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After An Eventful 2023, Here’s Why Indian Automobile Industry’s 2024 Looks Uncertain

While 2023 has been an eventful year for the automobile industry, with high and low points, policy changes and an upcoming election are set to make 2024 comparatively difficult.

By Jessica Jani
New Update
auto sector 2024

In 2023, the trend of premiumisation in personal vehicles continued and was further strengthened. It was also a year full of highs and lows. This year the Indian automobile industry also overcame long-standing supply chain shortages, especially in semiconductor chips, that plagued the industry in calendar year 2022. The industry posted impressive sales numbers, especially during the festive season, but demand for passenger vehicles slowed down. While two-wheelers saw robust growth, government subsidy cuts for electric two-wheelers affected growth. 

Both, in passenger vehicles and the two-wheelers segment, demand for premium variants eclipsed the entry-level segment – a clear sign of behavioural changes among users in the country. Consumers over the last few years have increasingly preferred feature-rich cars, and SUV sales hit record numbers in 2023. This is likely to continue, in keeping with a global trend, experts The Core spoke to pointed out. In the last two years, the number of SUV launches was more than all other passenger vehicle launches combined, with sedans and hatchbacks taking a hit. 

Similarly, the share of premium is growing across the two-wheeler segment. In 2023, both Hero Motocorp and Bajaj Auto Ltd launched locally-made Harley-Davidson and Triumph motorcycles respectively, a big challenge to the dominating Royal Enfield in the premium bikes segment.

The rise of premium variants indicates a growing consumer preference for smarter features and the use of vehicles for leisure and adventure. As disposable incomes grow, this trend is expected to continue going forward. 

Electric vehicles (EVs) made the loudest buzz in 2023. The industry crossed a record 15 lakh sales in the calendar year 2023. As EVs are poised to further eat into the market share of both two-wheelers and cars, 2024 may be a defining year for electric two-wheelers. 

One, there is still uncertainty about whether or not the government’s Faster Adoption and Manufacturing of Electric Vehicles in India (FAME-II) subsidy will be renewed after March 2024. Discontinuing the subsidy will affect the sales of electric two-wheelers and EV penetration which has made strides last year. Secondly, while crude oil prices globally have been dropping, 2024 is also an election year. Should the centre reduce duties on fuel, petrol, and diesel engines two-wheelers will swoop in.

Meanwhile, the passenger vehicle growth outlook seems muted. “We aren’t too bullish,” Hemal Thakkar, senior practice leader and director at credit rating agency CRISIL told The Core. “Two-wheelers will grow anywhere in the range of 5-7%...but passenger vehicles…if it witnesses a growth it will be in the range of 0-5%,” he added. 

Passenger Vehicles

While supply issues eased for passenger vehicles, demand in the last year also slowed, Thakkar said. In 2023, stocking at dealerships increased substantially. “As per our understanding, even post-festive stocks are at more than 40 days, which is normally not the case with respect to passenger vehicles,” he said. 

In the coming year, challenges might arise with price hikes announced and not as many newer models lined up for launch. 

One of the key changes the industry is grappling with is consumer behaviour. Consumers are more and more preferring to buy premium variants rather than entry-level cars. “Consumers are becoming more finicky about features,” said Thakkar. A buyer visiting a dealership will look for a vehicle fitting their requirements, and if it doesn’t fit their budget, they would rather wait or go to a second-hand dealership and get that model. 

“This is clearly showing signs that the behaviour of people in the country is changing,”Jeffry Jacob, partner and national sector leader, automotive, at KPMG India told The Core in an email. This trend is only expected to continue going forward as disposable incomes grow, he also said.

Not only is the premium market witnessing more demand, but a key occurrence of 2023 was SUV sales overtaking sedan and hatchback sales for the first time. This follows a global trend, with SUVs, or utility vehicles, being preferred. 

“The number of new launches of SUV models has been increasing, while for hatchbacks and sedans, it has been steadily decreasing,” Jacob said. Plus, SUVs are being launched at lower price points as well. “New safety regulations have been increasing the prices for entry-level hatchbacks, reducing the gap. So we can expect SUVs to continue their strong growth trend going forward,” Jacob said. 

In 2023, the passenger vehicle segment saw heavy discounting at dealerships, especially in the festive season, which could be a sign that all may not be rosy. “A lot of it is also going to depend on how the inventory scenario plays out in the quarter four of this financial year,” Thakkar said. 


Two-wheeler sales this year improved significantly compared to last year. “Following demand contraction in recent years, two-wheeler demand is returning to normalcy, though far from its peak sales levels of financial year 2019,” Srikumar Krishnamurthy, senior vice president and co-group head - corporate ratings, ICRA Limited told The Core

The recent festive season saw strong growth in two-wheeler retails. The ongoing marriage season coupled with recovery in rural demand supported some growth in the entry-level segment (below 110 cc two-wheelers), Krishnamurthy said. 

However, the premium segment has seen the highest growth even in two-wheelers. In motorcycles for instance, the 200cc and above segment has seen phenomenal growth, while the 150cc and above segment still needs to come back to FY2019 levels. “Original equipment manufacturers (OEMs) have kind of understood that the customer is looking at premium 2-wheelers, and they are also getting those products to the market,” Thakkar said. 

In 2023, leading bikemakers Hero Motocorp and Bajaj Auto Ltd launched the country’s first locally-made Harley-Davidson and Triumph motorcycles, a big challenge to the dominating Royal Enfield in the premium bikes segment. This just highlights how the share of premium vehicles is growing. 

“Similarly on the scooter side, if you see the 120 cc and above segment, it is doing very good, but if you look at the 110 cc segment it is seeing a challenge,” said Thakkar. 

As per ICRA estimates, the two-wheeler volume is expected to grow 4-7% year-on-year in FY2023 -24. However, despite the moderate growth, Krishnamurthy flagged concerns regarding rural demand (impacted by uneven rainfall). “Scooters remain supported by urban-centric factors while for motorcycles, factors like elevated ownership costs, higher interest rates, and inflation remain headwinds,” he said. 

However, the premium segment would continue to do well, experts said.

EVs and Hybrids

Both passenger vehicles and two-wheelers that are petrol or diesel-run have seen increasing competition from electric vehicles this year. 

Penetration of electric two-wheelers rose from 2% of total scooter sales in the first quarter of FY2021-22 to 14-16% in FY2022-23, as per ICRA data. The electric two-wheeler industry faced a setback in June 2023, when the government’s FAME-II subsidy was slashed, and there was a temporary setback. But the demand has picked up with November 2023 sales growing approximately 20% over October, and penetration at about 5%, Jacob said. 

However, FAME-II is set to expire in March 2024 and there is still a lot of uncertainty about whether the scheme will be extended as FAME-III or not. If not, the segment might be adversely impacted. 

One is because the upfront cost of the vehicle will go up significantly, and second because globally, crude oil prices are falling. “And we are in a pre-election year… if the government reduces duties on fuel then you will actually see that your normal ICE scooters will swing back in action,” said Thakkar. 

While EV penetration seems to be continuing at a healthy pace, hybrid cars are being poised as the intermediate step – solving the range anxiety and offering better mileage, while also inducing user confidence. But how much more of them will we see in 2024? 

While there have been some strong models in the market, and more launches lined up, hybrids are expensive, Thakkar said. The goods and services tax (GST) on EVs is 5% while the GST on hybrids is 43%. 

“However, going forward, if there is a rationalisation of taxes on the hybrid front, you may see the market picking up,” said Thakkar. Plus, the share of passenger EVs is very low currently. “If the share increases, the government will be forced to relook at the duty structure because otherwise they will have to face a GST loss,” he added. 


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