India may lead global growth in light-vehicle production: S&P Global

India is projected to lead global growth in light vehicle production with a compound annual growth rate (CAGR) of 4.6 per cent from 2023 to 2033, according to estimates by S&P Global Mobility. This marks an increase from the previous decade’s growth rate of 4.1 per cent, which was also the highest among major countries. India’s performance over the next 10 years is expected to outdo its previous record and outperform other key markets.

In contrast, Mainland China is expected to see a CAGR of 1.7 per cent from 2023 to 2033, while the US is expected to see only 0.3 per cent growth. Japan is projected to degrow by 2 per cent, and South Korea is also expected to shrink by 2.6 per cent. In Europe, Germany will continue to grow, albeit at a slower CAGR of 1.1 per cent.

As of 2023, India is the fourth-largest light vehicle producer with 5.4 million vehicles, upstaging Germany (4.3 million) and South Korea (4.2 million). The leading producers are Mainland China (28.8 million), the US (10.3 million), and Japan (8.6 million). In terms of sales, India ranks third, ahead of Japan.

Gaurav Vangaal, associate director of light vehicle production forecasting — Indian subcontinent, S&P Global, explains the growing global importance of India as a market: “Nearly all global carmakers and supply chains are investing in India for the future. We are the third-largest domestic market for cars, with a low penetration rate of 38 vehicles per 1,000 people. We expect capacity to increase from 6.8 million in 2023 to 10 million. India is also seen as an alternative global supply chain and a key export hub. Besides, we are a stable country.”

However, there are challenges to address. Electric vehicle sales face pressure in the medium term due to inadequate charging infrastructure, fears of lower residual value at resale, and high manufacturing costs.

S&P also notes concerns about high inventory levels, which have been reported by both dealers and carmakers. This situation could lead to steeper discounts during the festival season and more aggressive export strategies.

Another trend to watch is the reduction in first-time buyers as vehicle prices rise. For example, the new Bharat Stage-VII emissions regime is expected to push up prices further. Vangaal adds, “The pent-up demand from the pandemic has been exhausted, and India’s cost-sensitive market means that price increases could impact demand.”