Passenger vehicles to continue driving auto sales in February, EVs gain a stronghold

• Robust demand for passenger vehicles is expected to continue driving auto sales in February.
  
• This is despite a moderate drop in customer enquiries, according to analysts.
  
• Electric vehicles in both the passenger vehicle and two-wheeler segments have caught the fancy of customers who are increasingly willing to accept the higher upfront costs in lieu of lower maintenance and operational costs.
  
• Sales of entry-level cars and two-wheelers are likely to be subdued in February largely due to a weak rural recovery and inflation woes.
  

A robust demand for passenger vehicles (PVs) is expected to boost India’s auto sales numbers for the month of February, as per analysts. This is despite a moderate drop in customer enquiries across carmakers, especially at a time when companies are transitioning to the second phase of BS VI emission norms (also known as BS6 Phase 2).

According to analysts at Motilal Oswal, although retail volumes are expected to slow down in February when compared to January, a marriage season in the northern markets and a healthy uptick in urban markets are expected to drive a 10-12% year-on-year growth in the retail segment for the month.

“The month of February has been seasonally weak for most of the dealers/OEMs (original equipment manufacturers). Our discussions suggest weakness in two-wheeler sales except for the EVs (electric vehicles), while for PVs the demand remains strong but production constraints still remain on the automatic version and higher variants of SUVs (Sports Utility Vehicles),” said a report by LKP Securities.

Carmakers losing 15-20% sales due to supply chain issues

According to a dealer check by analysts, both customer footfalls and demand for passenger vehicles have gained strength every month since the pandemic subsided. However, persistent supply chain issues have resulted in carmakers losing out on 15-20% of their business, failing to take full advantage of this rising demand for PVs.

Premium cars, and more specifically, the higher-end automatic variants that use technologies like automatic gear shift (AGS) and automated manual transmission (AMT) are the ones facing the most issues, with companies like Maruti Suzuki reporting waiting periods as long as 4-6 months.


Source: Brokerage reports

Analysts also noted that the chip shortage is a bigger problem for Mahindra & Mahindra, since its entire portfolio consists of SUVs, which use chips more than entry-level cars and hatchbacks.

Overall, analysts say the robust passenger vehicle demand has resulted in low inventory levels – which are down to 15-20 days – across Maruti Suzuki, Tata Motors and Hyundai.

According to a Motilal Oswal report, Maruti Suzuki’s Brezza, Grand Vitara and the newly-launched Jimny and Fronx have an order book between 10,000 to 70,000 units.

EVs catch the fancy of customers

Despite the higher initial cost of purchase, analysts say customers are increasingly preferring electric vehicles, be it in the passenger vehicle or the two-wheeler segment. According to a report by JMK Research, sales of electric vehicles rose 29% sequentially in the December quarter to 3.57 lakh units.

“EV has gained a super strong and rapid hold on the markets with all the scooter launches in EV fetching solid demand. Customers are ready to bear the one-time high cost in EVs rather than incurring the recurring high operational costs led by rising fuel costs,” said a report by LKP Securities.

While electric vehicles are costlier, their maintenance and operation costs are relatively lower than their internal combustion engine (ICE) counterparts.

Tata Motors’ EV portfolio now accounts for 15% of its sales, up from 5% a year ago, according to a report by LKP Securities.

The company’s Nexon EV remains one of the top performers in the EV segment, with a waiting period of 20-25 days. Tata Motors’ more affordable EV offering, the Tiago EV, has an even higher waiting period of up to two months.

On the two-wheeler side, Bajaj Chetak and Hero Vida’s wider availability is expected to boost the overall sales.

Customers continue to shun entry-level cars and two-wheelers

Weak rural recovery has also led to a continued decline in demand for entry-level two-wheelers like Hero CD Dawn and CD Deluxe.

According to LKP Securities, market leader Hero has witnessed a 5-10% year-on-year drop in demand in February, with customer footfalls at Hero and rival Bajaj dealerships remaining subdued during the month. Price hikes due to higher input costs and BS VI emission norms, higher fuel prices, and inflation woes have contributed to the decline.

“Young customers are not favouring the entry level or small hatchbacks like Wagon R, Alto models and are ready to wait till the SUVs are available,” the brokerage noted, underlining that entry-level car sales continued to struggle.

The subdued demand was somewhat offset by the marriage season, according to analysts at Motilal Oswal.

The brokerage added that premium two-wheelers like those from Royal Enfield have seen their demand remaining intact. However, the lower availability of test vehicles has resulted in some enquiries not translating to sales.

Bajaj Auto to reportedly slash production by 25% amid weak exports

Bajaj Auto is reportedly planning to slash its production in March by as much as 25% due to weak exports. Exports accounted for 39% of the company’s total sales in January 2023, down from 52% in January 2022.

According to a report by the Economic Times, Bajaj Auto’s production in March is expected to fall to 2.5-2.7 lakh units, down from an average of 3.38 lakh units in each of the the first nine months of FY23. This will also bring down the company’s total utilisation rate to below 50%.

Uncertainties in Nigeria, one of Bajaj Auto’s biggest foreign markets, is likely behind the decision to cut down production, the report added. However, analysts believe the company’s export issues have bottomed out. It remains to be seen whether this translates to sales going forward.

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