How consumer preferences are ‘driving’ SUV demand in India

India is the third-largest automobile market in the world. From its current size of ~$100 bn in 2022, the market is projected to reach ~$220 bn by 2032, a CAGR of ~8%. This growth will be driven by factors like rising income levels, growing urbanisation, and wider product choice. The chart below presents the key players and their market share in the industry.

Market share of key players in the Indian automobile industry (%)

Source: Digit Insurance (as on sept ’23)

A key trend that has been prevalent for the past several years is the growing preference for SUVs. From the earlier days of Tata Sierra (launched in 1991) to the Tata Safari (1998) and Mahindra Scorpio (2002), the SUV market has come a long way.

Let’s have a more detailed look at that.

Growing craze for SUVs in India

SUVs, which were once seen to be expensive and niche, have grown in popularity as purchasing power has increased and smaller variants have become available. They currently dominate the Indian automotive market.

Over FY20-24, total domestic passenger vehicles (sedans, hatchbacks, SUVs and others) grew from ~28 lakh to 42 lakh units now (CAGR of ~11%). SUV sales outpaced them growing from ~9.6 lakh to ~22 lakh units (CAGR of 23%) over the same time period.

As of FY24, the SUV segment accounts for 50% of all passenger cars sold in India, exceeding hatchbacks (28%), and sedans (9%), and has been dropping in recent years.

Total domestic passenger car sales volume (in lakh units) & segment-wise market share (%)

Source: SIAM, Times of India; *rounded up numbers

Some of the key trends driving SUV demand

The chart below looks at the product split of key manufacturers. It indicates that for most of them, 50% or more of their portfolio consists of SUVs.

Portfolio split of key manufacturers (actuals)

Source: Carwale, Cardekho; *Note: Included compact SUVs and excluded MPVs & MUVs; latest available data

Taking it a step further, we also provide details of the trend in SUV market share of the three listed OEMs. We are restricted only to three years due to data access issues.

Market share of listed manufacturers in the UV segment (%).

Source: Company reports, Autocar, Press releases

How should investors think of this?

Market data and for that matter, a conversion among friends, will indicate that the SUV trend is still “hot”. For sure, there are more factors than SUVs that impact the price performance and profitability of companies. Factors such as safety, price-value proposition, and after-sales services are all key. That said, when it comes to buying a car, the product is one of the most superior drivers of decision-making. We also note that SUVs typically tend to be higher profit margin products for most OEMs.

As such, players with a wider and more appreciated SUV portfolio are likely to see gains in market share, which will impact their price performance as well. It will be vital for investors to recognize and be aware of these changes in consumer behaviour and keep a keen eye on how their portfolio companies will act in response to them in order to make better investment decisions.

Finally, for our readers who are car aficionados, below is a list of some of the most awaited SUVs.

Source: Press release, news articles; *Expected launch dates are subject to change