PV sales to register 8% uptick in CY23; growth likely to moderate to a low single digit in CY24

India’s passenger vehicle market is set to end this calendar year with a sustained growth of around 8% year on year, as the better availability of semiconductors fueled vehicle production to cater to the pent-up demand, says Tarun Garg. 

The chief operating officer of Hyundai Motor India however, expects the growth to moderate next year to low-single digits on a high base, echoing similar sentiments expressed by RC Bhargava, MSIL Chaiman. 

In a Q2 FY24 earnings call, the chairman of India's largest car maker had said that the growth will be slow in FY25, underlining that the market is in for a correction after three healthy years of strong growth.

“Passenger vehicle industry sales during the Jan-Dec period is pegged at 4.12 million units, which would be a growth of around 8% from the previous year,” Garg said. The industry hit the top gear on the back of pent-up demand from the previous year, higher production, new launches and strong festival season demand.

Constraints in the supply of semiconductors after the pandemic outbreak plagued the auto industry as automakers could not produce enough vehicles to cater to the demand. However, the supply improved in 2023 and the industry is now out of the woods. This has been one of the major factors that drove sales.

Carmakers launched several new models in the utility vehicle segment to cash in the favourable market sentiments towards the vehicles with a bulkier look, road presence, high ground clearance, and space with additional features.

Sports utility vehicles were the growth engine as strong growth in the segment offset the weakness seen in small cars – hatchbacks and entry-level sedans. Currently, utility vehicles account for around 55% of the passenger vehicle sales in the country.

Festival season was another factor that fuelled passenger vehicle sales in 2023. The data from the Federation Automobile Dealers Associations (FADA) show that 547,246 passenger vehicles were sold during the 42-day festive period, against 496,047 vehicles in the year-ago period.

“Despite initial underperformance during Navratri, particularly in the passenger vehicle sector, the situation improved by Deepawali, ending with a 10% growth rate,” FADA President Manish Raj Singhania said.

For the financial year 2023-24, Maruti Suzuki is estimating passenger vehicle sales to grow in the range of 5.5% to 6.5% on year. The growth in April-September was on a low base in the comparable period when the chip shortage issue was at its peak. The chip supply improved gradually from the second half of the previous financial year, which resulted in a better second half compared with the first half in 2022-23.

Automakers have also noted that growth in rural parts has been robust during the year and was exceeding the growth rate in the urban markets.

CY2024 growth seen in low-single digits

Hyundai Motors, India’s third largest carmaker, is expecting passenger vehicle sales to grow in low-single digits in the calendar year 2024.

“The pent-up demand has gone. People could not get cars in the last two years because of supply issues. Now it is all about fresh bookings,” Garg said.

The low growth rate can also be attributed to the weakness seen in the small car segment. The entry-level car market has been shrinking amid the increase in vehicle prices over the last couple of years.

Sports utility vehicles are expected to continue the trend with an outperformance. “Customers have lost their interest in small cars priced under Rs 5 lakh or those with smaller than 1-liter engines,” Garg said.

Recently, Marut Suzuki’s RC Bhargava also noted that the passenger vehicle industry is not very optimistic about growth next year while projecting a stagnant growth in 2024-25 (April-March), partly due to the de-growth in the small car segment.

Bhargava said the growth of small cars is essential for the sustained growth of the passenger vehicle market as sports utility vehicles or sedans are unlikely to attract many new entrants.

Meanwhile, several automakers including Maruti Suzuki, Tata Motors, and Mahindra & Mahindra, have announced their plans to hike vehicle prices from January 1, citing input cost pressure. Hyundai Motor India also expects to increase prices from January 1.