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With the current push by the Indian
government for major infrastructure and development projects,
expansion of the e-commerce network, and strong replacement demand
from the domestic market, India is expected to grow its truck and
bus production to a new peak by 2025 — crossing its 2018 peak
of 531,500 units. By 2025, MHCV production should reach its new
annual peak of 566,900 units, according to S&P Global Mobility
analysis. But lack of funds, and high raw material and commodity
costs are the challenges OEMs must overcome.
India enjoys a strong position in the global
heavy vehicle market as the second-largest producer of trucks and
buses in the world. India has a strong domestic market, and exports
are growing.
The part of the market with gross vehicle
weight above 6 metric tons (6T) is expected to have support from
replacement demand as well as a growing economy, increasing mining,
infrastructure and construction activities, and overall healthy
fleet utilization levels.
Production is expected to grow further as the
Indian government overhauls the country’s transportation system and
continues to expand the road infrastructure to the far corners. The
many tailwinds of the local medium and heavy commercial vehicle
industry are expected to lift the production of medium and heavy
trucks and buses by nearly 20% year over year in calendar year 2023
and by another 5% in both 2024 and 2025. This is forecast on the
heels of the 34% recovery in calendar year 2022, according to
S&P Global Mobility analysis.
One factor to growth is the scrappage policy
introduced in 2022, which will be implemented in phases.
-
Phase I (from April 2023): It was mandatory to
scrap government MHCV vehicles older than 15 years with a target to
reduce carbon footprints. -
Phase II (From October 2024): Private and
public vehicles will be scrapped based on a fitness test. The
scrappage policy has the potential to replace more than 1 million
vehicles. Although voluntary in nature, the policy plays upon
several incentives such as new vehicle discounts from OEMs and
rebates on registration fees with the submission of a scrappage
certificate. This policy targets buses in public fleets, as most
are older than 15 years.
Not all vehicle types may increase at the same
rate, though. Electric buses, in particular, may struggle, although
demand from the public for electric buses is present and
policymaker ambitions are high. The public fleets are operated by
the State Transport Undertakings (STU) and now are looking at
alternative powertrains, especially electric buses. Convergence
Energy Services Limited (CESL) is an entity under the Ministry of
Power that is releasing tenders for electric buses under the
National Electric Bus Programme (NEBP).
Under NEBP, more than 15,000 new electric buses
will be introduced by 2025 to replace old diesel engine buses in
the public fleet. However, the Gross Cost Contract business model
that CESL is using for the adoption of electric buses is not
profitable for OEMs. That’s because CESL requests bidders to quote
a price per kilometer for operating services over 12 years,
including maintenance of the vehicle – under which OEMs are unable
to recover the cost of the vehicle.
In addition, banks are reluctant to give loans
to manufacturers of electric buses as they do not get timely
payment from STUs – leading to a lack of funds for OEMs. As a
result, the production of electric buses should remain at the same
level as positive and negative drivers balance each other.
Bus production in general, however, is expected
to profit from the opening of offices and educational institutions,
and good replacement demand supported by mandatory scrapping of
public vehicles older than 15 years.
Among commercial trucks, combined heavy- and
medium-duty trucks witnessed growth in 2022, but heavy-duty trucks
saw exceptional growth of 41% – supported by infrastructure and
construction activities, increases in mining operations, and
replacement demand.
Currently, the Indian truck industry is
receiving tailwinds from urbanization, the growth of e-commerce,
the auto production linked incentive (PLI) scheme, standardization
of fuel, rapid infrastructure growth, and low interest rates. These
factors should propel truck production to grow by 14% in 2023, with
a compounded annual growth rate (CAGR) of 4% from 2023-25.
In heavy-duty trucks, a major part of the
demand came for rigid trucks – where the tractor and trailer are
fixed securely on the same chassis – as they are comparatively easy
to operate in hilly and remote areas. Rigid trucks contributed more
than 87% of total heavy truck production in 2022. We expect same
buying trend to continue in 2023 as well.
Production of heavy trucks will be driven by
the government push on infrastructure development, stable economic
environment, and an increase in freight as well as replacement
demand. We expect heavy truck segment to post a growth of 12% in CY
2023 and have a CAGR of 3.8% from 2023 to 2025. Both rigid and
articulated models should have good demand from both domestic as
well as export markets. The major OEM gainers in the segment should
be Ashok Leyland, Eicher Motors, and Tata.
For medium-duty trucks, demand will continue to
be led by the expansion of e-commerce networks and healthy demand
from agriculture and allied sectors. With the introduction of the
open network for digital commerce (ONDC), government is also
supportive of expanding e-commerce in India, which will act as
catalyst in the growth momentum of the segment.
We expect medium duty truck production to grow
by 18% in 2023 and have a CAGR of 4.2% for 2023-2025. Tata is
expected to lead the segment followed by Eicher Motors and Ashok
Leyland.
Overall, we expect MHCV production to improve
going forward, supported by a strong base, an expected pickup in
economic activities, as well as policy initiatives including the
auto PLI scheme and scrappage policy.
MEDIUM- AND
HEAVY-COMMERCIAL VEHICLE SALES FORECASTS
MHCV PLANT CAPACITY
FORECAST
INDIA: GROWTH POTENTIAL
FACING INFRASTRUCTURE SNARLS, REGIONAL ISSUES
COMMERCIAL VEHICLES
ACCELERATE TOWARD ZEV ADOPTION
COMMERCIAL VEHICLE
INSIGHTS, TRENDS AND MARKETING
This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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