A Comprehensive Review of India’s Auto Sector Results for Q3 FY25

Balancing Growth and Headwinds

The Indian automotive industry displayed a mixed performance in 3QFY25, with strong domestic demand in two-wheelers (2Ws), passenger vehicles (PVs), and tractors, while commercial vehicles (CVs) and exports faced headwinds. EV adoption continued to expand, driven by investments in electric mobility and premiumization trends. However, margin pressures persisted across segments, with rising raw material costs, discounting, and global uncertainties affecting export-dependent players. This report highlights the key trends across 2Ws, PVs, CVs, and auto ancillaries, shedding light on growth drivers, cost challenges, and the sector’s evolving dynamics.

Two-wheelers

Quarterly result trends

Domestic two-wheeler volumes registered a low-single-digit year-on-year increase, indicating a slowdown in demand following the festive season. On the other hand, export volumes grew at a similar low-single-digit rate on a sequential basis.

TVS Motors and Royal Enfield stood out with double-digit volume growth, whereas Bajaj Auto and Hero MotoCorp saw subdued performance. Overall, the quarter recorded a modest aggregate volume growth of 4.6%.

Bajaj Auto and Hero Motorcorp saw a 3.3% and 4.7% increase in average selling price (ASP) during the quarter, whereas TVS and Royal Enfields’s numbers remained flat. 

The table below summarizes the average performance of four auto OEMs—Bajaj Auto, Hero Motocorp, TVS Motors, and Eicher Motors—for 3QFY25.

The key trends for 3QFY25 are : 

1. Domestic Market Strength Versus Export Challenges

• Domestic ASP & Volume Growth:
  • Bajaj Auto and Hero MotorCorp saw improvements in domestic Average Selling Prices (ASPs) thanks to a stronger product mix—Bajaj with a 9% rise in domestic ASPs and Hero benefiting from an enhanced mix in the 125cc and parts segments.
  • TVS Motors and Eicher Motors posted strong volume growth (10% and ~19% YoY respectively), indicating robust domestic demand.
• Export Weakness:
  • Bajaj Auto experienced a 7% YoY decline in export ASPs due to an inferior product mix, and Eicher’s export sentiment remains weak despite management’s cautious optimism for FY26 growth.

2. Impact of EV Integration and Product Mix Shifts

• EV Influence:
  • Bajaj Auto’s domestic ASP gains are partly driven by a higher mix of EVs, whereas TVS Motors’ gross margins were slightly pressured by an increased mix of EV scooters during the festive season.
  • Hero MotorCorp’s transition (with lower EV investments during the Vida V2 phase) contributed positively to margin expansion.
• Overall Product Mix:
  • A higher share of spares and premium models (as seen with Bajaj, Hero, and TVS) drove higher ASPs and margins.

3. Cost Pressures and Margin Constraints

• Expense Challenges:
  • Rising staff costs, increased discounting, advertising expenses (Hero and TVS), and one-off costs related to new launches (Eicher) put pressure on margins.
• Net Profit Impacts:
  • Despite improvements in revenue and volumes, net profit growth was constrained by factors like lower-than-expected other income (Bajaj) and higher depreciation, as well as elevated one-off costs affecting Eicher.

4. Geographic Diversification and Emerging Market Opportunities

• Emerging Markets:
  • Bajaj Auto’s fastest-growing markets include Latin America (with a robust +30% YoY increase) and ASEAN, while Africa is also showing recovery (e.g., Nigeria’s recovery to nearly 30k units per month).
  • TVS Motors has seen notable growth in Africa and steady month-on-month performance in Latin America, emphasizing a broader trend toward geographic diversification to sustain growth.
• Export Outlook:
  • Although export ASPs and sentiment are currently subdued, companies like Eicher Motors remain cautiously optimistic about future export growth, signaling a focus on diversifying revenue sources.

5. Strategic global investments and product diversification

• International Expansion & Investments:
  • Companies like Bajaj Auto and TVS Motor are strengthening their global footprint through significant overseas investments and stake acquisitions, indicating a focus on global growth, technology collaborations, and electric mobility advancements. For instance, TVS Motor (Singapore) acquired an additional 9.72% stake in Killwatt GmbH for EUR 4 million, further strengthening its presence in the EV technology space. 
• Product Portfolio Expansion
  • New launches like Hero’s Destini 125 and the extended Harley-Davidson partnership highlight a continued focus on premiumization, EV expansion, and meeting diverse consumer demands in the Indian market.

Overall, two-wheeler OEMs have shown moderate domestic growth while making strategic shifts in their product mix, particularly with the integration of EVs and a focus on higher-margin segments. They continue to expand internationally through investments and product diversification. However, these positives are offset by export challenges and rising cost pressures, prompting companies to explore geographical diversification and strengthen their marketing and branding strategies for sustained growth.

Shifting demand profile and market shares in 2Ws

India’s demand for two-wheeler motorcycles is moving away from 75-110cc motorcycles to 110-125cc bikes and scooters, including EVs. Given similar shifts in the SUV and passenger vehicle segments, this trend is expected to persist posing challenges for Hero Motorcorp which derives 89% of its volumes from the 75-125 cc segment. 

EV trends

In 2024, electric scooter and motorcycle sales surged by 33% to 1.14 million units, and a new $1.3 billion EV incentive was introduced, yet the EV share in two-wheeler sales has stagnated at 5.5-6.5% over the past two years. Read more about this here.

Outlook

The table below provides a summary of the projected performance of four 2-wheeler OEMs—Bajaj Auto, Hero MotoCorp, TVS Motors, and Eicher Motors—for FY2025 and FY2026. Notably, both revenue and net profit estimates for these years have been revised downward over the past six months.

Passenger vehicles 

Quarterly result trends

In 3QFY25, PV segment volumes jumped by 9.6%, a substantial increase compared to the 2.5% year-to-date growth. This boost was partly driven by festive season discounts and new launches. Although overall demand remained steady, below-normal inventory levels are expected to trigger a wholesale push in 4Q. Additionally, recent government measures, including an income tax cut for the middle-income group, are anticipated to further drive PV demand going forward. Average ASP growth remained flat during the quarter.

1. Revenue and Volume Dynamics

Hyundai and Maruti are following opposite trajectories. Hyundai struggled with declining revenues and margin pressures, while Maruti posted record performance through strong volume growth and robust pricing—especially in rural and key export markets. M&M is capitalizing on significant volume gains and market share improvements in the pickup segment, with a positive outlook for its tractor segment driven by strong rural demand. Meanwhile, Tata Motors reported mixed outcomes in its domestic PV segment, with a marked boost in the EV segment counterbalanced by challenges in its ICE business and inconsistent performance in its luxury division (JLR).

2. Margin Pressures vs. Strategic Offsets

Margins across various companies are being pressured by increased discounting, unfavorable geographical mixes, and higher staff costs. However, these challenges are partially mitigated by commodity tailwinds, effective cost management strategies (such as lower depreciation and PLI accruals), and a more favorable product mix.

3. Market and export focus

Export strategies and regional diversification are key priorities. Hyundai is attempting to leverage its export hub capabilities, while Maruti and M&M benefit from strong growth in emerging markets. Meanwhile, Tata Motors is focusing on enhancing its EV segment’s profitability while addressing challenges in its traditional ICE business.

4. Outlook for growth

Despite some short-term headwinds—such as Hyundai’s revenue declines and Tata’s ICE challenges—the overall sector is poised for growth driven by strong domestic demand, emerging export opportunities, and targeted segment-specific strategies, notably in EVs and rural market segments.

Profile trends 

The hatchback segment continued to decline in favor of SUVs during the quarter, with its market share dropping to 22.2%, the lowest in nine quarters. Meanwhile, SUVs strengthened their dominance, capturing 55.8% of the market, up from 52.9% a year ago. Mahindra & Mahindra (M&M) emerged as a key beneficiary of this shift. After seeing its market share decline to 6% between FY18 and FY21, the company has been steadily recovering, reaching 13.4% in 3QFY25.

Outlook

The table below provides a summary of the projected performance of three 4-wheeler OEMs— Maruti Suzuki, M&M, and Tata Motors—for FY2025 and FY2026. Notably, both revenue and net profit estimates for these years have been revised downward over the past six months.

Commercial Vehicles and tractors

CV demand remained sluggish, growth was largely driven by the bus segment, while the goods segment declined. On a YTD basis, the numbers are down 3.2%. The average selling price was a mixed bucket with Ashok Leyland’s ASP up 4.1% and Tata Motors’ numbers down 8%. Given the government’s recent shift in focus from “capex” to “consumption”, demand is likely to remain subdued at least in the near term.

Tractor volumes reversed their trend, rising by approximately 14% YoY due to robust rural demand—a momentum expected to continue in upcoming quarters. Additionally, M&M achieved a 19.8% YoY increase in units sold during the quarter, along with a 1.3% YoY improvement in average selling price.

Quarterly result trends 

1. Product Mix and Pricing Adjustments:

Improved product mix—such as a higher proportion of multi-axle vehicles and increased exports—has supported ASP growth and offset volume declines in some segments, particularly for Ashok Leyland.

2. Cost Control and Margin Management:

Strict cost management measures are helping to bolster margins, although challenges remain from raw material price increases and pressure on ASPs, as seen with Tata Motors.

3. Outlook and Growth Prospects:

While Tata Motors faces pricing and margin headwinds in its domestic CV segment, both Ashok Leyland and M&M, in the case of tractors, exhibit strong growth prospects. Ashok Leyland shows confidence in recovering and expanding all CV segments in FY26, and M&M anticipates robust tractor growth driven by strong rural demand.

4. Segment-Specific Dynamics:

The overall CV industry is displaying mixed performance, tractor segments are poised for significant growth, whereas traditional domestic CVs are confronting challenges related to pricing and cost pressures.

Outlook 

Ashok Leyland’s revenue and net profit estimates for FY25 and FY26 have been revised downward by 5.5% to 6.5%, reflecting weaker-than-expected demand.

Auto ancillaries

1. Steady Growth in Domestic-Focused Auto Ancillaries, Weakness in Export-Focused Players
   • Domestic suppliers benefitted from strong 2W growth, supporting stable revenue and margins.
   • Global suppliers struggled with weak demand in export markets, particularly in Europe and the US.
   • Profitability divergence continues, with domestic players maintaining stable margins while export-oriented players face cost and demand pressures.

2. Robust Expansion in EV & Premium Auto Components
   • The EV and emerging business segments witnessed strong growth, with Uno Minda’s EV components segment expanding 60% YoY, driven by sensors, controllers, and powertrain products. Similarly, Sona Comstar’s BEV segment grew 48% YoY, with traction motors surging 60% YoY. Samvardhana Motherson’s emerging businesses also posted a 37% YoY growth, significantly contributing to overall revenue.
   • Companies are actively investing in EV-related joint ventures & acquisitions, such as Uno Minda’s JV with Inovance Automotive and its full acquisition of UnoMinda EV Systems from FRIWO Geratebau.

3. Cost Pressures Impact Margins Across the Industry
   • Rising raw material (RM) and employee costs due to new capacity additions led to margin contraction for several players.
   • BKT (-60 bps YoY) and Sona Comstar (-230 bps YoY) saw gross margin declines, while others like CIE Automotive (-13.3% below estimates) and Endurance Technologies (-8.6% QoQ) faced profitability pressures.
   • Companies that managed cost control effectively (Samvardhana Motherson, Uno Minda, SEL) saw marginal margin improvements.

4. Global Uncertainty Continues to Challenge Export-Oriented Companies
   • Weakness in European PV and CV demand impacted CIE Automotive (-18% YoY in Europe) and BKT (-3.5% decline in the EU Agri segment).
   • Freight cost pressures and tariffs remain concerns, though easing the Middle East conflict and EUDR regulation deferral could bring relief.
   • Uncertain demand in key export markets is likely to continue affecting companies with global exposure.

5. New Order Wins Driving Future Growth
   • Sona Comstar secured ₹7 billion in new EV orders, bringing its total EV order book to ₹176 billion (76% of total order wins).
   • CIE Automotive added new orders worth 15-20% of CY24 revenue.

6. Moderate Near-Term Growth, Stronger Medium-Term Prospects
   • Near-term growth remains constrained due to weak PV/CV demand globally but recovery is expected in 2HFY25, particularly for Metalcastello (CIE) and BKT’s non-EU markets.
   • Margin pressures from high RM costs are expected to ease post-4QFY25, supported by freight normalization and operational efficiencies.
   • Companies with strong EV order pipelines, premium product categories, and diversified global operations (e.g., Sona Comstar, Samvardhana Motherson, Uno Minda) are well-positioned for medium-term growth.

Conclusion

The auto sector is poised for steady growth in the domestic market, supported by rural demand, government incentives, and increasing preference for premium models and EVs. However, global uncertainties, export challenges, and cost pressures will likely impact profitability in the near term. Companies with diversified portfolios, strong EV order books, and geographic expansion strategies (such as Bajaj Auto, TVS Motor, and Sona Comstar) are well-positioned to capitalize on emerging opportunities. While near-term challenges persist, the sector’s long-term outlook remains positive, with EV integration, product mix upgrades, and strategic global investments driving future growth.

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