Passenger car industry rebounds as demand for SUVs and EVs soars

Sushma Ramachandran

India’s passenger car industry finally appears to be emerging from the Covid-era slump. Sales nearly matched 2019 pre-pandemic levels in the first quarter of the current fiscal year (2022-23). What is even more significant is that the structure of the market has undergone significant changes. From a price-sensitive market that gave primacy to small entry-level vehicles, there has been a shift towards the more expensive and rugged on-road SUVs (sports utility vehicles) that now dominate sales. The industry is also moving towards more environmentally friendly vehicles with sales of electric cars rising sharply.

This particular industry is considered an indicator of economic growth due to its expansive nature, large number of supporting industries, and huge employment potential. So that was a concern during the pandemic when sales dropped drastically. Production had started to resume last year, but the disruption of supply chains due to global traffic curbs linked to the Covid virus has led to shortages of semiconductors. It’s been a global problem for automakers that are increasingly reliant on chips to ensure sustained production. As a result, even though demand has picked up since late 2021, actual availability has been much lower and has resulted in long wait times for consumers.

According to industry experts, the situation has recently improved with the recovery of semiconductor supply, although full industry demand is still met intermittently. Even so, sales exceeded eight lakh units in the April-June period, the best since the first quarter of the pre-pandemic year, 2019-20. June sales showed the strongest growth with an increase of 26% compared to the same month last year.

Auto industry experts say the recent surge in passenger car sales is largely due to unprecedented demand for SUVs. Nearly 50% of total passenger car sales last fiscal year were commercial vehicles. As a result, each manufacturer has launched new models in this category over the past six months.

The other major change in the market has been the aggressive drive to move towards electric vehicles. In the luxury segment, Audi has already announced that it will only manufacture electric cars. In the more affordable segment, Tata Motors seems to rule the roost. The sales volumes are not huge compared to other categories, but the pace of growth is surprising. Compared to sales of just 658 units in June 2021, these have increased to 3,507 units in the same month this year. With high gasoline and diesel prices, consumer demand for the new generation of electric-powered passenger cars is growing rapidly.

In addition to operating costs, the initial capital investment is now significantly reduced, with battery prices falling by 70%. The price of an electric vehicle will therefore soon be comparable to that of fossil fuel cars. Competition between hybrid and fully electric electric vehicles has already started in the domestic market. With growing environmental awareness and the need to get rid of fossil fuels, the demand for electric vehicles is expected to increase exponentially around the world. The International Energy Agency predicts there will be 70 million electric vehicles by 2025.

The biggest issue, however, will be the infrastructure needed in terms of charging stations for these cars. Unless this is available, it will not be possible to drive electric vehicles across the length and breadth of the country. Recognizing this shortcoming, the Department of Energy has set a goal of implementing charging infrastructure every 25 kilometers on the highway. But it left it to cities or state transportation hubs to develop specific goals and plans for their urban areas. The Delhi government, for example, has just announced that electric vehicle charging stations will be launched at seven bus depots.

The ministry has also planned that for semi-public charging, the infrastructure will be provided at 20% of all on-site parking capacity. These proposals are based on a report by Niti Aayog on policies and standards for national and local agencies to establish an EV charging network. The report aimed to strengthen the charging infrastructure necessary for the development of electric vehicles in the country.

The report had also discussed the battery swap prospects raised in the 2022-23 budget by Finance Minister Nirmala Sitharaman. The benefit of the battery swap facility, according to the report, will be that the problem of battery charging in electric vehicles can eventually be eliminated. As a result, the Ministry of Road Transport has already approved the sale and registration of battery-free electric vehicles, which should improve the prospects for battery alternatives. Investments are also reportedly underway in the development of rechargeable battery ecosystems.

For those of us who are new to all of these concepts, it’s a brave new world in the automotive industry. However, the changes in the Indian passenger car front only reflect the changed global scenario. The international market for electric vehicles was estimated at around $160 billion in 2020 and is expected to surpass $800 billion by 2030. The largest market for electric vehicles is China, while Europe has also picked up with 17 % of new car sales in 2021 for electric vehicles.

The passenger car industry is therefore changing in several ways. On the positive side, the outlook is good, with sales having increased significantly over the past few months. It is expected that the current exercise may bring some normalcy back to the market after the two dark years of the pandemic. Much, however, will depend on chip supply and global supply chains continuing to operate as normal without any interruptions. The last caveat is that a new episode of Covid, whether in the country or abroad, should not lead to movement restrictions and therefore affect production. If these conditions are met, the passenger car sector looks set for an increase in production and sales over the coming year.

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