Car sales to cool down after hot streak, SUVs still rule India: Report

The Indian passenger vehicle (PV) market is expected to shift into a moderate growth phase in the upcoming financial year (FY25), according to a report by credit ratings agency CareEdge. This forecast comes after an exceptional performance in the financial year 2023-24 (FY24), where sales surged by 90 per cent to reach 90,432 units for electric cars alone. However, several factors point towards a more measured pace of growth in FY25.

CareEdge predicts a growth rate of 3-5 per cent for the overall PV segment in FY25. This moderation is attributed to a "high-base effect" created by the exceptional performance of FY24. Additionally, shrinking order books and persistently subdued demand for entry-level variants are expected to further dampen growth.

The surge in sales witnessed in FY22 and FY23 was largely driven by pent-up demand post-pandemic and the introduction of exciting new models. However, with this demand partially satiated, the market is likely to settle into a more sustainable growth pattern.

The rise of SUVs and electric vehicles

Despite the overall moderation in growth, the report highlights two key bright spots: SUVs and Electric Vehicles (EVs). Utility vehicles have been steadily gaining popularity over the past decade, consistently outperforming the overall PV industry growth rate. This trend culminated in FY24, where SUVs for the first time outsold both passenger cars and vans.

The report attributes this shift to consumer preference for the improved design, features, and functionality offered by SUVs. Currently, SUVs account for over 55 per cent of all new PV sales, and CareEdge expects this share to climb even higher in the medium term.

Electric vehicles are another segment poised for continued growth. With a projected volume of 1.30-1.50 lakh units in FY25, electric car sales are expected to maintain their upward trajectory. This growth is attributed to an improving penetration rate, as EVs become more accessible and attractive to consumers.

Balancing factors: Interest rates and new models

While the aforementioned factors might dampen overall growth, CareEdge acknowledges some potential counterweights. Strong demand for new model launches, especially SUVs, along with anticipated interest rate cuts in the second half of FY25, could maintain positive sales momentum.

The report highlights that in FY24, despite predictions of 7-9 per cent growth, the actual growth rate reached 7.4 per cent. This suggests that factors like robust demand for new models and the SUV segment can offset some of the headwinds faced by the market.

The report also points towards a potential disparity in growth across market segments. While the market for premium vehicles is expected to flourish due to rising demand for luxury and high-end models, entry-level variants may continue to struggle. This is attributed to a combination of rising vehicle prices, pinching the rural sector's budgets, and urban consumers' growing preference for SUVs.

The Indian PV market is entering a phase of measured growth in FY25. While high base effects and subdued demand for entry-level vehicles might moderate overall growth, the continued rise of SUVs and EVs provide a silver lining.

The potential for interest rate cuts and the launch of exciting new models could further bolster sales momentum. However, the market is also likely to witness a divergence in growth between premium and entry-level segments, reflecting a shift in consumer preferences and economic realities.

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