Automobile

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OVERVIEW

The automobile industry encompasses design, development, manufacturing, marketing and selling of motor vehicles. The industry space is dominated by two wheelers that account for 81 percent of the total domestic market share, followed by passenger vehicles which account for 13 percent, and commercial vehicles and three-wheelers which together make up 6 percent of the remaining share. The industry contributes 7.1 percent to India’s GDP. It provides employment to 30 million people in the country. India is the largest manufacturer of two-wheelers, three-wheelers and tractors in the world. India is also the fifth largest vehicle manufacturer.

Production

In 2019-20, passenger vehicles accounted for 13 percent of the total automobile market, while commercial vehicles and three wheelers accounted for 3 percent of the market each. Two-wheeler vehicles accounted for the lion’s share of 81 percent of the total automobile market in the country.

Automobile Production Trend

(In lakhs)

Category 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 % CAGR
(FY15-20)
Passenger Vehicles 32.21 34.65 38.02 40.20 40.26 34.34 1.28
Commercial Vehicles 6.98 7.87 8.10 8.95 11.12 7.5 1.49
Three Wheelers 9.49 9.34 7.84 10.22 12.69 11.33 3.62
Two Wheelers 184.89 188.30 199.34 231.55 245.03 210.36 2.61
Quadricycle*(actual numbers, not in lakhs) - 531 1,584 1,713 5,388 6095 84.06
Grand Total 233.58 240.17 253.31 290.94 309.15 236.62 2.44
Only Oct-March 2016 data is available for 2015-16, CAGR is calculated for 4 years
Source: SIAM

The production of automobiles stood at 236.62 lakhs in 2019-20, as compared to 233.58 lakhs in 2014-15, registering a CAGR of 2.44 percent. Production of three-wheeler vehicles witnessed the highest CAGR of 3.62 percent amongst all categories of automobiles during this period. The production of commercial vehicles and passenger vehicles also witnessed positive trend, increasing from 6.99 lakhs and 32.21 lakhs in 2013-14 to 11.12 lakhsand 40.26 lakhs in 2018-19, respectively. However, the trend halted in 2019-20, with the overall industry witnessing a y-o-y decline of 0.23 percent, with decline in production across all categories of automobile production except quadricycle.

Export

The automobile industry registered a CAGR of 5.92 percent during 2014-15 to 2019-20. The highest growth was seen in two-wheeler vehicles, which registered a CAGR of 7.45 percent during this period, followed by three-wheeler vehicles and passenger vehicles which recorded CAGRs of 4.26 percent and 1.73 percent, respectively. Commercial vehicles, on the other hand, recorded negative CAGR of (-) 6.92 percent during the same period. The growth of overall automobile exports was mainly because of substantial increase in exports of quadricycles and two-wheeler vehicles in 2019-20. The overall exports from the industry witnessed a growth of 2.9 percent in 2019-20 as compared to previous year.

Automobile Exports Trend

(In lakhs)

Category 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 % CAGR
(FY15-20)
Passenger Vehicles 6.21 6.53 7.59 7.48 6.76 6.77 1.73
Commercial Vehicles 0.87 1.03 1.08 0.97 1.00 0.60 -6.92
Three Wheelers 4.08 4.04 2.72 3.81 5.68 5.02 4.26
Two Wheelers 24.57 24.83 23.40 28.15 32.81 35.20 7.45
Quadricycle*(actual numbers, not in lakhs) - 334 1,556 1,605 4,400 5185 98.49
Grand Total 35.73 36.44 34.81 40.43 46.29 47.65 5.92
Only Oct-March 2016 data is available for 2015-16, CAGR is calculated for 4 years
Source: SIAM, Exim Bank Research

Foreign Direct Investments

The Indian government encourages foreign investment in the automobile sector and allows 100 percent FDI under the automatic route. It is a fully delicensed industry and free imports of automotive components are allowed. Moreover, the government has not laid down any minimum investment criteria for the automobile industry.

Automobile sector received sixth largest FDI of US$ 24.21 billion in the country, accounting for 5.15 percent of the total FDI inflows during April 2000 to March 2020.

Outlook

Rising disposable income, growing urbanization, expanding rural market and government initiatives like Smart Cities, promoting the country as the Research & Development (R&D) centre by setting up of National Automotive Testing and R&D Infrastructure Project (NATRiP), and Automotive Mission Plan 2016-26 are dominant factors that will propel the automobile industry in India.

However, the current pandemic and lockdown in the economy is expected to reduce the production and sales of overall automobile industry in 2020-21.The outlook for the industry is neutral in the medium term.

 

SELECT GOVERNMENT INCENTIVES

  • The Automotive Mission Plan 2016-26 (AMP 2026), the collective vision of Government of India (Government) and the Indian Automotive Industry, emphasizes on where the vehicles, auto components, and tractor industries should reach over the next ten years in terms of size, contribution to India’s development, global footprint, technological maturity, competitiveness, and institutional structure and capabilities.
  • To make India as R&D hub, the government has formed the National Automotive Testing and R&D Infrastructure Project (NATRiP) with a total project cost of US$ 585 million. This will enable the industry to adopt and implement global performance standards.
  • Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India Scheme)- The National Electric Mobility Mission Plan 2020 was unveiled in 2013 as a part of the FAME India scheme for a period of 6 years till 2020. It will support the hybrid and electric vehicles market development and its manufacturing eco-system to achieve self-sustenance at the end of this period. The Government of India is committed to instill confidence in the industry and allow them to plan required investments and create needed capacities. The scheme focuses on technology development, demand creation, pilot projects and charging infrastructure. Grant is provided to the Development Council for Automobile and Allied Industries (DCAAI) for the completion of electric mobility project and for the new and ongoing research and development projects related to setting up facilities for testing the vehicles as per changing safety and emission standards at the research institutes i.e. Automotive Research Association of India (ARAI), Pune, Vehicle Research and Development Establishment (VRDE), Ahmednagar and Central Institute of Road Transport (CIRT), Pune and other R&D institutes in the country.
  • Introduction of a new National Auto Policy and Faster Adoption and manufacture of Hybrid and Electric Vehicles (FAME) II for a clean future in mobility was approved in February 2019 with a fund requirement of US$ 1.39 billion for FY20-22.
  • The Government of India has introduced a policy which allows organisations and researchers to buy bulk data related to vehicle registrations on an annual basis.
  • For installation of electric vehicle supply equipment (EVSE) infrastructure for the electric vehicles (EV), various public sector firms, the railways and various ministries have come together to create infrastructure and manufacturing components.
 

SELECT EXPORT MARKET REGULATIONS

EUROPE

Automotive products are regulated through EU laws for vehicle type-approval. To ensure level playing field, build trust of consumers and reduce administrative burden, all policy proposals are subject to competitiveness proofing.

Under REACH, substances manufactured or imported on their own or in mixtures, as well as substances intended to be released from articles, need to be registered according to the REACH timeline once a certain yearly tonnage is exceeded. Additionally, Substances of Very High Concern (SVHCs) may require authorization or may be restricted. SVHCs listed on the Candidate List need to be identified in articles and communicated throughout the supply chain and to the consumers if certain criteria are met. Continued REACH compliance is critical to maintain business continuity for any company doing business, or having customers or suppliers doing business, in the European Economic Area (EEA).

The new EU Vehicle Type Approval Regulation is in place from September 2020, which includes more robust and realistic testing methods for measuring both nitrogen oxides (NOx) and CO2 emissions from cars, strict air quality standards that Member States have to comply with, and a number of measures to foster low-emission mobility (i.e. action plan for alternative fuel infrastructure, development of full value chain of battery production).

CHINA

China “Automobile RoHS: Management Requirements for Vehicle Hazardous Substance and Recyclable Utilization Ratios” (“Requirements”), referred to as China’s “Automobile RoHS” program, is intended to specify that hazardous substance content and recyclability ratios for passenger cars carrying no more than 9 persons (M1 category) meet the specifications set out in two separate standards governing these issues.

New measures concerning restricted-material content and recyclability requirements for certain passenger cars came into effect on January 1, 2016.

According to the regulations, lead, mercury, hexavalent chromium, polybrominated biphenyls, polybrominated diphenyl ethers in any homogenous material of the motor vehicle or motor vehicle parts, by mass fraction, should not exceed 0.1 percent. Cadmium in any homogenous material of the motor vehicle or motor vehicle parts, by mass fraction, should not exceed 0.01 percent.

SOUTH KOREA

As per the Article 30 (Permissible Standards of Noises Produced by Manufactured Cars) of the Noise and Vibration Control Act, the noises emitted from manufactured motor vehicles (hereinafter referred to as “manufactured cars”) need to conform to the permissible manufactured car noise standards as determined by the Presidential Decree.

The exhaust gases from automobiles are regulated under Article 46 (kinds of exhaust gases) of Clean Air Conservation Act.

NORTH AMERICA

The United States entails vehicle or vehicle parts to conform to the U.S. Environmental Protection Agency (EPA) and Department of Transportation (DOT) regulations for emission and safety requirements.