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In continuation to the previous blog post on emerging trends in emerging economies, we took a view on the consumer durables industry segment. Let’s continue with our deep dive on the manufacturing industry and move on to the sector which is crowned as ‘Powerhouse of Manufacturing’ i.e., Automotive Industries.

The automotive sector due to its sheer dominance in the manufacturing industry takes away the lead for one of the largest employment generators as well as tax contributors.

Over the past decade, the sector faced several headwinds owing to:

  1. Stringent emission norms

    • Tight road maps to upgrade to Euro/BS-IV emission norms put pressure on OEMs (Original Equipment Manufacturers) to push for cleaner engine technologies

  2. Migration to Electric vehicles (unsold ICE-Internal Combustion Engines inventory)

    • No new investments in ICE technology and announcements like ‘Electric vehicles to replace ICE in next decades’ pushed customers to hold back the buying decisions, ultimately forcing OEMs to phase out to existing technologies

  3. Capital infusions

    • Automotive is capital intensive industry, upgrades to newer technologies require heavy capital investments.

  4. Financial constraints

    • Balance sheets of OEMs already reeling under debt discouraging promoters to hold further commitments

The sector as we know can be segregated based on the classification criteria of consumption and usages.

Automobile Sector


Terms: MUV – Multi Utility Vehicles, M & HCVs – Medium and Heavy Commercial Vehicles, LCVs – Light Commercial Vehicles

Out of the entire pack of automobiles, passenger vehicles fall into all the product classifications successfully:

  1. Aspirational products

  2. Utilitarian products

  3. Luxury products

The reason being the passenger vehicles cater to the demands of all sections of society and provide value-add products for all the segments of the industry.

As far as the Indian Automobile market is concerned, it stands among the Top 5 automobile markets by the sheer volume of production and sales of motor vehicles which makes it an interesting case study.

India has production facilities for motor vehicles belonging to all product segments, however, 1 product segment is worth studying given the volume of business it generates.


Sectoral breakup:

Source: Industry, SIAM - Society of Indian Automobile Manufacturers

As per the industry sources, data gathered in FY20 reveals an interesting observation about the automobile market share as held by various product categories. Despite the penetration of 4-Wheelers across product ranges like SUVs, Sedans, Hatchbacks, Coupes, etc., 2-Wheelers continue to hold the fort with >80% market share. Though the ticket price of the products in the 2-Wheeler category is much smaller as compared to 4-Wheelers, the market share reveals the reality on the ground for the automobile industry. Let’s dig further to analyze what the future holds for this industry.

Two-wheelers, despite offering products across the mentioned classifications, the utilitarian product category comprises the lion’s share. Scooters are the preferred mode of travel in urban areas; however, motorcycles have a more consistent pattern of distribution through the country including both rural and urban areas. Scooters along with entry and mid-level bikes comprise 82% share of the entire 2-Wheeler product segment, making a case of 2-Wheelers being a utilitarian product rather than aspirational or luxury products.


Asian Economies peer comparison:

Moving ahead, let's take a look at the Asian peers for a glance at the situation.

Asian Economies peer comparison, 2-W penetration

Source: Industry, SIAM

As far as the Asian economies are considered, most of them are continuing to grow at median annual GDP growth approx. 6-8% (barring Covid-19 period). The similarity doesn’t just end there, demographically the societies show a pattern. The population falling into the age group of 20-64, who are likely to be potential consumers of the 2-Wheelers, are present in these peer geographies. India with roughly 66% population falling into this age group reflects the huge potential for the 2-Wheeler product category. Considering the total population of the country crossing 1.35 billion and 66% of it amounts to roughly ~0.9 billion as the total addressable market.

There is another interesting emerging trend among the existing patterns i.e., participation of women in the total workforce. This trend is likely to provide tailwinds to the demand of the 2-Wheeler product segment as 2-Wheeler plays a huge role in urban mobility. As more and more women are likely to join the workforce, there is a strong case for the surge in demand for urban mobility.

One may argue that infrastructure spending by governments and authorities towards public transport like Metro and Buses can potentially play a spoilsport for the personal mode of transport. However, the reach and connectivity of public transport are yet to reach desirable levels. Additionally, commuting to the workplace isn’t the only use case for spending towards the personal mode of transport.


Workforce participation by women: providing tailwinds to the Automotive sector

Source: RBI Employment Statistics, Hero Motorcorp

The 2-Wheeler segment had been growing consistently over the past decade despite the steep rollouts on emission norms. The price escalations coming in as a result of stricter emission norms and cleaner engine technologies were no deterrent for the consumers. The demand for personal mobility further gained momentum by rapid urbanization for geography.


10 years sales at a glance:

Source: Industry, Hero Motocorp, Statista

Financial impetus:

Reduced lending rates by the central banks put more money in the hands of the customers with cheaper loans and easier lending norms. Digital banking put more weight behind this trend wherein customers were saved due to hassle-free processing of auto-loans.

Overall, the momentum was quickly cashed in by the OEMs and they continued to launch newer products catering to all the categories in this segment. During FY22, the automobile industry has geared up with launches of electric vehicles in the passenger as well as the 2-Wheeler segments. Electric vehicles with underlying technology infrastructure are a case study in itself which warrants closer focus for some other day. For now, the demand for 2-Wheelers is nowhere near being done and dusted.


The industry does not only cater to the domestic demand however geographies like Africa, South America, and Southeast Asia are also on the radar as export markets too.

For the records, 2-Wheelers exports from India-based OEMs exceeded the domestics monthly sales during 2021. During the month of May'21, the domestics sales of 2-Wheelers were reported at 3.58 Lakh units while domestic sales stood at 3.52 Lakh units.

Ripple Effects:

The story of the 2-Wheeler industry and its demand isn't just limited to the sales of vehicles. It has significant ripple effects on the industry surrounding the automobile industry.

The surge in sales of helmets has caught the attention of the 2-Wheelers gears and accessories manufacturers. Studds made the announcement of Asia's largest helmet manufacturing facility during FY20 to cash in on the rising demand for helmets and related accessories.

Similar ripple effects are visible in the component manufacturers and assembly units that provide input materials to the 2-Wheeler OEMs.  Batteries and tires are such essential components that are likely to gain.


Automotive consultants may well take note of this emerging trend. This space also has a lot of opportunities for the Software Solution providers to the Manufacturing and Automotive Industries. Given the nature of the automotive industry and its second-order effects, significant opportunities are in place for component manufacturers.

Above listed factors like financial incentives and highlighted data points like the growth of the working women population, spending by the target population, etc. give guidance towards a strong trend in the 2-Wheeler product segment that is well-positioned to drive the growth of the automobile market in the Indian economy.