Global Auto Market Gear Shift: Challenges and Projections

The global automotive market faces challenges with sluggish small car demand in key regions, despite favorable trends in India. Nomura reports pent-up demand waning, affecting momentum. The report anticipates gradual improvement in India's auto industry post-2025, with rising CNG and EV trends. Global dynamics remain impacted by economic and political factors.

The demand for affordable small vehicles in India is anticipated to rebound by 2025, though key markets like the US and Japan continue to grapple with demand issues, according to a report by Nomura. The financial services firm revised its third quarter outlook for India's passenger vehicle industry in financial year 2025 downward from 4% to 1% year-on-year. However, it upheld its forecast of 6% year-on-year growth for FY26/3F.

Nomura's report highlights that the fading pent-up demand coupled with a lackluster new launch pipeline and subdued small car demand has dented near-term momentum, despite aggressive discounting and ad campaigns by original equipment manufacturers (OEMs). Yet, a gradual recovery is expected by FY26/3E owing to a low base, with SUVs and premium models contributing to the growth in average selling price.

The report also noted the continuous rise in the share of CNG variants in the Indian market. Although electric vehicle acceptance remains modest, a robust new launch pipeline could enhance penetration by FY26/3E. Rural demand appears to be on an upswing, benefiting two-wheelers, which has led Nomura to elevate its growth estimates for FY25/3E from 10% to 12% year-on-year, maintaining a 10% growth forecast for FY26/3E.

Despite a reasonable 5% compound annual growth rate observed in the PV industry from FY19-24, signs of weakness are emerging in FY25/3E, attributed to weak small car demand and a limited pipeline of new launches. Despite OEM efforts through discounts, inventory levels are high, prompting a downward revision of growth projection to 1% for FY25/3E. Nonetheless, an optimistic 12% growth prediction remains for two-wheelers, aided by rural recovery and a robust portfolio of ICE and affordable EV models.

Globally, OEMs face diminished pricing power due to post-pandemic vehicle supply shortages, with markets expanding in volume, consequently eroding their pricing dominance. The report also discusses the geopolitical implications of current U.S. presidential policies that could exacerbate market uncertainties, with potential job losses in Europe and political unrest in France and Germany possibly hindering demand recovery and the transition towards greener technologies.

The introduction of U.S. tariffs poses a threat to car affordability, potentially cooling auto demand. Automakers may encounter heightened competition, particularly in the U.S., should tariffs persist. The possibility of retaliatory tariffs from other nations looms large, potentially escalating the economic strain on global OEMs.

(With inputs from agencies.)