Small cars likely to drive growth as entry-level sales decline, says Vivek Srivatsa, CCO, Tata Passenger Electric Mobility

Small car sales, which have seen a sharp sales decline in the last few years, are likely to gain some traction at the more premium end of the market powered by new launches, Vivek Srivatsa, chief commercial officer at Tata Passenger Electric Mobility (TPEM) told ET, adding that first-time buyers are opting for more feature-rich models over basic variants.

"The share of hatchback in total PV sales dropped to 22% last fiscal from about 50% ten years back. But within hatches, the sub-segment which has been impacted the most is entry hatches. Vehicle prices have increased the most in this segment on account of various regulatory compliance. Additionally, consumers who can afford to buy vehicles have started preferring more premium, feature-rich products," said Srivatsa, who oversees operations at Tata Motors PV (ICE) division that sells two hatchbacks currently.
In the broader market too, while the share of entry hatches priced between '4.5 lakh an '7 lakh in small car sales dropped to less than 10%, those of premium hatchbacks increased to about 32% in the same period, the industry estimates. About 300,000-350,000 premium hatchbacks, priced '7.5-13.5 lakh, are sold in the local market annually.

Srivatsa said while the overall share of hatchbacks is unlikely to inch up from 20-22%, volumes will grow as the broader market expands due to demand for these premium models. He said, "Last year, sales of premium hatchbacks remained largely flat. But with strong products coming in, we may see some growth in this category."

The recent revisions in income-tax slabs and rate cuts engineered by the central bank will enhance affordability among buyers. "It will release disposable income and boost consumption. But where they (customers) spend the money is a challenge. During and after Covid, demand for personal mobility took a huge jump. That has now reduced a bit. Experiences, travelling with family, these things are now more of a priority," he said.

Overall, Srivatsa said the domestic market should grow by about 5% in FY26, higher than the estimates of 1-2% made by peers like Maruti Suzuki, Hyundai Motor India and Mahindra & Mahindra (M&M) at the start of the calendar year.

In the latest earnings call, Maruti Suzuki chairman RC Bhargava attributed the subdued growth in car sales to affordability issues of buyers at the lower end of the market.

Bhargava said lower small car sales, declining 9% in FY25, was impacting India's auto industry volumes. "Without revival of the small car market, growth in the domestic industry will remain muted. To buy a car priced over '10 lakh, you need to have annual household income of more than '12 lakh. How can the car market get to high growth when 88% of households earn less than $14,000 a year," he said adding 60-70% of consumers currently do not have the option to buy a car due to affordability issues.

As per a study by non-profit People Research on India's Consumer Economy on annual household income in India, as many as 200 million households earn less than $6,000 or about '500,000 annually.

While income-tax exemptions in the budget will aid in some savings, Bhargava said it was not sufficient to spur purchases in the small car segment due to prevailing high costs.

The cost of small cars due to regulatory changes has gone up by about '90,000 over the last few years. These largely relate to upgradation to higher emission standards (BSVI) and higher safety, which necessitated strengthening cars to meet crash test norms and equipping them with more airbags.