Year 2024 promises to be an exciting one for the automotive industry as it moves into new territories of innovation and changing customer demands. Much of what had started in 2023 and before, is likely to gather speed even as new trends emerge. So, while the Covid-19 lockdowns severely affected the entire automotive industry’s value chain, it also began to embrace a fresh perspective amidst the global crisis.
In FY23, the Indian automotive sector experienced a revival in the economy, accompanied by new challenges and opportunities. Domestic automobile sales saw a significant year-on-year growth of 20 percent, marking the first full year unaffected by the pandemic. Many factors contributed to the revival — pent up demand, positive government regulations, new vehicle launches with many first-time segment-specific features, and higher investments in infrastructure. In spite of inflationary pressure, sales were supported by early purchases and easing of semiconductor chip supply. Vehicles in all categories experienced double-digit year-on-year growth in domestic sales — led by three-wheelers (87 percent), followed by commercial vehicles (34 percent), passenger vehicles (27 percent), two-wheelers (17 percent) and tractors (12 percent).
Exports were a mixed bag as overall numbers declined from the previous year — export of two-wheelers, commercial vehicles, tractors, and three-wheelers declined. However, passenger vehicle exports bucked the trend and registered growth, largely due to higher demand for sports utility vehicles. Likewise, the auto components industry also touched a new high. According to data shared by Automotive Component Manufacturers Association (ACMA), in FY23, the industry grew 32.8 percent to clock a turnover Rs 5.60 lakh crore (USD 69.7 billion), surpassing its previous high (in FY22). Exports increased by 5.2 percent to Rs 1.61 lakh crore (USD 20.1 billion), while imports grew by 10.9 percent to reach Rs 1.63 lakh crore (USD 20.3 billion).
The aftermarket industry, valued at Rs 85,333 crore, also experienced a steady growth of 15 percent. Sales of components to OEMs in the domestic market rose a healthy 39.5 percent to reach Rs 4.76 lakh crore.
Localisation in a higher gear
As per a SIAM, ACMA and EY localisation study, the total import for the automotive industry as a whole accounted for about Rs 1.13 lakh crore in year FY22. Pivotal categories, including drive transmission steering (28 percent), engines (16 percent), electricals (14 percent) and electronics (12 percent), form almost 70 percent of the auto components import. Dependence on imports remains high despite concerted efforts to advance localisation through projects, technology partnerships, and local development and design.
The automotive industry, backed by government support, has undertaken many initiatives to localise non-critical components and establish electronics assembly and design centres within the country. The government’s Production Linked Incentive (PLI) scheme is also facilitating the entry of numerous global companies into the country, promoting our goal of localisation. A positive outlook for FY24 is also an opportunity to press the point of localisation harder.
Mobility solutions, green tech, safety
Some industry reports predict the domestic automobile sales volume to grow by a moderate eight to ten percent in FY24. Similar growth is expected in passenger vehicle sales volume, driven by strong demand in the SUV segment. However, high ownership costs and the shift towards electric vehicles could affect two-wheeler sales, which are projected to be moderate at seven to nine percent.
With organisations putting innovation in the fast lane, significant transformations can be expected in the industry. Connected and shared mobility, customer experience, electrification, and alternative green power trains are expected to drive the most significant changes. The prominence of electronic components and software, along with the progress in autonomous driving and shared mobility has further accelerated these trends.
While electrification has made significant strides in two-wheelers and three-wheelers, its adoption is still in early stages as compared to other countries. To bridge this gap, both the government and the private sector are investing heavily and dedicating extensive resources to develop the value chain. The construction of numerous factories is an indication of the speed at which these trends will be adopted in the near future.
Vehicle manufacturers across all segments in India are also prioritising sustainability and climate goals which include reducing the industry’s carbon footprint, by investing in green technologies like bio fuels and hydrogen fuel cells. In addition, the industry will continue to experience rapid growth and transformation, with technology playing a crucial role in the same.
Trends such as an increased adoption of Internet of Things (IoT), more safety features and online marketplaces are expected to shape the future of the Indian automotive industry. Car manufacturers in India are increasingly adopting advanced driver assistance systems (ADAS) — which improves road safety and prevents accidents and fatalities — based on increasing demand for safer vehicles, government initiatives around road safety, and availability of more affordable ADAS technology.
In the coming years, we are going to witness further rebalancing in the crude sector. The Crude-to-Chemicals processing will cause a significant transformation in the oil and gas sector. As electric vehicles become more prevalent, oil and gas companies are exploring opportunities in the chemical industry. This shift offers the potential for increased profits and a more environmentally friendly approach, ultimately leading to a future where fossil fuels are utilised with greater efficiency.
Collaborations to stay competitive
To achieve the above mentioned goals, collaboration and open innovation is essential, particularly in high capex areas such as vehicle platforms. Developing these platforms and technologies requires significant investment, but by working together and embracing open innovation, OEMs, suppliers, and start-ups can reduce development costs for shared vehicle components.
Another area where collaboration is crucial is connected vehicles. In recent years, players from the IT and technology industries have become increasingly involved in the automotive industry. The upcoming launch of software defined vehicles has brought these players closer to OEMs, as they partner to develop vehicles with software-oriented architectures.
The automotive industry’s future lies in collaborations. Automakers must adapt their organisations, infrastructure, and value chain to stay ahead in the automotive value chain. This means expanding tie-ups with players from non-automotive sectors to achieve their goals and remain competitive. We anticipate that 2024 will bring about another phase of transformation in an industry that plays a vital role in the Indian economy and contributes significantly to the GDP.
(Author: Vinay Raghunath, Partner, Automotive and Mobility Sector Leader, EY India)
