SUVs to drive India's passenger vehicle sales volume 5-7% in FY25, claims study

Passenger vehicle sales volume in India is expected to register up to seven per cent in the next financial year, claims a study by credit rating agency Crisil. The study further noted that rapidly rising demands for SUVs in India will propel growth in the Indian passenger vehicle market in the next financial year. Also, it claimed that SUVs will help the segment to touch a new peak for the third straight time in the next fiscal.

The study further stated that anticipated growth in the passenger vehicle market of the country is expected to come on the back of an estimated high base of about eight per cent in this financial year. Interestingly, this growth comes even as demands for passenger vehicles in the domestic and overseas markets remain muted.

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SUVs to propel growth in FY25

Over the last few years, a significant change in consumer preference has cranked up demand for SUVs in India. This shift in consumer preference has led the market share of SUVs in the country to double to around 60 per cent of total domestic passenger vehicle sales in this financial year from 28 per cent recorded in pre-pandemic FY2019, claimed the rating agency.

The study expects this preference in favour of SUVs to grow further. This would be backed by a healthy pipeline of new model launches across different price points, including both internal combustion engine and electric propulsion system-powered variants. The normalised availability of semiconductors after a prolonged period of shortage will also help this growth momentum.

The agency expects the demand for SUVs to accelerate at twice the pace at more than 12 per cent in the next fiscal. "While the overall PV volume is seen rising 5-7 per cent next fiscal, we expect demand for SUVs to accelerate at twice the pace at over 12 per cent, driven by an array of feature-laden launches at competitive price points, varied technology options including hybrid and electric, and increased access to credit," said Says Anuj Sethi, Senior Director at Crisil Ratings said.

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Entry-level car segment to continue facing challenge

While the overall passenger vehicle segment is witnessing consistent growth thanks to the SUV hype, demand for entry-level cars remains a headache for automakers such as Maruti Suzuki, Tata Motors and Hyundai. The slowdown in demand for entry-level passenger cars is attributed to the ongoing weakness in the rural market and lower affordability in the segment. The rating agency believes this challenging situation will continue in the next financial year as well.

Over the last three to four years, the costs of cars in India have increased as OEMs have been passing on the higher commodity prices to consumers. Also, the manufacturers are compelled to comply with more stringent regulations on safety and emissions, which are putting further pressure on consumers.

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Exports to remain a worry for OEMs

While passenger vehicle sales in the domestic market would see up to seven per cent growth in the next fiscal, the export segment would see a challenging situation. In the current fiscal, the share of passenger vehicle exports is estimated to have slowed down to 14 per cent compared to around 17 per cent recorded in FY2019.

This was mainly due to inflationary headwinds and limited availability of foreign exchange in key export markets like Latin America, Southeast Asia and Africa in the past two years, the rating agency stated. It further added that this trend is expected to continue in the next fiscal as well.