Editor's choice
11 Apr 19

Shaping the Indian Automotive Industry

On paper, India might very well become the next mega car market; analysts, such as McKinsey, tell us that India could be the world’s third-largest passenger vehicle market. Obviously, a country counting a billion people can’t be anything else than a major market, but still, will growth be unstoppable and linear? Some arguments pro and con, and an OEM strategy to illustrate what the industry thinks.

Pro: Economy and Demography

In more than one way, pan-Asian trends also translate into the Indian reality: urbanisation is massive, with an expected 500 million people living in cities by 2030. Many of these people will have jobs, including young people and women, contributing to the economy and benefiting from salaries. In other words, the middle class will grow and need more mobility.

Pro: Government support

The automotive industry already contributes up to 7% to the national GDP and has been identified by the government as one of the key contributors to the national economy. Various growth plans (such as the “Automotive Mission Plan”) have been put in place to reach a target of $300 billion in revenues and $80 million in export, respectively 3 times and 7 times the current market size.

In parallel with support measures, the government seeks to decrease pollution by implementing mandatory Euro 6 emission standards, scrappage policies to incentivise the removal of old vehicles and the promotion of alternative fuels.

Pro: India as a manufacturing hub

Although not perceived as an easy country to do business due its complex tax and regulation system, India has been placed 30th on the Global Manufacturing Index 2018, in the same “Legacy” group as Hungary, Mexico, Philippines, Russia and Turkey. The manufacturing sector has grown by 7% per year and accounts for over 16% of the country’s GDP. It needs to be noted that India’s nr. 5 ranking for “demand environment” (market size) has contributed to its ranking.

Pro: proof of concept

Companies such as Ford India, Hyundai India and Volkswagen India have proven that India can function as a regional hub for car manufacturing. Ford is exporting almost 100,000 EcoSports per year, almost twice the amount of local sales. Large manufacturers benefit from governmental support, but also employ and educate 1000s of people.

For the same reason, India is also a fertile market for the development of new types of vehicles that correspond to the local needs: small, economic, cheap and safe cars that cater to emerging markets, where middle class incomes are below $10,000.

Pro: software

India’s investments in the software sector have paid off; as for the automotive industry, India’s well known for its telematics systems and embedded software. Developing and maintaining software in India has become fairly standard solution for many Western companies.

Con: complexity

Although the first steps in simplification have been set or announced, India remains a complex country for foreign companies to do business. State-based regulations that seem to change every fortnight, an confusing tax regime and an inherent level of complexity in doing business in general, slow the country’s potential down.

Con: form factor

India has always been the small-car country, not so much because Indians don’t like big cars (they are becoming fond of SUVs), but because of the family budget and the fact that a big car is not suitable for busy city environments. Ola, India’s ride hailer, has understood this: they are deploying rickshaws, ultracompact electric three-wheelers instead of cars.

Con: ambitions versus reality

India has a long history of overly ambitious roadmaps, unfortunately mitigated by mediocre execution. It seems – and this is a generalisation – that ambitious plans hit obstacles pretty soon when executed. One example is India’s electrification: announced with much bravura, a couple of times already, the concept doesn’t gain traction.

For one, manufacturers don’t see the low-income Indian consumer as a target market for their expensive EVs; there have been voices in favour of developing cheaper, low-range batteries, but this goes against every EV strategy. Furthermore, infrastructure is just not there, discouraging the few Indian EV aficionados. Finally, the government is sending very mixed messages to the industry by forcing Euro 6 norms: local manufacturers are now investing in new, Euro 6 compatible engines. Not in EVs.

Con: no mobility strategy

In all fairness, what India needs in the first place, is not more cars, but better and more public transit that transports people on better and more roads. In all other Asian emerging markets, people who buy cars upgrade from public transport and motorcycles to 4-wheelers. The Indians’ mobility today is much too limited to speak of a massive growth potential for cars.

In addition, the infrastructure is poor, pollution at times suffocating and congestion is enormous. The Indian market is very simply not a car-centric market and the ecologists might even wonder if more cars is what India needs…

Citroen

Nevertheless, the creative and ambitious car industry is still willing to give it a go and get their slice of the large Indian car cake. PSA has designated Citroen to go local, in collaboration with CK Birla, an Indian conglomerate with 2 plants in the country. Citroen has promised 4 new models in 4 years, part of a programme called C Cubed (Cool + Comfort + Clever). The French brand has understood that localisation is key in India, although it mentions that export is part of the strategy.

Based on the press release, it looks like the brave people at PSA are not naïve; the Indian project is said to be an “evolutionary business model”. If successes are booked, investments will come. Bearing this in mind, the high-end C5 Aircross is selected to become Citroen’s market entry model.

Authored by: Yves Helven
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