Complexity ahead: Navigating automotive portfolio shifts

Industry Overview - The Indian automotive industry is witnessing a shift in customer preferences towards SUVs, premium hatchbacks, and crossovers, with a focus on driving experience and safety features [1] - These changes are creating cost pressures for automakers in a price-sensitive market, exacerbated by imminent emission regulations like CAFE 3 [1] - The Indian passenger vehicle market is expected to undergo structural shifts by 2030, with SUVs contributing over 50% to annual sales by FY24 [5][10] Consumer Behavior - Indian consumers are increasingly associating value with comfort, safety, and driving experience, rather than just upfront cost and mileage [6] - The top priorities for car ownership have evolved towards experiential and safety factors, with comfort (51%), safety (45%), and enjoyment of driving (43%) being the most important [10] - The industry average sales price has increased from INR 7.65 lakhs in FY19 to INR 11.5 lakhs in FY24, reflecting changing consumer preferences [10] OEM Challenges - OEMs face the challenge of addressing expanded "value for money" expectations while managing cost pressures from new technologies and materials [7] - Growing adoption of automatic transmissions and preference for SUVs are pushing OEMs to absorb costly technologies and comply with emission regulations [8] - The emergence of multiple powertrain choices enhances the complexity of establishing future-proof portfolios [8] Market Complexity - The Indian market offers a minimum of 218 technologically viable combinations of body types and powertrains, narrowed down by commercial viability and customer requirements [16] - The mid-mass segment (INR 10-15 lacs) is expected to see intense competition, with the highest number of viable powertrain and body type combinations [17] - BEVs only become commercially viable in the mid-mass market and above, with entry-level BEV plays currently being margin-diluting [36] Regulatory Impact - CAFE norms are likely to emerge as the biggest influencer on powertrain choices, with stringent targets proposed for CAFE 3 and CAFE 4 [43] - Base engines will severely underperform against CAFE 3 targets, requiring full hybrids, PHEVs, and BEV combinations in mid- and upper-mass segments [44] - Body type choices are increasingly influenced by curb weight and length, with smaller body types and basic ICE 2.0 powertrains being closest to meeting CAFE 3 targets [50] Future Outlook - BEV penetration scenarios at 12%+ for CAFE 3 and ~20%+ for CAFE 4 will provide higher flexibility for ICE 2.0 plays [56] - Turbo engines will increasingly become a norm in base models, with strong hybrid or PHEV options making inroads in the mid-mass segment [57] - The ongoing dilemma between hybrids and BEVs will become more pronounced, with BEVs likely to become must-haves due to increasing preferential treatment in CAFE [58] Strategic Recommendations - OEMs must innovate their portfolios by contextualizing growth headwinds, anticipating customer demands, and closely watching BEV and ICE 2.0 trends [70][71] - A portfolio-wide approach is recommended, targeting profit-accretive scenarios while maximizing carbon offsetting opportunities [71] - OEMs should consider different pathways based on their archetype, whether mass-market dominators, SUV shapers, or electric disruptors [63][66]