Auto Wholesale Report May 2024: Key Highlights and Future Outlook

Mixed bag due to high base; CV demand stable

In May 2024, passenger vehicles (PVs) outperformed two-wheelers (2Ws) on a wholesale basis, though both segments have remained steady over the past six months. Retail demand has slowed across major categories due to factors like heat waves, reduced foot traffic, ongoing elections, absence of marriage season dates in northern states, and unseasonal rains in key agricultural regions such as Maharashtra. In the 2W segment, TVS exceeded expectations, while Hero MotoCorp, Royal Enfield, and Bajaj Auto fell short. In the PV segment, Mahindra & Mahindra outperformed competitors, driven by a strong order backlog. New launches, such as M&M’s XUV3X0 and Maruti Suzuki’s Swift Refresh, are expected to boost retail demand. In the commercial vehicle (CV) segment, Ashok Leyland and VECV showed double-digit growth, while Tata Motors saw single-digit growth due to the BS6 phase II transition. The CV industry demand remained strong in Q1, with mid-single-digit growth expected for FY25. In tractors, M&M’s sales exceeded estimates, while Escorts’ sales were in line with expectations.

Passenger Vehicles

Two-wheeler (2W) wholesales in May 2024 showed weakness in the domestic market, while exports remained strong as original equipment manufacturers (OEMs) expanded into new markets. In northern regions like Uttar Pradesh and Bihar, the absence of marriage dates in May affected sales growth. Hero MotoCorp Ltd. (HMCL) saw a 4% year-on-year (YoY) decline, selling 498,000 units, with limited supplies of the Xtreme 125R. In contrast, TVS Motor Company Ltd. (TVSL) reported a 12% YoY increase, reaching 370,000 units, driven by 7% domestic growth and 33% export growth. TVSL’s iQube electric scooter saw inquiries but limited dispatches, with 19,000 units sold, up 7% month-on-month (MoM). Inventory levels increased to 4-6 weeks on average due to the absence of the marriage season and election impact. Royal Enfield’s (RE) inventory is about two weeks, with expectations of normalisation in June as marriage season resumes. In the electric two-wheeler (e-2W) segment, retail sales rose 18% MoM to 77,000 units after a subsidy cut in April. The subsidy scheme for e-2Ws will continue until July 2024, with future discounts depending on PLI and FAME-3 schemes.

Two Wheelers

In May 2024, passenger vehicle (PV) wholesales remained largely flat, with the notable exception of Mahindra & Mahindra (M&M). This stagnation was due to high inventory levels at dealerships and a slowdown in retail demand, attributed to heatwaves and reduced foot traffic. Current demand trends for PVs remained consistent with the previous month’s patterns, resulting in stable month-on-month discounts, which are near peak levels in several segments. Maruti Suzuki India’s (MSIL) volume was flat year-on-year (YoY), with weaknesses in the entry-level segment and exports. However, utility vehicles (UVs) and supplies to Toyota supported overall volume. M&M saw a significant 31% YoY increase in volume, surpassing 43,000 units, with further growth expected due to the recent launch of the XUV 3OO, which is anticipated to boost volumes from June 2024 onwards. Tata Motors Ltd. (TTML) PV volumes grew by 2% YoY, reaching 52,000 units. Despite the launch of the Tiago EV, electric vehicle (EV) sales have remained within the 5,500 to 6,500 units per month range for almost a year, highlighting the need for new launches like the Harrier and Curvv EVs to drive further growth in the segment.

Commercial Vehicles

In the commercial vehicle (CV) segment, Ashok Leyland and VECV reported double-digit growth, while Tata Motors experienced single-digit growth due to a lower base from the BS6 Phase II transition. The CV segment faced underlying weaknesses in iron-ore extraction, the cement sector, and infrastructure, leading to slower growth in the tipper segment. This demand weakness is mainly due to ongoing elections, with dealers expecting a return to normalcy by the second half of FY25. Bus demand remained robust this month, and this positive trend is expected to continue despite previous strong growth. Large fleet operators benefited from significant discounts, around 10-15% of the vehicle cost. Current inventory levels for CVs are about 4-6 weeks. Despite expectations of a slowdown, CV industry demand has remained healthy in Q1, and mid-single-digit growth is anticipated for the industry in FY25.

Tractors

In May 2024, tractor sales showed mixed results. Mahindra & Mahindra (M&M) reported a 7% increase in volumes, while Escorts Kubota saw a 6% decline. Both companies’ figures met or exceeded expectations. This positive performance is attributed to a favourable monsoon forecast, which has improved the farming outlook. However, overall sentiment in the industry remains cautious, with growth expected to slow due to a high base from the previous year, optimal inventory levels, and limited government support for tractor buyers. We anticipate low single-digit growth for the tractor industry in FY25.