As an aspirational country with sustained economic growth, demographic dividend, India is aligning with global preferences—as for SUVs, premium models —keeping Volkswagen on growth path,” Ashish Gupta, Brand Director of German automobile major Volkswagen India tells The Sunday Guardian.
Q: How has the year been for Volkswagen amidst all the global headwinds? What were last year’s figures for you?
A: If I have to just sum up how this year has been, there have been a lot of challenges, as usual, but at the end of the day, I think it has been quite a successful year for Volkswagen. You don’t measure success only by the volumes you do, but also by how you have been able to progress the brand, have you been able to maintain the trust with customers and partners. December is still not closed, but it looks like we’ll close maybe 9 to 10 per cent above last year, which is good progress. Last year, we delivered close to 40,000 cars to customers.
The calendar year is how we measure all our numbers. And this year, we will end up close to around 44,000, maybe around 10 per cent growth, which is not bad considering we had a lot of challenges in the first half of the year with supplies and everything. Of course, you always want to do more because I think the brand has a lot of potential. What gives me a lot of happiness and pride at the end of the year, is that we have been able to increase or improve the acceptability of the brand for customers.
Part of that is reflected in the numbers we are doing, the kind of brand push that we have had towards the premium end of the market and more premium segments. We have been able to make that transition very successfully.
Q: How has the Indian auto market changed? Does the China slowdown help boost the India factor?
A: Rather than comparing ourselves to China, which is a different market, I see the phenomenal growth of India’s automobile industry over the last three years. Despite a high base, the industry grew by almost 27 per cent in 2022 and is expected to grow by 10 per cent in 2023, making it one of the largest growing automobile markets in the world. With sustained economic growth and a demographic dividend, the automotive sector is expected to continue growing. One of the most significant shifts we’ve seen over the last three years is premiumization.
The kind of ticket size customers are buying now is a testament to this trend. Within the ticket size, almost 50 per cent of the cars I sell in the Rs 4.5- 5 lakh range are top-end models. Premiumization is a significant trend across the industry. The SUV trend is global, and India is catching up. Larger cars with a strong road presence are becoming more popular in India. As an aspirational country, India is aligning with global preferences. Recognizing and introducing models in the SUV segment takes around four to five years, and many brands have brought SUVs to the market in the last two to three years.
Q: What is your best-selling model and what do you think will sustain the momentum?
A: In the mass volume, we have two models, the Taigun and the Vento in very different segments, but similar price points. The Taigun is an SUV in an overcrowded and heavily growing market. The segment in which the Taigun is — the mid-size SUV — will end up growing around 35 to 38 per cent this year. There has been substantial growth and this segment will now constitute almost 18-19 per cent of the market, which is quite a large one. Considering that all the cars in this segment are priced beyond one million as well as people’s happiness and willingness to spend more, we can see very clearly that the market is moving towards more premium cars.
The Taigun sits in a segment crowded with Kia facelift, Honda Elevate, Toyota and the Maruti midsize SUVs. The growth has been entirely fuelled by these new introductions. The existing players at the start of 2023 have remained more or less flat, and that is where the Taigun has also remained.
I think we will end up with an average sale of close to around 2000 to 2100 Taigun every month, which is below our expectations because the car deserves much better. Still, it’s a satisfactory performance. We aim to do much better on the Taigun segment next year, with additional feature enhancements and new variant line-ups planned. On the Virtus segment, the midsize sedan, we are performing much better, clocking close to 1800-1900 cars. Keep in mind that the midsize sedan segment is relatively small, around 110 to 120,000 cars annually, and we have a 20 per cent segment share.
Q: As an automaker, what have been your challenges on the supply chain side?
A: We faced supply constraints, especially in Q2 and Q3, with supply issues from Europe leading to the unavailability of certain variants for a period of four to five months. This impacted customer choices, and with the abundance of options in the market, they explored other brands. We have addressed these issues in Q4, and I hope that next year, we will have full supplies to meet customer demands. The situation is quite cyclical. Until last year, it was the famous semiconductor issue. That had a tail end of shortages for us in Q2, with certain control units in tight supply. Then we had a unique situation due to transmission shortages caused by a flood in Slovenia, impacting one of our suppliers in Q3.
Global events, like the current Red Sea issue, are causing pressures on supply chains and component delays due to longer shipping routes because ships have to go around Africa to deliver components to India. The rates increase due to higher insurance and freight rates. All these global factors affect the supply chain, given the interconnected world we live in.
Q: So, are these costs the reason for your plans to hike car price? A: Regarding the substantial price increase, there are several contributing factors. Material costs have risen due to geopolitical issues and global regulations. In India, the transition from BS4 to BS6 and the introduction of more safety regulations have necessitated enhancements in cars, leading to increased costs that are passed on to customers.
India is a price-conscious market, but in the last two or three years, we’ve seen a trend where customers are willing to pay more for added value. Till 2018, cars above 1,000,000 were only 18 per cent of the entire industry. This year, it will be north of 48 per cent. The industry has transitioned significantly in terms of people’s aspirations and their capability to fund those aspirations.
Q: Any plans to ramp up production given increasing demand? What about localization?
A: Our Pune plant has a capacity of around 200,000 cars annually, serving both domestic and international markets. We export vehicles to approximately 36 to 50 countries, including Mexico, South Africa, various South American countries, and Southeast Asian countries. The Pune plant’s capacity can be ramped up to meet increased demand. Volkswagen has a targeted localization rate of around 95 per cent for the cars produced in its Pune factory. The company has made significant progress in increasing localization, considering that the previous generation cars, Polo and Vento, had a localization rate of around 70 per cent.
Q: What kind of targets are you looking at? What is your plan for India’s growing EV space? A: We do not have an ambition to be 5 per cent or 10 per cent of the market. Our ambition is 3 per cent in the long run. This year, we will end with 1.1 per cent and next year, we are targeting around 1.3 to 1.4 per cent of the market. I believe that kind of market share is possible within the current product portfolio.
From a customer point of view, we need to bring something new, so we plan to introduce new product enhancements on existing cars and explore the possibility of introducing some new models. Globally, the Volkswagen Group has announced its commitment to being carbon neutral by 2050 and there is a clear mission to shift to EVs by 2035. Volkswagen has already launched several electric models globally, including the ID Buzz, ID 7, and a refreshed ID 3.
While specific details about EV launches in India are not disclosed yet, the commitment to electrification is a clear direction for the brand. The policy environment, including FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) in India, is evolving, and the company is keenly observing the developments. The direction is clear, but specific plans depend on various factors, including policy updates.
Q: What are the other key triggers for expanding the India presence?
A: India’s growth is evident, especially when one travels across smaller cities and heartland areas, which regardless of the region, are witnessing tremendous development, wealth creation, and increasing aspirations. People in regions like UP, Madhya Pradesh, Rajasthan, and South India show a heightened awareness of quality, and safety, and aspiration for our products is spread evenly across the country.
The demographics are pan-India, with heightened aspirations in the age group of 30 to 45. Volkswagen appeals to professionals such as doctors, chartered accountants and lawyers and it becomes our responsibility to be closer to customers and meet their demands.