Declining Auto Numbers: Worrying Signs Or Aberration?
The August 2024 decline in electric two-wheelers and passenger vehicles underscores post-subsidy challenges
The decline in electric two-wheelers (e2Ws) and electric passenger vehicles (e-PVs) in August 2024 highlights significant challenges post-subsidy expiration. With e2W sales down 17 per cent month-on-month and e-PVs declining 29 per cent year-on-year, the market faces affordability and adoption hurdles. The end of subsidies has exposed the fragility of EV demand, raising concerns about the sector's long-term viability without government support.
Also making headlines in August 2024 are the lowest retail sales of e-PVs, SUVs, and MPVs. Together, they also hit their lowest level this year, with 6,335 units sold—a 10 per cent drop year-on-year and a 19 per cent decline month-on-month, according to Vahan data.
In the broader two-wheeler (2W) segment, sales grew 6 per cent year-on-year but fell 9 per cent below the CY24 YTD average due to monsoon effects. While this suggests resilience, the sector's reliance on seasonal demand raises questions about its sustainability during off-peak periods.
Passenger vehicles (PVs) experienced a 5 per cent year-on-year decline, with new model launches expected to drive future demand. However, the market's sensitivity to economic fluctuations, such as inflation and interest rates, underscores the need for a robust recovery strategy.
We raise three pertinent questions here:
1. Can the electric vehicle market sustain growth without continued government subsidies, or are new incentives necessary?
2. How can the two-wheeler market mitigate seasonal demand fluctuations to ensure stable year-round growth?
3. Will upcoming passenger vehicle launches be sufficient to offset broader economic pressures impacting the automotive market?
August Challenges-An Aberration?
Two-Wheeler Segment (2W): In August 2024, the domestic two-wheeler (2W) market saw a moderate year-on-year (YoY) growth of around 6 per cent, with retail sales reaching 1.4 million units. However, this figure is 9 per cent lower than the calendar year 2024 (CY24) year-to-date (YTD) mean monthly volume of 1.5 million units. The decline can be attributed to the monsoon season, which traditionally dampens consumer sentiment and sales. Will it see any reversals in the upcoming festive season?
Electric two-wheeler (e2W) retails experienced a significant month-on-month (MoM) drop of 17 per cent, with approximately 88,000 units sold. This decline is primarily due to the expiration of the extended subsidy scheme for e2Ws in July 2024. The sustainability of e2W sales now hinges on potential future incentives under the Production Linked Incentive (PLI) scheme or a new phase of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-3) scheme. The absence of subsidies raises concerns about the affordability and adoption of electric vehicles (EVs) in the short term. While the industry is trying its best to boost the retail sales, a concentrated effort is in the asking, both at the central government level and at the state level.
Passenger Vehicle Segment (PV): Passenger vehicle (PV) retails stood at around 300,000 units in August 2024, marking a 5 per cent YoY decline and a 6 per cent decrease compared to the CY24 YTD mean levels of 330,000 units. The drop in PV sales could indicate a temporary slowdown in demand, possibly influenced by macroeconomic factors such as rising interest rates or inflationary pressures. However, the market is expected to regain momentum with the introduction of new models like Mahindra & Mahindra's XUV3X0 and five-door Thar, as well as Tata's Curvv. These launches are anticipated to stimulate consumer interest and drive retail demand in the coming months.
Electric passenger vehicle (e-PV) retails also faced a significant YoY decline of approximately 29 per cent, with only 4,800 units sold. This sharp drop reflects the challenges faced by the e-PV segment, including high acquisition costs, limited charging infrastructure, and potential saturation in early adopter markets.
Commercial and Agricultural Vehicles: The internal combustion engine three-wheeler (ICE 3W) segment showed a modest YoY growth of 4 per cent, with retail sales reaching around 57,000 units. This growth suggests a steady demand for 3Ws, likely driven by last-mile connectivity and small-scale commercial transportation needs.
On the other hand, tractor retails were down by 13 per cent YoY, indicating potential stress in the agricultural sector. Factors such as erratic monsoons, crop yield uncertainties, and rural income pressures might have contributed to this decline. The tractor market, being highly dependent on the agricultural economy, is sensitive to these variables, and any prolonged weakness could impact overall rural sentiment.
The medium and heavy commercial vehicle (M&HCV) segment saw an 8 per cent YoY decline, with retails at 31,000 units. Despite this, the bus sub-segment bucked the trend with a 20 per cent YoY growth, highlighting the ongoing demand for public transportation solutions, possibly driven by government procurement or urban transport initiatives.
Way Forward
August 2024's retail sales data for the Indian automotive market reveals a mixed performance across segments. While the traditional 2W and PV markets faced challenges due to seasonal factors and economic uncertainties, new model launches and potential government incentives could provide a boost in the near future. The EV segment, particularly e2Ws and e-PVs, faces significant headwinds post-subsidy, emphasizing the need for strategic policy interventions to sustain growth. Additionally, the decline in tractor sales reflects underlying issues in the agricultural sector, which may require attention to ensure the stability of rural demand. The commercial vehicle segment, particularly M&HCVs, shows resilience in specific sub-segments, pointing to opportunities in public transport and last-mile connectivity solutions. Now all eyes are fixed on the upcoming festive season – October-December – quarter which traditionally brings in many reasons for joy to all stakeholders. In the next three months, automotive industry is expected to announce the launch of many new models, including facelifts, offer attractive discounts and put in a full-360 degree marketing blitzkrieg to up the overall sales numbers.
