Automotive Industry Growth Expected to Slow Down in FY25: Expert Analysis

The automotive sector has experienced robust growth in recent years, but is projected to moderate in the fiscal year 2025, as reported by ICRA, a reputable credit rating agency. The anticipated lower growth for passenger vehicles next year can be attributed in part to a high base and a reduction in pent-up replacement demand that has bolstered the industry in recent years. Additionally, there has been an accumulation of inventory at dealerships, indicating a potential decrease in demand for passenger vehicles.

In the commercial vehicle segment, a mid-single digit de-growth in volumes is expected for FY2025. This is due to the exposure of infrastructure activities to the model code of conduct ahead of the upcoming general elections, as well as the high base effect.

Despite these challenges, the automotive industry is projected to remain stable in the near term, with growth varying across segments. Two-wheelers, passenger vehicles, and three-wheeler segments are expected to trend upward, while commercial vehicle volumes are anticipated to remain stagnant. The industry will also continue to experience strong demand from mining-related operations and other infrastructure developments.

Conversely, the electric vehicle (EV) segment has shown promising potential in recent years, with government support through subsidies and increased awareness. The government’s focus on improving the charging infrastructure is expected to further facilitate the adoption of EVs. The sustained investment in the development of the EV ecosystem is also likely to bolster the industry.

The increased allocation for agriculture and allied activities is projected to bolster rural demand, a critical driver for the automotive sector. Furthermore, the disbursement of funds under various schemes will support the cash flows and credit metrics for the Automotive OEMs and ancillaries. Emphasis is placed on increasing the localization of auto components and accelerating investments towards a local EV ecosystem.

Despite a high base, the passenger vehicle industry is estimated to reach an all-time high of approximately 4.1 million units in FY2024, representing a growth of 6-9% over FY2023. In contrast, the two-wheeler industry has been facing challenges, with volumes still below the pre-pandemic peak levels. However, a gradual recovery is expected with 7-10% growth in FY2025, supported by factors such as rising per capita income and urbanization.

In conclusion, while the growth momentum of the automotive sector is expected to moderate in FY2025, there are still areas of growth and potential within the industry. The ongoing development of the EV ecosystem, government support, and a focus on rural demand are anticipated to play a pivotal role in shaping the industry’s trajectory in the years to come.