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
millionsbillions, 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.
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…
- Are we reaching saturation point? Is the penetration level at a point where it cannot grow further?
- Are the unsafe traffic conditions in large cities shifting people from two wheelers to cars or public transport?
- Is the high base responsible for the slowdown in growth?
- Are the prices of two wheelers increasing, making them unaffordable?
- Are two-wheelers being considered downmarket?
- Has the passenger vehicle parc reached a size where the used car market is challenging new two wheeler sales?
- Is the rural customer shifting to cars due to improvement in income and roads?
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.
Any which way, the market is now in hitherto unexplored territory and beyond this growth for everyone would not be a given. Manufacturers have to look far ahead to be ready for the changing market. 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 two-wheelers) 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.
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 level granularity and are further segregated by engine sizes.
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.
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%.
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 two-wheeler 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.
In 2012, Motorcycles constituted 73.27% of the total two-wheeler 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, two-wheeler 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.
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 fuel-injected 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 two-wheeler 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.