- Overview
With as high as about seven percent contribution to the overall GDP, and 49 percent to the manufacturing GDP while generating direct and indirect employment opportunities for its masses, and believed to be the key reason for India being the third largest economy in the world. Besides, the country’s strong domestic market and focus on less-polluting vehicles, such as hybrids and electrics, growing interest in exploring the rural markets, rising logistics and passenger transportation industries are driving up demand for commercial vehicles, etc. have made it an attractive location for foreign manufacturers. When the industry grows the future prospect for the Auto stock investors are also bullish.
- Market Size and Industry
Indian Automotive Market size was valued at $108.10 B in 2022 and is poised to grow from USD 116.86 Billion in 2023 to $217.90B by 2031, at a CAGR of 8.1% during the forecast period (2024-2031). Whereas, India’s NITI Aayog and CEEW Centre studies have estimated the EV market in India to reach a value of $206B by the year 20230 growing at a CAGR rate of 36% till 2026, while the passenger car market is expected to reach $54.84B by 2027.
In manufacturing, the country achieved a significant milestone in total production of commercial vehicles, surpassing 23.36 million units between April and January FY24, marking a noteworthy upsurge in passenger vehicle sales. With the total value of exports reaching around 47,61,487 in FY23, the auto industry in India aims to increase vehicle exports by five times between 2016-26. Besides, the auto components industry in India is set to grow five-fold in the next ten years.
With a potential investment opportunity of over $200 billion over the next eight to ten years, India is expected to overtake the US as the largest electric vehicle market by 2030 by becoming a global leader in shared transportation, creating the potential for electrified and self-driving automobiles. So will the Auto stocks in BSE over take that of NYSE in the coming future?
- SWOT Analysis for Auto Stock Investors in India
Strengths boosting the Auto Stocks
Budding industry: The automobile industry is a vital industry to the Indian economy making significant contributions to its growth & development. The automobile industry offers a significant opportunity for travel and improved living conditions, transforming the way people interact and work.
Constant Innovation & Technological Advancement: With technological advances such as electric vehicles and alternative fuels such as shell gas, CNG, etc. among others automobile businesses are growing their R&D spending to derive higher growth through renewable energy sources such as solar, wind, etc.
Shift in Manufacturing Hubs- The automobile industry is significantly shifting its manufacturing hub from traditional markets to emerging markets like China and India, aiming to meet evolving consumer demands and global volume projections.
Rising standards of living- Despite improving worldwide living standards, the expected increase in demand for commercial cars gives a substantial potential for manufacturers to exploit. By 2030, there will likely be over 1.2B cars on the road, offering manufacturers a large window of opportunity to profit from this gain.
Weaknesses underlying for the Auto stock investors
Consumer bargaining power- Over the last 3-4 decades, the car market has been transformed from demand to supplier industry, allowing more consumer autonomy with hundreds of choices leading to fierce competition and opening doors for bargaining.
Stringent Government regulations- Regulations controlling excise duty rates, no admission of outside vehicles within the state, and fuel price volatility pose significant hurdles for auto manufacturers and their business expansion.
Fuel Prices’ Volatility- The susceptibility of the industry to fluctuations in fuel prices is still significant, as demand and profitability are largely determined by oil prices. Considering that the war is expected to produce ongoing volatility in oil prices over the next few years, this still constitutes a significant weakness for the sector.
Opportunities for the Auto Stock Investors
Fuel-efficient vehicles: the enhancement of fuel-driven combustion engines, as well as cost-cutting initiatives, are excellent potential for the automotive industry. For the foreseeable future, developing nations will be the main sources of growth; as such, fuel-efficient automobiles are imperative.
Changing consumer demographics and lifestyles: This industry will grow as a result of the expanding government standards for safety and fuel economy, the expansion of data and information availability, and changes in consumer demand.
Market expansion: The demand for cars will soar as new markets are entered, such as those in Asia and the BRIC countries. In addition, other marketplaces are probably going to appear soon.
Energy Storage and Management: Numerous patents on energy management and storage, including cutting-edge lithium-ion and solid-state battery technologies, have been awarded to companies including Panasonic, LG Chem, and Tesla which will help to achieve higher efficiency allowing a longer range and charge more quickly.
Use of Cutting-edge raw materials- Contemporary materials like carbon fiber and lightweight metals, which are employed in the production of automobiles, can lower pollutants and increase fuel economy.
Evolution of Driverless Vehicles- The worldwide market for autonomous vehicles is expected to grow significantly, driven by advancements in technology such as computer vision and sensor technology, and machine learning aiming to reduce human error and enhance efficiency.
Threats that may deter the Auto stock performance
Competitiveness – Limited players in the auto industry compete to gain more market dominance making it tough for emerging players to enter or survive.
Fuel price volatility- Changes in the price of gasoline appear to be the key driver of consumer segment growth. In addition, government rules governing the usage of alternative fuels such as CNG and Shell gas have an impact on inventory.
Infrastructure concerns: Many places have inadequate infrastructure, which poses challenges for the car industry. The demand for electric vehicles may also decline as a result of individuals finding it difficult to convert to these kinds of vehicles due to a scarcity of charging facilities.
- Industry Outlook and Major Developments
India’s economy is the fifth-largest in the world rapidly dominating the Automobile industry through the manufacturing of two-wheelers, three-wheelers, and four-wheeler vehicles, their parts and repair services, and exports all around the globe. Availability of skilled labor, economic growth, investment in infrastructure development, and strong demand for replacement as well as microeconomic factors such as rapid urbanization, higher disposable incomes, and higher purchasing power have all led the Motor vehicle industry to reach a valuation of $300B.
The Auto Industry seems to be back on its development track at this point, despite facing challenges including semiconductor shortages, geopolitical tensions, and rising prices of raw materials during the post-Covid and COVID-19 years, among other things. This could be deduced from the fact that Original Equipment Manufacturers like Maruti Suzuki, Hyundai, and Mahindra, etc. clocked their highest sales figure to date.
Thus, the Indian Auto Industry has seen significant growth and innovation out of its research and development facilities, especially in the EV segment with the market volume expected to reach $200 B over the next ten years, growing at a CAGR of 49% till 2030 which could be gauged by auto manufacturers such as Ola Electric’s IPO and record sales seen by the Mercedes-Benz. All these have positively impacted Auto Stocks too.
Industry Developments
- Ola Electric has announced its Initial Public Offer with an anticipated valuation of $1.01B making the mark as the first auto company to bring its issue in twenty years.
- TVS Motors announced its entrance to the European Market by entering a distribution deal with a renowned automobile distributor namely, Emily Frey.
- Nissan and Renault have committed to invest a sum of $600M in India for the purpose of gaining more market share in the passenger automobile and electric vehicle segment for the coming 3-5 years.
- HOP Electric Mobility, a diversified business venture of Rays Power Infra, planning to invest a sum of $13.2M to expand its manufacturing capacity in the EV segment over the period of 2 years.
- India achieved a key milestone by registering sales of up to 8,47,439 electric vehicles till August 2023 with 1.02 million registered EVs indicating a year-over-year increase of 209.17% in FY23 over FY22.
- Government Initiatives
SATAT (Sustainable Alternative Towards Affordable Transportation) is the scheme intended to build Compressed Bio-Gas (CBG) production capacities and make the same available for automotive fuels in the market.
The Production Linked Incentive scheme under the National Programme on Advanced Chemistry Cell (ACC) Battery Storage, aims to fortify the Electric Mobility and Battery Storage ecosystem in the country and promote manufacturing capabilities in advanced chemistry cells stressing substantial domestic value addition.
Production Linked Incentive (PLI) Scheme for Automobile and Auto Components extended till 2027 is intended to enhance the manufacturing of Advanced Automotive Technology (AAT) products, predominantly targeting Zero Emission Vehicles, endorsing localization and global supply chain development.
The National Electric Mobility Mission Plan (NEMMP) 2020 is a national scheme that intends to quicken the manufacturing of electric vehicles articulating the objectives and plan of action for India’s swift adoption and mass production of electric vehicles.
These developments and initiatives are seen positively by the auto stock experts for the future growth of the sector.
- Why should investors choose auto stocks?
Long-term Growth Potential – The automobile industry in India for long has shown resilience and adaptability to fluctuating market conditions. The global need for automobiles can fuel long-term growth, which can be exposed by making investments in well-established automakers.
Dividend Income- Since most of the automobile manufacturing businesses offer dividends to investors on a regular interval, it makes Auto stocks an attractive investment choice with a consistent source of passive income.
Innovation and Technological Advances- With breakthroughs in connectivity, automated driving technology, and electric vehicle technology, Indian companies that trade car stocks remain at the center of innovation. Investing in Auto Stocks that are driving these advances might be lucrative as the sector evolves.
Global Reach- Prominent automakers operate and sell their vehicles across multiple nations, exhibiting an extensive global reach. This reach beyond borders can lessen the risk associated with local economic volatility and diversify investment portfolios.
- What factors to consider while investing in Auto Stocks?
Volatile in Nature- The Automobile industry is a highly volatile industry with sensitivity to economic conditions which means during economic booms the automobile businesses may grow at a faster pace whereas they may suffer heavily during economic downturns impacting the profit margin for investors.
Market Trends- Again due to its cyclical nature, the Auto industry may also have an impact on the changing market trends and customer demands. For instance, customers may prefer certain categories of vehicles with more advanced features as compared to older ones. This may potentially affect the Auto stock’s value for the investors.
Regulatory Landscape- Governments all around the world including India are focussing on manufacturing more environment-friendly automobiles and more stringent regulations on emission standards and safety regulations concerning the industry.
Competitiveness- Since major players are competing to gain more market share through technological advancement and innovation, factors such as market share, brand strength, and position, and emerging trends like electric mobility to gauge its future growth potential lead to higher stock value of Auto Stocks.
Financial Health – Financial performance indicators such as sales figures, debt levels cash flows, etc. of the particular automobile company may affect the value of the Auto stock indicating higher or lower profit.
Changing Consumer Preferences -Changing consumer preferences are constantly changing Auto businesses need to be constantly updated for sudden preferences for fuel-efficient or environment-friendly vehicles which might impact the value of Auto stocks.
- Who should invest in Auto Stocks in India?
The following category of investors could consider investing in Auto Stocks in India-
- Investors looking for long-term growth but with a certain risk appetite
- Investors interested in technological advancements and innovations in the Auto Industry
- Investors interested in environmental sustainability
- Investors looking for investments with possible regular dividend incomes.
- Future Prospects for the Auto Stock Investors
In recent years, the Automobile Industry has been a critical pillar of support for the Indian economy through manufacturing vehicles and exports worldwide, offering employment opportunities and bringing more foreign investments into the nation. Availability of skilled and unskilled labor, more technological innovation and supportive policies from the Government, and focus on green energy shall lead to the Indian Auto Industry a global leader in the area.
Hence, the Auto Industry in India offers a mix of thrilling prospects and potential pitfalls which means that investors should carefully pick the best auto stocks to buy after closely examining market trends, financial performance, and other aspects, given the scale of the industry and the number of substantial businesses involved. It will help them to reach a confident and well-informed investing decision by remaining aware of the risks and getting professional assistance.