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Industry Report

Automotive

India

2nd Quarter 2019


The Economist Intelligence Unit
20 Cabot Square
London E14 4QW
United Kingdom

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India 1

Contents
2 Automotive report

2 Overview

3 Passenger cars

5 Commercial and other vehicles

7 Production

8 Fuel sources

11 Industry publishing schedule

Industry Reports from The Economist Intelligence Unit

Industry Reports provide The Economist Intelligence Unit's forecasts for six key
industries along with relevant market analysis. They focus on sectoral and
subsectoral demand in the world's major economies, and are updated quarterly,
semi-annually or annually depending on the country (see schedule at the end of
this report).
The Industry Reports are driven by the country-based macroeconomic forecasts for
which The Economist Intelligence Unit is renowned. An Economist Intelligence Unit
expert examines our forecasts for the key indicators in each industry, taking into
account economic and political developments, global and regional trends, and
market- or competitor-specific factors that are likely to have an impact on the sector
in the future. The analyst then provides commentary to outline the implications of
these trends for companies in the industry.
The Economist Intelligence Unit's country and industry analysis draws on the
expertise of 100 in-house editors and economists, including industry specialists, and
a global network of more than 600 contributors. The historical industry data on
which our forecasts are based come from a variety of sources. As with all The
Economist Intelligence Unit's analysis, we select the most dependable and up-to-date
sources available.

Editor: Ana Nicholls


Forecast closing date: June 26th 2019
All queries: Tel: (44.20) 7576 8000 Email: london@eiu.com
Next report: To request the latest schedule, email schedule@eiu.com

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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2 India

Automotive report
Overview • India is Asia’s third-largest passenger-car market, behind China and Japan,
and the world's fifth-largest commercial-vehicle (CV) market. Annual vehicle
sales are currently at record levels. New car sales rose by 7.9% annually in
fiscal year 2017/18 (April-March), but slowed to 2.7% growth in 2018/19. This
reflects changes in car taxes, insurance requirements and fuel prices, as well
as rural economic distress. Crucially, a liquidity crunch at non-bank lenders
reduced the availability of vehicle financing for dealers and consumers.
• Although many of these constraints also affected new CV sales, this market
expanded by a strong 17.6% in 2018/19, against 20.0% in 2017/18. CV sales
benefited from reduced transit times for freight traffic and the nationwide
harmonisation of taxes, following the introduction of the goods and services
tax (GST) in mid-2017. Sales are also being driven by growth in e-commerce
deliveries and government spending on infrastructure.
• Over the five-year forecast period (2019-23), The Economist Intelligence Unit
expects a compound annual growth rate (CAGR) of 4.4% for new CV sales,
and 4.6% for cars, with several growth drivers. In May the government was
re-elected to a second five-year term with an even stronger majority. It is
expected to spur public and private investment, increase rural incomes,
improve credit by resolving problems in the banking and non-bank sectors
and revive sputtering economic growth. Meanwhile, the central bank is likely
to continue reducing interest rates, amid lower inflation.

Income and demographics


2014 a 2015 a 2016 a 2017 a 2018 a 2019 b 2020 b 2021 b 2022 b 2023 b
Nominal GDP (US$ bn)c 2,040 d 2,104 d 2,289 d 2,651 d 2,667 3,006 3,291 3,526 3,784 4,182
Population (m) 1,294 d 1,309 d 1,324 d 1,339 d 1,354 1,369 1,383 1,397 1,411 1,425
GDP per head (US$ at PPP)e 5,675 d 6,133 d 6,618 d 7,190 d 7,746 8,334 9,015 9,736 10,445 11,186
Private consumption per head (US$)e 916 d 947 d 1,025 d 1,167 d 1,171 1,295 1,388 1,482 1,594 1,753
No. of households (m) 239 243 247 250 254 258 261 265 269 272
No. of households with annual earnings
above US$5,000 (m) 91 100 112 135 140 152 168 179 192 208
No. of households with annual earnings
above US$10,000 (m) 19 22 26 35 37 43 51 58 66 80
No. of households with annual earnings
above US$50,000 (m) 0 0 0 0 0 1 1 1 1 1
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Fiscal years (beginning April 1st of year indicated). Includes
statistical discrepancy. Sum of quarterly data. d Actual. e Fiscal years (beginning April 1st of year indicated).
Source: The Economist Intelligence Unit.

• In the shorter term, demand will be aided by India’s adoption of Bharat Stage
VI emission standards (equivalent to Euro 6 standards) for all new vehicles by
April 2020, which will lead to sell-offs of older stocks in 2019/20. The
government also plans a voluntary vehicle scrappage scheme from April 2020
for CVs older than 20 years, to reduce pollution.
• India’s vehicle output in 2017, at 4m units, overtook that of Germany as the
world’s fourth-highest. An Automotive Mission Plan envisages that the
automotive industry will grow fourfold in value in 2016-26. The government

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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India 3

is encouraging the expansion of the electric-vehicle (EV) market. From April


2019 it implemented an expanded version of its Faster Adoption and
Manufacturing of Hybrid and Electric Vehicles (FAME) programme. FAME II
will allocate Rs100bn (US1.4bn) in incentives and infrastructure support over
three years to promote EV adoption.

Passenger cars International comparison


• Low personal disposable income per head, at an estimated US$1,263 in 2018,
means that only around 22 out of every 1,000 Indians own a car. An
expanding car market, counterbalanced by rapid population growth, will raise
this ratio to nearly 31 cars per 1,000 people by 2023.
• In the long term, growth in car ownership may be affected by the large
investments that many Indian cities are currently making into expanding their
public transport infrastructure, as well as by the rapid growth of shared
mobility providers such as Uber and Ola. However in the short term, ride-
sharing may spur car ownership, by offering income-earning opportunities for
drivers.

Passenger car registrations


('000)
5,000

4,000

3,000

2,000

1,000

0
2014 15 16 17 18 19 20 21 22 23
Source: The Economist Intelligence Unit.

Five-year forecast
• Domestic passenger vehicle sales reached a record high of 3.4m units in
2018/19, according to the Society of Indian Automobile Manufacturers (SIAM),
although growth slowed to only 2.7%. After recovering from volatility resulting
from the demonetisation in 2016 and the introduction of the GST in 2017,
sales accelerated in the first half of the fiscal year despite higher fuel prices,
but weakened thereafter.
• This weakness had several causes. The tax on mid-sized and large cars was
raised in September 2017. A liquidity crunch at non-bank lenders, higher
interest rates since mid-2018 and higher fuel prices also affected car sales,
although global oil prices moderated in the second half of 2018/19.
Additionally, since September 2018 all buyers of new cars must purchase
three-year insurance coverage, up from one year, raising costs.
• These factors led to a weaker festive season in October-November, the year’s
biggest vehicle sales period. The market lost further momentum in the
traditionally soft January-February period. Uncertainty around the April-May

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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4 India

general election affected consumer confidence and demand. In the first two
months of fiscal year 2019/20 passenger car sales were down by 18.9% year on
year, according to the SIAM, with May marking the 11th consecutive month of
decline.
• Sales have also been held back by environmental regulations, particularly in
cities. In November 2017, owing to unprecedented pollution levels, the
National Green Tribunal barred diesel vehicles older than ten years and petrol
cars older than 15 years from entering the capital, New Delhi. Several cities
have proposed further restrictions on car usage.
• Many of these factors will persist into 2019/20, as will ongoing rural distress.
Nevertheless, we expect market growth to accelerate to 4.7%, benefiting from
an easing in interest rates as well as a post-election bounce. The Reserve Bank
of India (RBI, the central bank) tightened its monetary policy twice in 2018,
raising its benchmark interest rates from 6% to 6.5%. However, rates were
subsequently lowered, most recently in April 2019, to 6%. Regulators are also
expected to resolve liquidity issues for non-bank lenders and banks,
increasing credit availability.
• Regulations to reduce pollution and congestion, including new emissions
standards in 2020, will continue to cause some sales volatility. Moreover, the
2018/19 budget raised import duties on completely built-up vehicles (CBUs)
and on components for higher-end vehicles. This may result in a dip in new
car sales in 2020. Over the 2019-23 forecast period as whole, however, we
expect the market to expand at a CAGR of 4.6%.

Passenger car registrations


2014 a 2015 a 2016 a 2017 a 2018 b 2019 c 2020 c 2021 c 2022 c 2023 c
Passenger cars (stock per 1,000 people) 15.8 17.2 18.8 b 20.5 b 22.3 24.1 25.8 27.6 29.4 30.7
Passenger car registrations ('000)d 2,601.2 2,789.2 3,047.6 3,288.6 3,377.4 3,536.4 3,689.4 3,929.9 4,059.7 4,224.4
Passenger car registration growth (%)d 3.9 7.2 9.3 7.9 2.7 4.7 4.3 6.5 3.3 4.1
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal years beginning April 1st.
Sources: Society of Indian Automobile Manufactures (SIAM); The Economist Intelligence Unit.

Market share
• Maruti Suzuki Motors (a subsidiary of Japan's Suzuki) dominates India's car
market. Despite a steady decline in market share, it accounted for 51.2% of
new car sales in 2018/19. Hyundai Motor India (owned by South Korea's
Hyundai) was a distant second, with a 16.1% share.
• India's Mahindra & Mahindra (M&M) and Tata Motors (the country's leading
CV manufacturer) had 7.5% and 6.8% of the market respectively in 2018/19.
Honda (Japan) held fifth place, followed by Toyota (Japan), Ford (US) and
Renault (France). Some 15 other brands, including Volkswagen (Germany),
each take less than 1% of the market.
Segmentation
• Based on the revised SIAM vehicle classification, compact cars (with engine
size of 1,300cc to 1,799cc) represent the largest single car segment. Combined
with the two smaller categories of micros and minis, they account for more
than half of all passenger cars sold. Maruti controls over half of this segment’s
sales and also dominates the mid-size segment, albeit with a smaller lead.

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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India 5

• Hatchbacks have a 50% market share, while utility vehicles (UVs) are gaining
ground with a share of 25% and sedans hold an 18% share. Poor road
conditions have been pushing Indian motorists towards larger vehicles, but
this trend has flattened.
• The premium segment in India remains tiny. Three German premium
brands—Mercedes-Benz, BMW and Audi—account for less than 1% of the
overall market. Jaguar Land Rover (UK), which is owned by Tata Motors, has
only 0.1%.
Pricing
• Although manufacturers offer a range of competitively priced vehicles, India
fares poorly in affordability rankings, reflecting low disposable income and
high car taxes. From July 2017 the GST imposed a flat rate of 28%, replacing
effective rates of 29-31% for small cars and 47-55% for medium-sized and large
cars.
• Small cars also attract an additional cess (a tax on tax) of 1%, while medium-
sized and large cars valued over Rs1m (US$14,280) incur cess of 17-22%. Total
taxes on a vehicle can be as high as 50% since the introduction of GST.
• Over the forecast period, prices for high-end vehicles are likely to rise, given
the decision to raise import tariffs on components and CBUs in the 2018/19
budget.
% of monthly personal Affordability
Item Price (US$) disposable income rank
Low-priced car, 900-1299cc (low) 13,495 13,012 59 out of 60
Low-priced car, 900-1299cc (high) 14,780 14,251 59 out of 60
Compact car, 1300-1799cc (low) 22,853 22,035 59 out of 60
Compact car, 1300-1799cc (high) 32,895 31,718 60 out of 60
Family car, 1800-2499cc (low) 76,220 73,491 60 out of 60
Family car, 1800-2499cc (high) 78,175 75,376 60 out of 60
Deluxe car, 2500cc upwards (low) 208,642 201,171 60 out of 60
Deluxe car, 2500cc upwards (high) 247,045 238,199 60 out of 60
Yearly road tax or registration fee (low) 105 100.9 53 out of 56
Yearly road tax or registration fee (high) 412 396.8 59 out of 60
Cost of a tune-up but no major repairs
(low) 209 201.8 57 out of 60
Cost of a tune-up but no major repairs
(high) 258 248.8 56 out of 60
Annual premium for car insurance (low) 604 582.5 59 out of 60
Annual premium for car insurance (high) 2,691 2,595 60 out of 60
Note. Affordability rank: for each country the price of an item as a percentage of monthly personal
disposable income is calculated. Countries are ranked according to these percentages. The most
affordable country will have the lowest percentage and be ranked first.

Commercial and other Five-year forecast


vehicles
• New CV sales rose by a robust 17.6% year on year in 2018/19, despite weaker
growth in the second half of the year. The medium and heavy CV (truck)
segment continued its 2017/18 recovery to grow by 14.7%, aided by
replacement demand and the government’s spending on infrastructure. Light
CV sales grew by an even-better 19.5%. However, the first two months of fiscal

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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6 India

year 2019/20 have been poor, largely owing to the uncertainty produced by
the general election. New CV sales dropped by 8.1% year on year in April-May,
but are expected to recover some of the lost ground.

Commercial vehicle registrations


('000)
5,000

4,000

3,000

2,000

1,000

0
2014 15 16 17 18 19 20 21 22 23
Source: The Economist Intelligence Unit.

• In 2019-23 growth will be driven by public and private investment in


infrastructure, construction and e-commerce logistics, and by rural demand.
GDP growth will average 6.6% a year, and the central bank has begun
reducing interest rates. New BS VI norms will take effect in April 2020 and
demand for older, cheaper vehicles is expected to rise before then.
• New axle regulations, raising the freight limits for trucks, will support
demand. Replacement demand may also be boosted by a government
scrappage scheme intended to take older, more polluting vehicles off the road.
However, the scheme's implementation has been delayed by disagreements
between central and local governments.
• Given considerable pent-up demand and slowing but still-strong economic
growth, we expect the CV market to continue to expand, albeit at slower rates
than over the past two fiscal years. In 2019-23 we expect a CAGR of 4.3% for
sales of new light CVs (vans) and of 4.7% for new truck sales.

Commercial vehicle registrations


2014 a 2015 a 2016 a 2017 a 2018 b 2019 c 2020 c 2021 c 2022 c 2023 c
Light commercial vehicle registrations
('000)d 382.2 383.3 404.1 507.3 606.4 581.8 606.6 648.3 692.5 748.2
Medium & heavy vehicle registrations
('000)d 232.8 302.4 310.2 349.6 400.9 374.6 384.9 426.7 471.0 503.4
Commercial vehicle registrations ('000)d 615.0 685.7 714.2 856.9 1,007.3 956.5 991.5 1,074.9 1,163.5 1,251.6
Commercial vehicle registration growth (%)d -2.8 11.5 4.2 20.0 17.6 -5.0 3.7 8.4 8.2 7.6
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal years beginning April 1st.
Sources: SIAM; The Economist Intelligence Unit.

Market share
• Tata Motors has always been a leader in the CV market, and has been clawing
back lost market share. In the van market, its share stood at 44.4 % in 2018/19—
its highest level for four years. Its dominance of the truck market is even
greater: it controlled 51.6% of the market in 2018/19.

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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India 7

• At one point M&M surpassed Tata Motors in the van market, but slipped back
in 2018/19, when it accounted for 24.7% of the overall CV market. Ashok
Leyland, another local manufacturer, had a CV share of 18.4%, but took one-
third of truck sales.

• Other players include the locally owned Force Motors and VE Commercial
Vehicles, a joint venture between Volvo (Sweden; owned by China's Geely)
and Eicher Motors (India). The presence of foreign players such as Daimler
Trucks (the local subsidiary of Germany's Daimler) is small but growing.

Trucks: market share, 2015


(% share of total) SML Isuzu, 1.0
Mahindra, 1.9 Others, 1.0

Eicher, 9.5

Tata, 55.2

Ashok Leyland, 31.4

Sources: Society of Indian Automobile Manufacturers (SIAM); Autobei Consulting Group; company information; mintel.

Production Major vehicle manufacturers


• India’s vehicle output, at 4m units in 2017, was the world’s fourth-highest,
ahead of Germany. The industry accounts for 7.1% of GDP and employs
around 29m people; the government is promoting it as a flagship of its Make
in India campaign. The Automotive Mission Plan 2016-26, published in
September 2015, envisions a fourfold jump in output in ten years, to around
Rs19trn. It calls for motor-vehicle output to rise to 10m units by 2020/21.

Vehicle production
('000 units)
Passenger cars Light commercial vehicles Medium and heavy vehicles
6,000

5,000

4,000

3,000

2,000

1,000

0
2013 14 15 16 17 18
Source: International Organisation of Motor Vehicle Manufacturers.

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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8 India

• India’s automotive industry attracted US$21.4bn in foreign direct investment


(FDI) between April 2000 and March 2019. During 2018/19, inflows rose by
25.5% compared with the previous year, to US$2.6bn. Around US$8bn in local
and foreign investment is expected by the end of 2020. Major investors will
include Maruti Suzuki, Tata Motors, Hyundai and its sister company, Kia,
along with Volkswagen (Germany), Volvo and Ford.

• Carmakers will also focus on lowering costs. After losses in India, General
Motors (US) stopped selling its cars locally by end-2017, retaining one export
plant. Its Chinese partner, SAIC Motor, bought its other plant and will invest
US$1bn to produce vehicles under its British MG Motor brand. Two other
Chinese manufacturers, Beiqi Foton and Changan, had also been expected to
invest in Indian production but have encountered delays. In March 2018
Suzuki and Toyota agreed to share their factories and dealer networks in India
to reduce costs.
• Most production in the forecast period will be aimed at the domestic market.
However, according to SIAM, 4.63m vehicles (including two- and three-
wheelers) were exported in 2018/19, up by 14.5% a year. In value terms, both
exports and imports are growing rapidly. Vehicle exports were worth
US$8.8bn in 2018, while automotive component exports were worth
US$5.7bn. Imports in the two categories were worth US$361m and US$5.5bn
respectively.
• The government's 2018/19 budget increased import duties on components to
15%, from 5-10% previously, and on CBUs from 20% to 25%. The barriers aim to
boost local manufacturing under the Make in India strategy. The new tariffs
created friction with the US, the EU and foreign investors. The EU has warned
that a proposed free-trade agreement with India will not be concluded unless
the tariffs are removed.

Market demand: motor vehicles and parts

Nominal US$ m US$ m at 2005 constant prices


100,000

80,000

60,000

40,000

20,000

0
2014 15 16 17 18 19 20 21 22 23
Source: The Economist Intelligence Unit.

Fuel sources Petrol prices


• India removed fuel subsidies in 2013/14. The price of a litre of petrol is close to
the global median level, on par with Argentina and slightly higher than in
Mexico. However, due to low personal income levels, we put India at the
bottom of the 60 countries included in our affordability rankings.

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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India 9

Oil price and petrol consumption


2014 a 2015 a 2016 a 2017 b 2018 b 2019 c 2020 c 2021 c 2022 c 2023 c
Petrol consumption ('000 tonnes) 19,341 22,336 24,519 25,932 26,921 27,902 28,919 29,704 30,480 31,277
Oil prices (Brent; US$/b) 98.9 52.4 44.0 54.4 71.1 66.5 60.5 69.8 75.6 75.0
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Sources: International Energy Agency; The Economist Intelligence Unit.

• Although oil prices will remain moderate and will rise only gradually in
2019-23, affordability is likely to become an even bigger challenge in coming
years. Fuel prices, particularly for diesel, have risen in recent months.
% of monthly personal Affordability
Item Price (US$) disposable income rank
Regular unleaded petrol (1 l) (average) 1.23 1.18 60 out of 60
Note. Affordability rank: for each country the price of an item as a percentage of monthly personal
disposable income is calculated. Countries are ranked according to these percentages. The most
affordable country will have the lowest percentage and be ranked first.

CO2 emissions
• According to the World Health Organisation, India has 14 of the world's 15
worst-polluted cities. This has prompted efforts to restrict diesel-vehicle sales,
and to scrap older vehicles. The share of diesel-powered cars dropped to 33%
of total car sales in 2018, from a high of 48% in 2012.
• The government is enforcing strict emissions requirements. In April 2017
Bharat Stage IV emission standards (equivalent to Euro 4) took full effect. The
government plans to skip Bharat Stage V and to implement Stage VI from
April 2020. To tackle severe air pollution, Bharat Stage VI-grade fuel was made
available from April 2018 in the capital, New Delhi.
Alternative energy vehicles
• Electric two-wheelers are becoming increasingly popular in India, but electric
cars remain expensive, and their sales are hampered by the lack of charging
infrastructure. According to figures from the Society of Manufacturers of
Electric Vehicles (SMEV), 769,600 electric vehicles were sold in India in
2018/19, but only 3,600 were passenger cars; the rest were two- and three-
wheelers.
• The government aims for a 15% EV share by 2023, and a 30% share by 2030.
It retracted an earlier promise to ban the sale of new fossil-fuel-powered
vehicles by 2030, but as at June 2019 it was reportedly planning to ban sales
of fossil-fuel three-wheelers by 2023 and of two-wheelers by 2025.
• Under the government's US$1.4bn FAME II programme, US$1.2bn in subsidies
will be spent over three years to support the sale of 1m electric two-wheelers,
500,000 electric three-wheelers (used mainly as taxis), 55,000 EVs and 7,000
electric buses. Another US$140m will be spent on expanding the charging
infrastructure.
• M&M and Maruti currently dominate the EV market, but most manufacturers
are expanding into the segment, including Tata Motors, Volvo, Nissan, Toyota
and Hyundai. Tesla (US) is also planning a 2019 entry into India, while Honda

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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10 India

plans to launch an electric car in India by 2023. Australia's Tritium recently


signed a memorandum of understanding (MoU) with a Tata Motors
subsidiary, Tata AutoComp, to provide fast-charging stations throughout India,
including government offices.
• However, the industry may suffer setbacks after the government announced
plans to impose a 15% tariff on imports of EV parts from April 2020. Tariffs on
lithium-ion cells will rise to 10% in April 2021. Duties on CBU electric trucks
and buses will be doubled to 50% in April 2020.

Petrol consumption and oil price


Petrol consumption ('000 tonnes); Oil (Brent) nominal spot price (US$/b);
left scale right scale
35,000 110

30,000 100

25,000 90

20,000 80

15,000 70

10,000 60

5,000 50

0 40
2014 15 16 17 18 19 20 21 22 23
Sources: IMF; International Energy Agency; The Economist Intelligence Unit.

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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India 11

Industry publishing schedule


Our automotive reports cover the following 58 countries and are updated quarterly, semi-annually or annually,
depending on the country.
Quarterly Semi-annual Annual

Brazil Argentina Austria

China Australia Belgium

France Canada Bulgaria

Germany Chile Denmark

India Colombia Finland

Indonesia Czech Republic Greece

Japan Egypt Hungary

Mexico Hong Kong Iran

Russia Israel Ireland

South Korea Italy Kazakhstan

Turkey Malaysia Netherlands

United Kingdom Nigeria New Zealand

United States of America Pakistan Norway

Philippines Peru

Poland Portugal

Saudi Arabia Romania

Singapore Slovakia

South Africa Slovenia

Spain Sweden

Taiwan Switzerland

Thailand Ukraine

United Arab Emirates Venezuela

Vietnam

Industry Report: Automotive 2nd Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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