12 crore units in 2018-19, plummeted in 2021-22 as the pandemic and rising costs took a toll. However, the pandemic accelerated a shift towards personal mobility and that trend shows no signs of slowing down. Consumers are increasingly opting for more convenience, and independent and flexible transportation over public transport.
While the industry has been steadily recovering over the past two years, it is yet to reclaim the heights it once reached. Last year’s festive season ignited a turnaround journey, and automakers have reported a significant uptick ever since. This uptick signals a promising return to pre-pandemic demand levels.
This financial year, some two-wheeler manufacturers and industry experts cautiously predicted that industry volumes in the next financial year could surpass the all-time high achieved in 2018-19. The first half of fiscal 2025 saw the two-wheeler industry achieve a total volume of 10.4 million units, setting a positive trajectory for the remaining fiscal year.
As per data from the Society of Indian Automobile Manufacturers (SIAM), two wheelers are the only segment that witnessed a double-digit growth during the April-October period. Automakers despatched a total of 12.3 million two wheelers during the first seven months of this fiscal.
“Several positive drivers for the industry should sustain growth over the long term. The demographic of our population, the expanding road network, the advancing penetration of retail finance and the economic recovery after COVID now reaching all segments of customers. Hence, we do see this growth momentum sustaining and the industry finally crossing the previous high of FY19,” Bajaj Auto’s executive director Rakesh Sharma said.
Green shoots in rural economy
Two wheelers remain a popular mode of transportation for a significant part of our population, as they are practical and affordable. With their low purchase price, fuel efficiency and minimal maintenance costs, they offer a cost-effective mode of transportation. And a large portion of the two-wheeler sales in the country still comes from the rural region, especially for entry-level models. Estimates suggest that rural India accounts for 40-50% of the two wheelers sold in India.
Rural India was worst hit by the pandemic; the economic fallout disrupted agriculture, rural-urban migration and reduced business activity, significantly impacted the purchasing power of rural communities.
However, automakers have said that there has been an increase in rural demand since last year’s festive season. The rural economy is showing signs of recovery following government support, investment in infrastructure and improvement in financing options.
Hero MotoCorp CEO Niranjan Gupta told investors last month, “If you look at the government initiatives in the budget and continued focus on long-term investment and employment, I would say as we move forward—the next 4-8 quarters—the bottom of the pyramid starts participating more. This would actually benefit the auto sector, in particular, especially when it’s arising out of rural areas.”
TVS Motor Company director and CEO KN Radhakrishnan noted, “We are seeing good response from the rural market. Maybe in the second quarter, the industry slowed down a little, but it picked up during Navratri. I’m of the view that we are going to see rural growth after a long time. Urban is also growing.”
Premiumisation
Gone are the days of prioritising merely basic needs. Consumers today, with their rising aspirations and purchasing power, seek more than just transportation. The market has witnessed a shift in demand, moving beyond the traditional focus on fuel efficiency to encompass style, latest features and exhilarating performance.
Indian consumers are increasingly opting for high-end motorcycles, with the 125cc+ segment now accounting for over half of all sales. This is a significant increase from the 35-40% in fiscal 2019, indicating a growing preference for higher-powered bikes. The growth in the 125cc+ segment has outpaced overall sales as there has been a maturity in terms of demand for models with higher capacity.
This has helped automakers improve their margins with better average selling prices on the back of a richer product mix. “This is a healthy trend, signalling that up-trading forces are at play,” Bajaj’s Sharma said.
Similarly, scooters are another segment that is witnessing increasing adoption among two wheelers. Scooters accounted for 32% of the overall sales and the share was almost the same in the previous year, too. Honda Motorcycle and Scooter India is the leader in the domestic scooter market, followed by TVS Motor.
“Scooters are flexible as any member of the family can use it and it can be used for various purposes. So, I expect scooters to do much better,” Radhakrishnan said. CRISIL estimates that the share of 110cc scooters within the ICE scooter segment has slid from approximately 78% in fiscal 2019 to around 55% by fiscal 2024. On the other hand, the share of 125cc scooters has risen from around 20% to roughly 47%, indicating a premiumisation trend in scooters as well.
Electric vehicles
Electrification is rapidly gaining prominence in the two-wheeler segment, paving the way for a cleaner future. With Honda Motorcycle & Scooter India joining the EV race, all major two-wheeler manufacturers have unveiled their plans to electrify their portfolios.
While new-age original equipment manufacturers (OEMs) dominated the EV market in the early years, the landscape has seen significant consolidation. The FAME 2 fiasco ousted a few major electric two-wheeler startups while traditional OEMs like Hero MotoCorp, Bajaj Auto and TVS Motor have strategically refined their portfolios and expanded their market share.
The penetration of EVs in the two-wheeler segment is around 6%. Around 9.6 lakh electric two-wheelers were registered between January and October, a 38% year-on-year growth over the same period last year. Retail sales of electric two wheeler have surpassed the 10 lakh or 1 million-unit milestone for the first time in a year.
Though Ola has been losing the market to traditional OEMs like TVS Motor and Bajaj Auto, it still maintains the largest market share. TVS, Bajaj, Ather and Hero MotoCorp’s Vida are the other top-selling two-wheeler brands.
The EV segment currently gets demand incentives from the government. The government’s two year PM E-Drive scheme provides a subsidy of Rs 5,000 per kWh to electric two wheelers with fixed batteries, subject to a cap of Rs 10,000 per vehicle. The subsidy will be tapered down to Rs 2,500 per kWh with a cap of Rs 5,000 per vehicle from April 2025.
The PM E-Drive subsidy is lower than previous schemes like EMPS and FAME, aligning with the government’s strategy of phasing out subsidies. Senior government officials have said the incentives for e2Ws are unlikely to be extended beyond the financial year 2026.
Traditional automakers are strategically positioning themselves to build a competitive independent EV portfolio independent of subsidies.
The industry is gradually shifting towards a future where EVs are not solely dependent on government incentives. Traditional OEMs are leading this charge by developing competitive products that cater to a wider range of consumer preferences.
The reduction in cell costs has helped mitigate the higher costs of EVs to an extent and buttress the impact of subsidy reduction. Going forward, the two-wheeler industry is on a robust growth trajectory to clock new highs. An upbeat rural economy, increasing urbanisation, and evolving consumer preferences are expected to fuel the demand going forward while the EV market is likely to disrupt the market with more advanced products and improved charging infrastructure.