Automobile Sector

Overview of the Sector

The Indian automobile industry is the 4th largest automobile industry in the world. It has emerged
as a sunrise sector within the Indian economy. It had an annual production of 25.3 million vehicles
in FY 2013-18 with a CAGR of 7.09% over the preceding year. The industry is characterized by
presence of established domestic and international original equipment manufacturers (OEMs),
with a strong market in terms of both, domestic demand and exports. The industry accounted for
7.1 per cent of India’s Gross Domestic Product (GDP) for FY 17-18. India is also a prominent auto
exporter, with exports rising at a CAGR of 6.86 per cent during 2017-18.

India’s robust automotive industry caters mainly to the country’s vast domestic market, which is
characterized by a strengthening and urbanizing middle class and by underpenetrated, but fast
expanding rural regions.

India is a net vehicle exporter, and reports negligible automotive imports, partly because of the
country’s long-standing manufacturing traditions and established manufacturers, and partly
because of the government’s drive, through the Make in India initiative, to attract foreign
automotive manufacturers to produce vehicles in the country coupled with above average custom
duties.

Vision for the Sector 2025:-

By 2025, consumer expectations for every facet of mobility will soar, including how they
drive. Customer preferences for the automobile experience – both pre- and post-sale – will
impact not only overall demand for car ownership but also the specific features and
experiences automakers build into their products and services. Two major shifts that will
define the automotive landscape between now and 2025 are the inevitable (and phased)
embrace of autonomous vehicles and the spread of the sharing economy

We believe Three major innovations will define the future of Automobile Sector :

 IN A DRIVERLESS WORLD, IN-TRANSIT INNOVATION WILL DEFINE

MARKET LEADERSHIP: Consumer-focused companies such as Apple or Amazon,
which are already building an ecosystem of products and services for autonomous
vehicles, could enter the mainstream automobile business, as could hospitality-focused
companies that augment their offerings with in-vehicle services.
 VEHICLE DESIGN WILL BE DRIVEN BY PURPOSE: Consumers’ changing
mobility needs are leading to a distinct segregation of demand, depending on the goal:
They take a utilitarian perspective when the primary objective is simply getting from one
place to another, and a more personalized view when using a vehicle for recreation. Many
two-car families today, for example, choose a small car for errands or their commute to
work and a larger one for family outings or vacations.
  Car Sharing to transform into original service providers:- As car ownership declines
precipitously by 2025, particularly in urban areas, and more people choose ride-sharing
services of autonomous cars consumer sentiment will be shaped by both ease of use and
the seamlessness of the entire vehicle experience. As customer experience, connectivity
and mobility services become differentiating factors, OEMs will increasingly become
“original service providers” rather than equipment providers.

Current Role by Banking Sector:-

As per the report on alternative lending in India, the number of start-ups in the online consumer
lending space has grown significantly from merely 2 in 2013 to 30 in 2015. These firms assist
individuals and small businesses in obtaining personal, auto, working capital and other loans, and
cater predominantly to millennials who might be either salaried or self-employed. Going forward
more and more NBFC’s and Loan companies will be extending credit to automobile companies
working on cutting edge innovative technologies like electric cars, voice assisted driving,
driverless cars which is set to define the future.

Opportunities:
The few opportunities that are visibly available in automobile industry are:
India’s automobile industry is showing positive outlook- Production increased by 2.6 percent in
the financial year (FY) 2015-2016 as the industry produced a total of 23,960,940 vehicles,
including passenger vehicles, commercial vehicles, three-wheelers, two-wheelers, and
quadricycles as against 23,358,047 vehicles produced in the previous fiscal year.
FDI in India’s automobile industry- Foreign direct investment (FDI) equity inflow into the
automobile sector increased by 72 percent during 2014-2016 from US$3.05 billion (during 2012-
2014) to US$5.25 billion. From April 2016 to September 2016, the automobile sector received
US$728.65 million in FDI equity inflows. Leading global players like ISUZU Motors, Ford
Motors, Tata Motors, Honda, and Suzuki Motors have already invested heavily in the
manufacturing sector resulting in the establishment of new assembly lines, manufacturing, and
greenfield units.

Government policies to boost auto manufacturing- The government’s Automobile Mission Plan
2016 – 2026 envisages making India one of the top three automobile manufacturing centers in
the world, potentially earning a gross revenue of US$300 billion by 2026. Lastly, the current
government’s pro-business sentiment is shaping its reforms focus on regulatory easing,
infrastructure development, logistics improvements through rail, road, and sea cargo, and
expanding FDI limits, all of which bodes well for foreign investors.