2022-01-11
Outlook 2022: Top 3 trends transforming automotive industry

Outlook 2022: Top 3 trends transforming automotive industry

The Indian automotive industry drove into 2022 with a positive mindset in its quest to reach the pre-pandemic levels of sales volume, having built a solid foundation in 2021 despite the semiconductor shortage hampering production.
 
With demand still buoyant in the passenger vehicle segment amid challenges of commodity price increases, many automobile manufacturers are upbeat to embrace new technologies, especially in the electric mobility space which is expected to witness a slew of launches in both four- and two-wheeler categories in the coming year.
 
However, the Omicron variant of the COVID is still a concern for many automakers, as they feel that the learnings from the past two years will come in handy in carrying out business, having adopted digitisation on large scale, even if there were to be the third wave.
 
The automobile industry is supported by various factors such as the availability of skilled labour at low cost, robust R&D centres, and low-cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labour.
 
Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026, as per an IBEF report.
 
The Indian auto industry is expected to record strong growth in 2021-22, post recovering from the effects of the COVID-19 pandemic. Electric vehicles, especially two-wheelers, are likely to witness positive sales in 2021-22.
 
Here are the top three trends the automotive industry is expected to witness this year.
 
Future of Connectivity
Last year, MG Motor India unveiled MG Astor, which is India’s first SUV with a personal AI assistant and first-in-segment Autonomous (Level 2) technology. As 4G and the internet of things (IoT) continue their growth, more connected services and features are expected in vehicles this year. With connected mobility, the cars can communicate bidirectionally with other systems outside their local area network to send digital data to enable remote diagnostics, vehicle health reports, data-only telematics, access Wi-Fi Hotspots, get turn-by-turn directions, warn of car health, and directly intervene to prevent breakdowns and also avert accidents.
 
The mobility landscape will fundamentally transform over the next 10 to 15 years, with ACES trends—autonomous driving, connected cars, electrified vehicles, and shared mobility—amplifying their impact. The evolving landscape presents a perfect opportunity for Indian automakers to lead the disruptive changes occurring across segments and gain a competitive advantage, according to a Mckinsey report.
 
Today, only about 2 percent of new vehicles sold globally are electrified. The opportunity ahead is much larger, and the winners and losers are yet to be decided. Indian players can become homes for innovation, both domestically and in similar markets abroad, supplying complete products, aggregates, or components worldwide. In traditional micromobility segments (2W and 3W), Indian players can be the global leaders from day one. For PVs, such as cars and SUVs, and light CVs, Indian players can win by following the frugal design requirements essential for emerging markets.
 
Electric Vehicles Continue to grow
The electric vehicles sales, excluding E-rickshaws, in India witnessed a growth of 20% and reached 1.56 lakh units in FY20 driven by two-wheelers. According to NITI Aayog and Rocky Mountain Institute (RMI), India's EV finance industry is likely to reach Rs 3.7 lakh crore (US$ 50 billion) in 2030. A report by India Energy Storage Alliance estimated that the EV market in India is likely to increase at a CAGR of 36% until 2026. In addition, the projection for the EV battery market is forecast to expand at a CAGR of 30% during the same period.
 
A study by CEEW Centre for Energy Finance recognised US$ 206 billion opportunities for electric vehicles in India by 2030. This will necessitate a US$ 180 billion investment in vehicle manufacturing and charging infrastructure. Between January and July 2021, EV component makers, electric commercial vehicles, and last-mile delivery companies invested a total of Rs 25,045 crore (US$ 3.67 billion) on electric vehicles. Several technologies and automotive companies have expressed interest and/or made investments into the India EV space.
 
Auto companies such as Hyundai, MG Motors, Mercedes, and Tata Motors, have launched EVs in the market. A recent study conducted by Castrol found out, most of the Indian consumers would consider buying an electric vehicle by the year 2022. The study also highlighted for an average Indian consumer, the price point of Rs. 23 lakh (or US$ 31,000), a charge time of 35 minutes and a range of 401 kilometers from a single charge will be the 'tipping points' to get mainstream EV adoption.
 
Similarly, the government has also set up an ambitious target of having only EVs being sold in the country. As of June 2021, Rs 871 crore (US$ 117 million) has been spent under the FAME-II scheme, 87,659 electric vehicles have been supported through incentives and 6,265 electric buses have been sanctioned to various state/city transportation undertakings.
 
The Ministry of Heavy Industries, Government of India, has shortlisted 11 cities in the country for the introduction of EVs in their public transport system under the FAME scheme. The first phase of the scheme was extended to March 2019 while in February 2019, the Government approved the FAME-II scheme with a fund requirement of Rs 10,000 crore (US$ 1.39 billion) for FY20-22. Under the Union Budget 2019-20, the government announced to provide an additional income tax deduction of Rs 1.5 lakh (US$ 2,146) on the interest paid on the loans taken to purchase EVs.
 
Direct to Consumer sales
Automotive companies have started to respond to changing customer buying behavior by piloting new online business models. However, most current initiatives are still removed from what customers expect.
 
With the increased digitalisation, consumers are being used to the trends of getting goods delivered at their doorstep. While this has become mainstream for consumer goods, groceries, etc, large ticket purchases like vehicles too are likely to witness the penetration of this trend in the coming years. several mobility companies have already started offering their products through direct-to-customer to D2C business model.
 
The greater spike in online sales and the D2C business model is likely to witness a surge in the year 2022. This will result in more and more automobile dealerships switching to digital medium and online sales. Overall, there will be a higher penetration of the hybrid business model in automobile sales. This would eventually reduce the market share for conventional physical dealerships.
 
 
 
 
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