Consult Club, IIM Ahmedabad October 2017

Sector Report: Automobile

Key Stakeholders in the industry Introduction

Raw Material Steel and Polyurethane are the most basic Among the largest in the world
requirements and most used for interior and Accounts for 7.1% of Indias GDP
exterior components Growing interest of companies in
exploring the rural markets further
Tier 2 suppliers Sub Components
Integrated with Tier 1 aided the growth of the sector
Thin margins Market segmented into four segments:
Undifferentiated products eg. Exhaust gas Two wheelers, Passenger, Commercial
sensor for Tier 1 and Three Wheelers
Overall exports grew by 1.91% (April-
Tier 1 suppliers Major components for OEMs
Highly integrated with supply chain of March 2016)
OEMs Domestic sales of Passenger vehicles to
Dedicated supply to OEMs eg. Exide increase at a CAGR of 12.87% between
batteries to OEMs 2017 and 2026

OEM (Original Few & specialized players

Equipment Implements and drives innovation and Government Initiatives
Manufacturer) efficiency across the chain

Dealers Dedicated point of sale for each OEM Setting up of R&D centres of
Provide after sale support $388.5M under NATRiP
Represent OEM to customers; critical Weighted increase in R&D
expenditure to 200% from 150% (in-
Service Major revenue source
house) & 175% from 125%
Long-term relationship
(outsourced)
Success rate of new products
AMP 2026 targets a fourfold
Segment-wise breakdown Investments growth in the sector, including
manufacturers of automobiles and
81.0% Industry has attracted foreign components
direct investment worth $15.79B
8.3% Planning to implement faster
9.2% 3.0% during the period April 2000 to
September 2016 adoption and manufacturing of
13.0%
6.0% Hero MotoCorp Ltd spent Electric hybrid vehicles (FAME0 by
$30.75M to acquire 26-30% stake 2020, covering all vehicle segments
2 Wheelers PassengerCommercial in Ather Energy Pvt. Ltd. and all forms of hybrid and pure
Market Share Growth
electric vehicles

Key trends of the industry in India Market Share 4 wheelers Market Share 2 wheelers
52% 70%
Luxury car segment seeing high growth
rates at 37% CAGR between FY07-15 20% 21%
5% 3% 2%
Carmakers such as BMW, Audi and Toyota 6% 6% 5%
providing customized finance through Hero Honda Bajaj TVS Others
NBFCs
Focus shifting towards electric cars
 Porters Five Forces Analysis Growth Drivers in the industry
Buyer Power Seller Power New Entrant Substitutes Competition
Growing Demand:
High Low Medium Low High High demand, large young population
Greater availability of financing
High Specialized High Public Foreign
options
competition parts capital transport players
Policy support:
High Suppliers investment not modifying
Initiatives like Make in India to
bundling dependent Foreign adequate designs,
possibility firms have in non- suit give huge boost to the sector
performed metros domestic Infrastructure boost:
well needs Improving road infrastructure
5% of total FDI inflow in this sector

Emergence of Green vehicles Recent News

NGT reaffirms the ban on diesel cars older than 10
Consumers still view electric vehicles and mild hybrids years in the Delhi-NCR region, and ackownledges
negatively, but are attracted to the benefits of additional fuel that the ban is ehre to stay
economy and hence consider full hybrid vehicles The cess on automobiles in GST is prompting several

Poor road infrastructure, perception of vehicles as fragile and manufacturers in both the luxury and ordinary
power availability issues are key barriers to adoption segments to raise vehicle prices
Commercial vehicle sector has seen vehicles developed based Strong sales increase has been seen in August, with a

on alternative fuels through regulatory pushes 14% YoY growth reported in the industry
Electric two-wheelers growing due to increased consumer The society of Indian automobile manufacturers is

demand for vehicles with lower running costs pushing for the ban of all vehicles that are more than
Lack of technological consensus is hindering the creation of 15 years old, in a further drive towards reducing
an adequate green infrastructure pollution and moving consumers to electric

Road ahead for the automobile industry Indian Regulatory Environment

Governed by the Ministry of Road Transport and Highways

Passenger vehicle market expected to touch 10
4-5% reduction in duties for mid and large sized sedans post
million units by 2020
GST
Automotive aftermarket expected to grow at 10-
Crash tests for new vehicles under the BNVSAP to become
15% to reach $16.5B by 2021 from $7B in 2016
mandatory
Potential to generate $300B in annual revenue by
Subsidy of up to Rs. 29,000 and Rs. 1.38 lakhs for
2026, creating 65M additional jobs and
electric/hybrid bikes and cars respectively
contributing over 12% to Indias GDP
Government is making efforts to promote usage of electric
Income tax rate cut from 10% to 5% for
vehicles, plans to come up with electric vehicle policy by year-
individual tax payers earning Rs. 5 lakhs per
end
annum will increase purchase likelihood for
Government allows 100% FDI through automatic route
entry level and small cars
General Motors, Nissan and Toyota plan to make
India their global hub for small cars
Private players such as Hyundai, Suzuki and GM Recent Strategies of Companies
keen to set up R&D base in India Capacity Low cost of production driving increase in
Addition production capacity
Catering Indian Most firms adapting to cater to Indian middle
needs class, competing directly with domestic players
Launching new Companies launching bigger and premium car
models models to uplift sales and share in market