Supply Chain Pressures Mount for Auto Sector
The auto industry faces a difficult start to FY2027, with potential production disruptions looming. Analysts warn of issues stemming from the closure of some smaller suppliers, alongside rising energy costs and risks to key material supplies. Disruptions in AdBlue supplies, crucial for BS6 commercial vehicles, could further strain the road transport industry if geopolitical tensions persist.
Growth Forecasts Trimmed for FY27
Ratings agency Crisil has lowered its FY2027 growth forecasts for various segments by up to 2 percentage points, signaling a significant slowdown from the current strong growth cycle. Passenger vehicle (PV) sales are now expected to grow 3-5% to about 4.8-4.9 million units in FY2027, down from earlier forecasts of 5-7%. Two-wheeler and three-wheeler growth is also seen moderating to 5-7% from earlier high single-digit forecasts.
EVs and Premium Cars Lead Sales Despite Slowdown
Despite the anticipated slowdown, FY2026 is set for a strong finish, supported by market recovery and government policies. Electric vehicles are spearheading growth, with PV EVs projected to surge by about 70% and three-wheeler EVs over 60% in FY2026. The market is also witnessing a significant shift towards premiumization in passenger vehicles, with buyers increasingly opting for feature-rich models, while SUV growth, though slowing, remains dominant. Hatchbacks are expected to retain relevance due to urban parking constraints and GST-led price adjustments.
Experts Call Q1 FY27 a 'Stress Test'
Hemal Thakkar, Senior Practice Leader at CRISIL, noted that growth might remain challenging in FY2027 due to a high comparison base and supply constraints. Harshvardhan Sharma, Head of Automotive Retail Consulting at Nomura, described the first quarter of FY2027 as a potential 'stress test' for the industry. He anticipates a mix of slowing growth, emerging supply issues, and weaker consumer sentiment if geopolitical uncertainty continues, framing the period as a 'reset rather than a collapse'.