Betting on the Indian automobile industry

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Photo Credit: Annie Spratt

India’s fickle automobile industry is picking up traction with Suzuki, Volkswagen, BMW, and Murata Electronics making some big plays to capture the market.

Public transit has long been the favored mode of transportation among citizens of India, but historically speaking, this was because the average household typically lacked the income to purchase a personal vehicle. This dynamic is changing as India’s per capita income continues to grow well into 2018.

According to economic reports, disposable incomes in India have more than quadrupled in the past decade, and while average household earnings remain relatively low among the country’s 1.3 billion inhabitants, passenger car ownership is projected to grow 775% by 2040. As a result, the automobile market is expanding.

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This past fiscal year—which in India ends on March 31st—a record-breaking 3.3 million passenger vehicles and 25 million vehicles overall were sold. While at first, these numbers might seem to indicate a market ripe for investment, foreign automakers have not experienced much success.

The reasoning behind this contradiction alluded that the cars produced didn’t appeal to Indian sensibilities, or were just out of the price range for India’s small middle-class.

Suzuki: an Indian success story

Suzuki is one company that has bucked the trend. Instead of marketing traditional 2-axis automobiles, they instead focused their efforts to dominate the motorcycle market, a more practical option in India due to the motorcycles’ compact size and affordability.

A new, entry-level Suzuki motorcycle can be purchased for about 49,000 rupees ($715 USD), a few month’s salary for the average employed citizen, and financing is relatively easy to obtain. Suzuki is also investing in electric vehicles as well, a smart move considering the government’s 2030 deadline for automakers to phase out gasoline-powered cars.

Catering to Indian preferences has paid massive dividends for Suzuki. India sales represented a more significant portion of the company’s total revenue this year, skyrocketing from just 20.9% in FY15 to 38.5%.

The success is paying dividends for India too: Suzuki Motorcycle managing director Satoshi Uchida told India Times in February that its India division was “strategically important,” and that motorcycles produced in the country will also eventually be exported to other markets. This would likely result in thousands of new jobs, as the company plans to invest some $1 billion over the next few years.

Volkswagen tries with Skoda

Volkswagen, on the other hand, has struggled to attempt to break into the Indian market.

Its first attempt was a partnership with Suzuki in 2009, which failed to produce a single vehicle and ended bitterly just a few years later; another collaboration with local carmaker Tata Motors never materialized after the two sides couldn’t come to terms. The German automaker isn’t giving up, however, announcing its Skoda brand will spend $1 billion on developing cars for the market in July.

The first prototype will be a compact SUV built for India’s road conditions and is scheduled to debut in late 2020, followed by a fleet of small cars for both the Volkswagen and Skoda brands. Volkswagen is also ramping up local production to cut costs and make their vehicles more affordable to Indian consumers. They also plan to use India to export cars to other developing markets, according to the company.

BMW sees India as a key market

Previously, BMW primarily focused on more affluent customers in the country with motorcycles that were in the $20,000 price range and up. That’s changing this year with the debut of two new lines that are significantly cheaper than their previous models starting at about $3,600.

Despite only selling 252 bikes within the first nine months of launch, BMW is hopeful its entry-level models will stir up further interest in the brand. The company has made investments in developing a strong dealer market and says it sees promising potential in the market in the coming years as it expands its motorcycle offering to the more cost-conscious models that Indian consumers are looking for.

Murata sees new market for its electronic parts in Indian cars

Japanese company Murata Electronics isn’t an automobile manufacturer per se, but it does provide electronic components necessary for vehicle production. Its India subsidiary has established itself as a worldwide hub for capacitors and semiconductors used in sensor and safety systems and represents an invaluable asset to component-heavy autonomous vehicle makers.

Murata Electronics aims to supply components for advanced driver assistance systems in the near future. They also plan to establish partnerships with Indian startups in the hope of fueling growth in India’s automotive component sector, which generates $43.5 billion in annual revenue, according to the India Times.

Suzuki, Volkswagen, BMW, and Murata are making big plays to reap the rewards of India’s fertile automobile industry, but only time will tell if these investments will pay off. What are your thoughts on India’s automobile industry? Is now the time to invest, or is the Indian market too volatile to sustain the projected growth?

We’d love to hear what you think in the comments below!