Auto Industry in India - We had a chequered Past, can we expect a bright future?

Indian government asked Tesla not to sell Chinese manufactured Tesla cars in India. We want Tesla to set up their factory here in India. But Elon Musk is not ready to give up his idea of selling his chinese made Tesla car in India.
A couple of days back I wanted to buy a Simple edible oil dispenser made of Glass from Amazon website - it is basically a glass bottle with a lid such that the oil can be poured easily. Companies like Borosil are buying this from China and selling under Borosil. It is just one example… Today many existing indian companies from almost all sectors with good brand repute have stopped manufacturing the products in India … They find it cheaper to buy from China and sell it in India and still make a profit and survive.

Since 2002, India allowed 100% FDI under automatic route. After 2017, 4 major international automobile manufacturers of Repute, stopped their operations in India- Global giants like Harley Davidson, General Motors, Ford, and the UM motorcycles. When makers like them leave India, we really lose some great quality products and the shock waves created by the news are quite serious.

Ford and Chevy left. Toyota is surviving with the help of Maruti, Honda stopped CRV, and Civic. Nissan was struggling and Magnate came to the rescue.
VAG group has an India 2.0 project (on which expectations are high).
Isuzu is just here for the name sake…

Maruti being the jack of all trades is surviving. Surprisingly, the KIA motors have had a stampeding success, where they sold around 3 lakh cars in 3 years. The fear of people around the foreign manufacturers has in fact boosted the market for Indian manufacturers and they are coming up with world-class products (which is really hopeful).

Today, Auto sector in India contributes 7% of GDP and 49% of indian manufacturing , and one of the largest employment generators.

However, if you see our growth of auto industry during last 2 decades and compare with China and USA…
We are flat or stagnant where as Auto industry in China and USA have skyrocketed during last 20 years. (please refer the graph in team.bhp link)
So what are the reasons?
(1) Technological disruptions -from BS-1in 2000 to BS-VI in 2020 with in 20 years in India -which Europe took 24 years (1990-2014) - every time there was technological Upgradation, there was a price rise.
(2) Over-regulation / Safety regulation - Gradually we moved to ABS, Air bags, rigid crash structure, ABS with EBD, Seat belt pretension, seat belt warning, OBD… List is endless.
And these kind of features were demanded in 2 wheelers too. Rise in aquisition cost.
(3) Increased Road tax & Insurance- one of the highest in the world… Rise in acqusition cost.
(4) Diesel petrol (volatility in the Globe we import petroleum.)
(5) Unemplyment crisis leading to no disposable income.
(6) High GST rates of 28% plus cess range from 3-22% with effective tax rate up to 50% for high end vehicles.
(7) Demonetisation had it’s own role to play in the economy.
(8) Advent of shared mobility like ola, uber…
(9) very recently , Semiconductor supply chain issues, which we are yet to come out with a complete solution.

These are not the only reasons…there are many other hindrances for the foreign auto players, though we allow 100% FDI through automatic route.

(1) Unskilled labor: Yes. We have cheap labor here in India, but the skill sets when compared to other countries are not competitive enough
2) Indian land prices place it among one of the most expensive to own places in the entire globe. So, setting up a manufacturing facility would be obviously difficult.
3) Cost of power
4) Capital cost, which when compared to other countries, is around 20 to 30 percent higher here.
5) Logistics costs: The global average of logistics is around 8% of the revenue, while in India, it is around 13%

If this is our past, how does our future look like as far as Auto industry is concerned?

All said and done, let us look at these data on India’s Ranking in the world

India No 1 in the world in Tractor manufacturing

India is second largest bus manufacturer in the world

World’s largest two-wheeler and three-wheeler manufacturer

World’s third largest heavy truck manufacturer

World’s fourth largest car manufacturer

Demographics - with 1400 million people and 2nd largest populous country after China, currently, India is the youngest nation in the world with average indian age at 28. ( Europe 45 , Japan 48, USA 38, China 38)
Our 5 layer economic strata is both good and bad…:slightly_smiling_face:…The good point is that with 5 layer structure - Poor, lower income group , middle income group , higher income group and the rich and these people would need/use different kind of vehicles- so there will always be demand for different class of vehicles. . The bad point is that 60% of Indians are below poverty line - they don’t even get 2 square meals a day!

We have a forward looking Govt. Doing it’s best to address the issues - We must appreciate the Growth in EV basically because of Govt support in terms reduction in GST, road taxes and other incentives for EV.

Look at the scrappage policy for CV’s.

Green hydrogen incentives- a clear policy -aims to be world leader in Green hydrogen and renewables.

PLI schemes in Auto sector !

PLI on Battery storage solution.

Europe is planning Euro VII in 2025 with an aim to target carbon emissions reduction rather than conventional emissions such as HC, NOx, SPM, CO…

We closely follow Europe in terms of emissions standard. If we want to cut carbon emissions, EV as an intermediate solution and Green hydrogen is the ultimate solution for decarbonisation.

So, I am upbeat about the technological advancements in Auto sector, but I would remain cautiously optimistic for the near term as far as investment in auto sector is concerned,
though there are quite few drivers for growth in medium to long term.

CV industry is closely linked with economy and infrastructure. When there is a demand for steel, cement,metals… Trucks will be required to carry them. More roads means more vehicles…CV will grow as economy grows.

Most STU’s may deploy CNG Bus/ EV for city bus application for reducing carbon emissions

Cars /2 wheelers/ 3 wheelers growth could be driven by EV and rise in disposable income for lower economic strata group and need for personalized private vehicles due to Covid fear .

Similarly, Cars growth would be driven by CNG, EV… Maruti is yet to roll out it’s EV… Again it would depend upon disposble income. Here again autonomous vehicle one theme could further disrupt.

While shared mobility like ola uber could have dampened the car growth, but post pandemic, people would choose for pvt vehicles rather than shared mobility.

Those of you who are more interested to know more … Following links are given below:

  1. Why Auto makers are struggling in India by team-bhp. It is a nice thread of discussion gives a lot of insights.

  2.… This is a govt website… Very nicely compiled actions

  3. Presentation from IBEF on Auto industry - indian brand equity foundation

  4. McKinsey Automotive revolution towards 2030. (Global out-look)

  5. McKinsey report on Auto industry rebound post Covid 19.(Global outlook)

Discl : Have small exposure to Auto sector that includes some OEM’s and Auto components manufacturers.
It is not an investment advice
Please apply due diligence before investing.


Automotive PLI Scheme- A strong financial boost for manufacturing

The 100 Billion USD Indian Automotive industry still imports 25 Billion USD worth Auto components. There is no reason why India should import Auto components like Glass, bearings, Castings , fasteners etc…

With the Govt of India determined to boost Auto manufacturing sector, an outlay of INR 25938 Crores towards PLI during next 5 years have been made - the biggest allocation among all sectors which would go a long way in boosting our auto components manufacturing and curbing imports.
Now that the FAME-2 Scheme , 2022 also being extended for another 2 years up to 2024 with an outlay of INR 10,000 crores along with PLI scheme of Rs 25938 crores, it would perhaps help Industry to come out of its sluggish growth.

Feb, 2022 Auto Sales- Is Auto Revving up ?

The fortune of CV depends upon infrastructure spends ! Jan/ Feb, 2022 sales gives an indication ?

The 2 wheelers sales are up in Feb, 2022 mainly driven by EV.
Hero electric seems to be leading the pack. Hero electric is different than Hero Motors.Hero electric not yet listed, though it is a 10 years old EV company and Hero motors which is a listed company is yet to launch its EV- Motor bike.
There is also a legal battle between the two companies for usage of Hero Brand (Family dispute)

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Auto PLI approved list of 75 companies with 75000 Crore investments

Quite informative! Please scroll down up to the end and perhaps, you would find everything you want to know to make any investment decision. The overview / snapshot itself gives a lot of insights into EV market in India 2022-27. There is no need to buy a more comprehensive report.

The second link is the latest draft policy on EV formulated by UP. Report was released today.

India Electric Vehicle Market Size, Share | 2022-27 | Industry Growth

100 percent penetration of Electric two-wheeler in India by 2026-27???

The Govt seems to be keen on Promoting EV 2- wheelers faster than the 4 wheelers as these vehicles are used by middle class and lower middle class people which constitute bulk of the population.

As recent report by the Indian government’s think tank, NITI Aayog, in collaboration with TIFAC- (Technology Information Forecasting and Assessment Council) forecast 100 percent penetration of electric two-wheelers in the Indian market by 2026–27 in an optimistic scenario.

The report has developed Eight scenarios to highlight the future penetration of electric two-wheelers in the country.

The report, however, states that in a scenario where current incentives/Govt Support are withdrawn by 2024, India will achieve only 72 percent penetration by 2031.

However, Safety and Range are two main hurdles which the industry needs to work upon in the country’s transition to electric vehicles.

A copy of the Comprehensive report is attached in the link given below !

Discl: EV 2 wheeler pure play is under my watch list, though have some positions in Auto ancillaries.
Please do your own assessment before investing.

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Auto Sales towards overdrive ?

Lithium Ion Battery manufacturing in India - Who is In and who is out - Reliance- Maruti- Ola-Tata - M&M

I am not able to open the ET article, perhaps if some of you have subscription, you can open and read it.
I guess it is finally , Maruti, Ola, Reliance who are going to make Lithium Ion batteries…
Reliance also would make Sodium ion battery.
Tata’s have already geared up to recycle Lithium ion batteries.

2/3/4 wheeler makers . . .

Long term investors stock price growth in 5 years

From Oct-2017 to Oct-2022

Mahindra doubled from 650 to 1300

Tata Motors zero return from 420 to 410

MARUTI zero return from 9500 to 9500

Bajaj Auto 10% gain 3300 to 3670

Hero moto 25% loss 3800 to 2800

TVS 60% gain 725 to 1125

Atul Auto [3 wheelers] 35% loss 450 to 275

JBMA [electric bus maker] 90% gain 220 to 400

Ashok Leyland 20% gain 130 to 150

Whom among these do you think coming next 5 years belong to?

In the next five years, undoubtedly, the winner will be TATA MOTORS. If one can see the increasing market share in PV vehicles in India and dominance in EV market. The only problem point is the JLR. If the JLR performs better at the same time of Tata motors’ indian buisness, it will certainly do the math. However, the market for JLR in India has not caught fancy, the reasons none to the company.
Disclaimer: Invested.

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Electric vehicles more harmful on GHG emissions (Green house Gas) - IIT kanpur Study

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June, 2023 Auto Sales - A mixed Bag

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Exciting New product launch in premium catagory Bajaj /Hero Motors/ Maruti

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10% additional GST in diesel engine vehicles proposed by Nitin Gadkari- is it a threat or reality ???

The announcement comes at this time when market is in a correction mode. After this news all auto stocks have cracked.

What Nitin Gadkari wants ?
(1) Diesel vehicles are polluting so these need to be gradually phased out - Not only carbon emissions, but other pollutants such as SPM, RSPM, Nox , Co, HC etc

(2) He feels that when so much alternatives are available - Industry is too slow to adopt to .

(3) The most affected companies are Tata Motors , Ashok Leyland , Eicher, M & M and so on since 90% of the CV portfolio is still diesel.

(4) Maruti has already phased out diesel cars

(5) Alternative technology available - EV, CNG , Hydrogen both IC engine and Fuel cell. Flex- fuel.
Ethanol Blended with Bio- diesel in CV is also a possibility.

(6) All companies including Tata motors & Leyland & Eicher have CNG trucks and buses in their portfolio and are currently producing.

(7) He has said that this is only begining and he is going to impose more tax if the companies don’t respond fast in switch. This bold announcement by Nitin Gadkari has led to drop in Auto shares today…

(8) Though , this has come a.of a sudden , but all CV and car manufacturers Have CNG technology in their portfolio. so while short term sales may suffer , but in medium and long term, they should be able to come out of this.

Union minister Nitin Gadkari proposes 10% GST hike on diesel-powered vehicles - Times of India

An update :
Later when major auto stocks started falling , he clarified in a tweet that there is no active consideration on 10% GST on diesel vehicles as of now.
However, he clarified that he may be compelled to do so if the industry is not prompt in phasing out diesel engine especially when proven technology is available alternative to Diesel.

Is China plus one strategy working for Manufacturing in India ?Auto component exports to USA increased by 65% during 2018-22

Overall exports to USA from India increases by a massive 44% during 2918-2022 where as Exports from China to USA drops by 10%.

USA finds india cheaper by 15%

Auto sales in Sept 2023- All major OEM’s covered