Shattering the Crystal Ball –
Indian Market Two Wheeler
Forecast
Over the next decade, Indian two-wheelers will not develop a
third wheel, they will not learn to fly and they will not
change their commuteristic perception anytime soon. However,
what they will do is help make a lot of people make millions
billions, generate employment for many hundred thousands and
be responsible for another 15 manufacturing plants across
India over the next decade.
The two-wheeler market is the proverbial underbelly of
automotive analysis. Not too many analysts want to scratch it
below the surface, not many analysts spend sleepless nights
over getting the numbers right and not too many actually stop
a biker on the road to seek his guidance.
Recently EMMAAA released a forecast for the Indian two-wheeler
market. The analysts at the automotive think tank took note of
the inherent resilience of the two-wheeler sector; its close
correlation with non-automotive purchases (white goods) and
the sheer volumes of the market and came up with a ten year
forecast for the market and industry. The forecast traces the
growth curve for two-wheelers across segments, manufacturers,
models and engine sizes over the next ten years. With such
granularity, it would be a formidable tool in the hands of
automotive strategy planners, volume planners at OEMs and
suppliers, sales and marketing planners, senior management and
people in the R&D functions.
Why a Market / Industry Forecast?
In 2013, the Indian two-wheeler market accounted for 14.38
million units. At a rough price of US$ 1000 for an average
commuter motorcycle, this translates into a US$ 14 billion
industry. This is before you start counting the suppliers,
services, after-sales, accessories and dealers.
This is a huge market by any measure and is equally complex to
navigate for existing players, new entrants and suppliers. It
is also a market unlike any other two-wheeler market across
the globe. The Indian two-wheeler market depends nearly
equally on the urban and rural customer and the health of
agricultural as well as industrial output. A good monsoon is
as much a shot in the arm as large-scale industrialisation or
call-centres sprouting up in sleepy towns.
What makes two-wheelers different from passenger cars is that
while a mix of need and emotion drives most of the passenger
car sales, a large chunk of two wheeler sales are driven by
utility only. That is perhaps the primary reason why two
wheeler sales are so resilient to a downturn. The last three
decades have seen the two-wheeler market grow at a CAGR of
10.3%.
If this does not sound impressive to you then let us twist the
data and re-present it to you.
In the last 30 years, the Indian two-wheeler market has grown
18 fold.
However, statistics lie hide more than they reveal. Look at
the same data for the last three years and the average growth
rate drops down to only 4%, with the last year accounting for
only 3.69% growth.
Which leads us to many questions…
1. Are we reaching saturation point? Is the penetration
level at a point where it cannot grow further?
2. Are the unsafe traffic conditions in large cities
shifting people from two wheelers to cars or public
transport?
3. Is the high base responsible for the slowdown in growth?
4. Are the prices of two wheelers increasing, making them
unaffordable?
5. Are two-wheelers being considered downmarket?
6. Has the passenger vehicle parc reached a size where the
used car market is challenging new two wheeler sales?
7. I s t h e r u r a l c u s t o m e r s h i f t i n g t o c a r s d u e t o
improvement in income and roads?
8. Nano?
Apart from the overall slowdown in growth of two wheelers, the
composition of the market is also drastically changing. While
scooters were laggards during the 1990s and 2000s decade, they
grew at a much faster pace than motorcycles in 2013.
Motorcycle sales in 2013 were up by only 1.08% in 2013 while
scooter sales jumped up by nearly 16%.
The composition of the market is also changing when we look at
the data at a granular level. At a manufacturer level, Honda
Motorcycles & Scooters India (HMSI) is becoming aggressive
with the ambitions of becoming the biggest player in the
Indian market (by sales volume) while former partner Hero
MotoCorp is working on a huge product initiative of its own to
ensure that it retains market leadership. Bajaj is looking at
profitability more through performance bikes while TVS seems
to have lost its product development edge in recent quarters.
As a result, the market shares of each have changed
significantly over the last two years.
Forecast Screenshot 1
Any which way, the
territory and beyond
given. Manufacturers
the changing market.
market is now in hitherto unexplored
this growth for everyone would not be a
have to look far ahead to be ready for
EMMAAA’s two-wheeler forecast provides
the necessary handholding and guidance in this world’s second
largest two-wheeler market.
Average Motorcycle Engine Displacement Index (AMEDI)
The market is also changing in terms of engine sizes. The
Indian customer is showing its preference for slightly higher
capacity bikes. EMMAAA captures this in the form of AMEDI.
This is the weighted average of motorcycle (actually all twowheelers) engine sizes for the entire market.
In 2012, EMMAAA calculates the AMEDI at 111.64cc. For 2013,
this had increased to 113.36cc. By 2023, EMMAAA forecasts the
AMEDI to be at 125.38cc. This increase in engine sizes would
not be an isolated phenomenon. This is likely to have an
impact on the fitment rates of many other components.
Deepesh Rathore, lead analyst for EMMAAA’s two-wheeler
forecast monitors the correlation with interest.
“Any change in engine capacities is not an isolated
phenomenon. Even a slight jump in AMEDI by 2-3 cc over a
period of time will have an impact on other component
modules. Larger engines will result in increased fitment
rates of disc brakes, larger diameter drum brakes, electric
starters, alloy wheels, digital instrumentation, fuel
injection systems, multiple valves, microprocessors, headlamp
fairings and tubeless tyres.”
Suppliers cannot miss this changing graph of the industry.
Already past experience shows that Indian suppliers missed the
bus in the case of alloy wheels. Any opportunity missed is a
potential loss of millions of dollars.
Forecast Features
The EMMAAA two-wheeler forecast covers the entire Indian two
wheeler market and industry. There are two separate modules in
the forecast. The first module is the Sales forecast which
covers the entire Indian two-wheeler market while the second
is the Production module, which covers the complete Indian
production base for two-wheelers. The Production module is
significant as manufacturers like Bajaj and TVS have
significant export volumes.
Both forecasts have a manufacturer-brand-model
granularity and are further segregated by engine sizes.
level
Forecast Screenshot 2
Since Indian manufacturers do not disclose model level sales
or production data, model level granularity is achieved
through surveys of important dealers and noting the customer
preferences there. This gives a fairly good estimate of model
level sales.
Further, EMMAAA identifies the fitment of important component
modules like Disc / Drum brakes, Cooling systems, Fuel supply
systems, Starter types, Transmission types, Lamps and types of
wheels.
Every model included in the forecast is identified by
manufacturer, brand, design parent, vehicle type (Scooter /
Motorcycle / Moped), vehicle sub-type (Scooterette / Commuters
/ Naked etc.), engine type (two-stroke / four-stroke), fuel
type (petrol / diesel / electric) and number of cylinders.
The forecast stretches for ten years (2014-2023) and is
supplemented by AMEDI data and Vehicle Parc data.
Further, the Production module also identifies the type of
production (Complete / Kit) of the two-wheelers.
Numbers
Two wheelers are the most resilient segment in the entire
automotive market. The Indian two-wheeler market accounted for
14.38 million units in 2013. This represents a 3.69% growth
over 2012 sales of 13.87 million units. In contrast, the
passenger vehicle segment declined by about 7.5%.
Forecast Screenshot 3
Over the next decade, EMMAAA forecasts the two-wheeler market
to grow at a CAGR of 6.08%. This may sound small but over the
next decade, this growth will add another 11.6 million units
to the market. Significantly, with the changing mix (discussed
further in this analysis), the value addition to the twowheeler market would be huge.
EMMAAA forecasts growth in the near double digit range over
the next three years. However, post this euphoria, things
would cool down relatively as the market penetration becomes
significant.
Two Wheeler Parc
In 2013, the two-wheeler parc is estimated at about 79 million
units and the penetration at about 66 units per 1000. By 2023,
this is forecasted to grow to 157.8 million units, implying a
penetration of 112 units per 1000.
The Mix
In 2012, Motorcycles constituted 73.27% of the total twowheeler market. This reduced to 71.43% in 2013 as Scooter
sales grew at a much faster pace than motorcycles. However,
EMMAAA forecasts that Motorcycles should no loose any
significant share of the market from hereon, through the
forecast horizon. By 2023, Motorcycles are forecasted to
maintain a 71.05% share of the market.
However, Motorcycles maintaining their share of the market
does not imply that Scooters don’t gain. They do and there is
significant gain in share over the forecast horizon.
Scooters had a 20.9% share of the two-wheeler market in 2012.
This had increased to 23.3% in 2013. EMMAAA forecasts this to
increase to 24.14% this year (2014) and that the market share
of Scooters will increase to 26.5% by 2023.
Most of the gains for Scooters will come from the fall of
Mopeds. Essentially targeting the same customer – one who
looks at ease of use and utility – Scooters are far more
capable, sexier stylish and faster than mopeds. After facing a
decline over the last decade, nearly every player, barring
TVS, has now exited the Moped segment. In 2012, Mopeds
accounted for 5.67% of the two-wheeler market. This had
reduced to 5.05% in 2013. EMMAAA forecasts Mopeds to account
for only 2.22% of the market in 2023.
Surprisingly, they would still exist.
Methodology for the Forecast
The Indian two-wheeler market is unlike that in a developed
world. Nearly 90% of all two wheelers sold in India are used
primarily for commuting. This is quite unlike developed
markets where two-wheelers are mostly used for leisure
purposes.
While developing the forecast, the EMMAAA analysts took into
account 26 major factors and many more minor ones to come up
with the short-term, mid-term and long-term numbers. These
factors include nine macro-economic factors, including GDP
growth, Per Capita Income, Lending Rates and Agriculture
growth. Further, the factors include two-wheeler parc, twowheeler penetration and account for vehicle related factors
like engine sizes, future product plans, production capacities
and entry-level prices.
Further, EMMAAA also accounts for the competition in the
market & segment, ergonomic factors like alloy wheels &
digital instrumentation, safety factors like LED lights, disc
brakes, Combined Braking Systems and convenience factors like
electric starters.
While considering the macro-economic factors, EMMAAA relies on
its own capabilities as well as the consensus economic
forecast from Focus Economics. The consensus forecast is a
result of a survey Focus Economics carries out regularly of
several hundred economic experts from leading banks, think
tanks and consultancies to obtain their projections for the
main economic indicators. As a tool, the consensus forecast is
a much better and finely balanced projection of economic
indicators. It irons out personal biases and inconsistencies
that any forecast relying on a single analyst may produce.
Apart from macro-economic factors driving it, the short-term
forecast is driven by product intelligence, production
capacity existing model portfolio. The mid-term forecast is
driven by technical factors like emission norms, price
fluctuations, production capacities and the entry of new
players. On the other hand, the long-term forecast is
primarily driven by macroeconomic factors.
EMMAAA is of the opinion that new technology and legislation
requirements regarding technology driven issues like emission
norms may not have a severely adverse impact on two-wheeler
prices. A large chunk of the market is driven by sub 125cc
machines with prices of about US$ 1000. EMMAAA forecasts the
pricing to hold for the near and mid-term future.
Forecast Screenshot 4
However, even at the bottom end of the market, new technology
percolation would be fast. Already Electric Start and Alloy
Wheel fitment rates are approaching 90%. This should creep
towards even higher levels during the forecast horizon.
Technology innovations like stop-start systems and combined
brake systems are now making an appearance in basic commuter
motorcycles below 125cc. However, the heavily competitive
nature of the market will ensure that the fitment rates of
such systems will rise quite fast.
However, Fuel Injection is a technology where fitment rates
have not been increasing at expected levels. Despite it being
launched more than five years back, the high costs of Fuel
Injection have kept manufacturers away from increasing fitment
rates.
What has also worked against Fuel Injection is the
significantly improved performance of Carburetors and
improvements in ignition achieved through multi-valves and
electronics. It is estimated that fitting Fuel Injection
systems on a carbureted modern sub 125cc commuter motorcycle
may not result in significant improvements in power, torque,
emissions or fuel efficiency. As an illustration, the fuelinjected variant of Hero Glamour is rated at only 0.1bhp over
the carbureted version while the Torque ratings are identical.
However, the price difference at nearly INR 8000 is
significant and represents a 13.5% mark up on the carbureted
version’s price.
This price difference in the highly competitive and price
sensitive world of commuter motorcycles is akin to telling the
customer not to bother entering the showroom.
Use of Whitespace models in the forecast
The average development cycle for a two-wheeler is about 20-30
months and unlike cars, the two-wheeler model cycle does not
rigidly follow a platform system of definition. The actual
name of a new motorcycle is decided quite late in the
development and it may not be a replacement name of an
existing product. Also, manufacturers often have two or more
products in the same model segment with the same engine
capacity. In the case of Hero, they have three 125cc
motorcycles with two different engines in their portfolio.
In such a scenario, EMMAAA has identified model spaces in
every manufacturer’s portfolio. These model spaces are
logically defined with the assumption that the market size in
that segment sometime in the future would be of the magnitude
where the manufacturer will need a new model in the segment.
EMMMAAA denotes these blank spaces as WHITESPACES. There are
multiple places in the forecast where WHITESPACES have been
inserted.
Forecast – Spread and Frequency
The forecasts cover the entire two wheeler markets and
industry in India. EMMAAA forecasts the market for the next
ten years (including present year) and also includes the
historical data for 2012 & 2013. Historical data for prior
years are not included due to changes in the way the Society
of Indian Automotive Manufacturers (SIAM) segments the twowheeler market. SIAM made the changes in 2012.
The forecast is updated every three months and the next
quarterly update is scheduled for 13th May 2014.
Want further information about the forecast? Mail us at
quickfire (at) emmaaa (dot) com with your phone number and we
will call you within 12 hours.
You may also visit the
dedicated micro-site here.