EV push, pent-up demand: Why auto exports fell in April amid healthy sales?

According to experts, it may take some time for auto exports to touch 2016 peak numbers

In April, major Indian automakers saw a rise in vehicle sales, but the exports of almost all companies declined sharply. The country's largest automaker Maruti Suzuki witnessed a 6.5 per cent year-on-year (YoY) rise in total vehicle sales, but the exports fell 7.9 per cent.

The sales of Bajaj Auto, another auto major, rose 7 per cent YoY, but exports fell 43 per cent. Mahindra & Mahindra's sales jumped 36 per cent. Its exports were down 33 per cent. Commercial vehicles maker Ashok Leyland reported a 10 per cent YoY increase in total sales, but its exports were down a lower 6.4 per cent.

Experts Business Standard talked to attributed this juxtaposition to a global shift towards electric vehicles (EVs), pent-up local demand and global macroeconomic headwinds.

According to Saket Mehra, partner and auto sector leader at Grant Thornton Bharat, this was primarily because the previous year "witnessed multiple global macroeconomic headwinds including a rise in inflation and slowdown in global growth (to 3.2 per cent in 2022) coupled with military disturbances in Ukraine and an unsteady supply of semiconductor chips."

Puneet Gupta, director at SP Global Mobility, said that the peak exports were seen in 2016 as several global original equipment manufacturers (OEMs) like Nissan and Ford had chosen India as a hub for their export markets.

In 2021, Ford announced it would close its operations in India. "Now, Toyota and Maruti are leading the way in exports followed by Koreans," he added.

Gupta said there is pent-up demand in the domestic market and high waiting periods for cars in India. It made OEMs focus more on domestic markets rather than exports in the last few months.

"In mid-term Indian exports may get dented as consumers are switching to EV and unfortunately Indian OEMs are still behind in terms of manufacturing electric vehicles," he added.

The exports in the auto sector witnessed a cumulative decline of 15 per cent in 2022-23 (FY23) compared to FY22.

The problem is more severe in the two-wheelers segment, a segment in which companies like Bajaj Auto primarily deal. The exports of two-wheelers fell 18 per cent YoY in FY23.

"With a significant increase in global inflation, there has been a decline in global consumption- resulting in lower demand for two-wheelers," said Mehra.

"With the Middle East and North Africa (MENA region) suffering major challenges due to military disturbances in Ukraine and the related sanctions, this led to consumer price inflation to reach 9.9 per cent in the region, higher than the global inflation levels. Amidst such disturbances, there was a substantial decline in imports for the countries within the MENA region- one of the key demographics for two-wheeler exports from India," he added.

In Latin America, another major buyer of Indian two-wheelers, the core inflation averaged 8 per cent in FY23.

Mehra also said that the recent appreciation of the dollar has led to currency depreciation in most emerging economies, further impacting their imports negatively. In India, the rupee's value against one dollar has fallen from 74.7 in April 2021 to over 82 in April 2023.

Way forward

Going forward, India has a good opportunity, but it needs to focus on some specific areas.

Rajat Mahajan, partner of Deloitte India, told Business Standard that the country must focus on increasing its market share in the top ten markets by maintaining a strong cost advantage. They must also capture global markets primarily serviced through other Asian countries like China and Japan.

He added that India must also "become an attractive export hub for affordable and quality EVs".

However, experts said there is still some time before the exports could hit the 2016 peak numbers.

"Although the PV exports are almost back to the pre-pandemic numbers (with nearly 0.67 million units exported in FY 2018-19), they have not been able to cross the previous highest mark achieved in 2016-17 (close to 0.76 million units)," said Mehra.

"It will take some time to get back to the 2016 level of export sales," Gupta concurred.