A strategic displacement: Major two-wheeler Indian cos looking towards premiumization amid muted sales
The major two-wheeler companies in India, including TVS Motor, Bajaj Auto, Hero MotoCorp, Royal Enfield, and Suzuki Motor witnessed a yearly sales growth of a meager 3% in December 2022.
Even the electric two-wheeler companies are facing significant headwinds in meeting sales targets despite crossing the 600,000 sales volumes in 2022. This is still less than the 1 million sales projections given by NITI Aayog for the financial year 2022-23.
Tepid demand, especially in the rural markets
This is one industry that may still be battling with the brunt of COVID-induced economic challenges. The rural economy hasn’t completely recovered to its pre-COVID levels and the rural sentiment is still tepid due to uneven monsoon in 2022, thereby resulting in subdued demand in the rural markets.
Further, the inflated prices have kept rural customers at bay. The higher prices are also due to the increased regulatory compliance prescribed by the government. Here’s what Mr. Atsushi Ogata, CEO & MD, of Honda Motorcycle and Scooter India (HMSI) said in September 2022
“The cost of ownership for two wheeler in India has increased drastically in the last five years due to the new emission norms, new safety regulations for advanced brake systems and commodity supply issues”
The sales on the exports front are also not very encouraging at the moment. Some of the major two-wheeler exporters, including Bajaj Auto and Royal Enfield, have registered sub-par annual growth by December 2022. This has largely been attributed to sustained weakness in key export markets, especially the African markets.
Premiumization trend prevalent in the two-wheeler space
However, there are a few opportunities that the domestic players are looking to pounce on. On the domestic front, the above 350 CC segment has witnessed tremendous growth - Royal Enfield registered a monthly growth of around 50% in December 2022. As per Society of Indian Automobile Manufacturers (SIAM) figures, the 200 CC to 800 CC motorcycle segment has grown by 47% during April - November 2022. This is evidence of a growing trend towards ‘product premiumization’ in the domestic market.
In anticipation of the ‘premiumization’ trend, the domestic players started forging a partnership with globally established two-wheeler manufacturers. Bajaj entered into an exclusive partnership with UK’s Triumph in January 2020 to manufacture 250 CC to 750 CC motorcycles in India. The firm has stated that it will also renew its portfolio of Austrian partner brands, KTM and Husqvarna, within two years.
Hero MotoCorp has formed a joint venture with Harley-Davidson wherein the company will manufacture Harley-Davidson motorcycles at Hero’s plant.
TVS Motor has partnered with Norton, a British motorcycle manufacturer to introduce its products in India. TVS is currently working on a mutual platform to design and co-develop BMW bikes.
The premium motorcycles or bikes are expected to be launched starting 2023. The launch dates have already been significantly delayed due to the irregular availability of various parts supply and other supply chain disruptions caused due to COVID.
With this, the competition in the above 350 CC segment is expected to intensify in the domestic market and will bring significant damage to Royal Enfield's position which enjoys around 85% market share in the above 350 CC segment.
The established two wheeler players are simultaneously also targeting expanding their electric vehicle (EV) portfolio to fend off competition from Indian startups such as Ola Electric, Ampere, and Ather Energy, among others, which are rapidly growing in the EV. Bajaj Auto has plans to launch one new electric two-wheeler every year, while Hero MotoCorp and TVS are rapidly scaling up their electric two-wheeler portfolio of scooters and motorcycles.
On the exports front, the collaboration with global companies also provides an opportunity for the domestic two-wheeler firm to manufacture premium motorcycles or bikes locally and turn India into a key export hub for two-wheelers.
Some positive offshoots likely in the near term
Going ahead, the rural economy is not expected to recover soon and it may take a couple of quarters for the rural demand to start gathering momentum. The upcoming marriage season (till June 2023) may improve consumer sentiments in the domestic market. Further, the softening commodity prices are expected to support the two-wheeler demand gradually.
