The domestic three-wheeler (3W) market in India is expected to experience significant growth in the next fiscal year, with projections indicating a 15-17% increase, following a robust 40-42% growth this fiscal. This surge will propel the market to a new record high of 7.8 lakh units, surpassing the previous peak of approximately 7 lakh units in fiscal 2019. According to a detailed analysis by CRISIL Ratings, which covers over 90% of the market through four major 3W manufacturers, this growth is largely attributed to the rising demand for both electric and internal combustion engine (ICE) vehicles. The increased need for passenger transportation and last-mile delivery services in various sectors, including pharmaceuticals, textiles, and consumer goods, is driving this demand.
Despite the anticipated third consecutive year of contraction in exports due to economic challenges in key international markets, the domestic market’s strength and stable commodity prices are expected to enhance operating margins significantly. CRISIL’s insights reveal an expected increase in operating margin to over 16.5% next fiscal year, up from the ~15.5% forecasted for this fiscal year.
The market dynamics are shifting, with electric 3Ws expected to gain a larger share, driven by lower ownership costs and government incentives, thus growing their volume by an impressive 50% year-on-year. CRISIL Ratings highlights the increased affordability of electric 3Ws, which are about 30% more economical to run than their CNG counterparts, contributing to their growing popularity.
However, the ICE variants, particularly those powered by CNG, are still expected to account for a significant portion of the demand due to the expanding CNG network across India. The recovery from a dramatic ~70% drop in domestic 3W volume in fiscal 2021, following the Covid-19 pandemic, illustrates the market’s resilience and growth potential. This rebound is supported by better cash generation and efficient capital spending by manufacturers, which is expected to negate the need for substantial debt addition.
CRISIL Ratings also points out the importance of monitoring the increasing competition from unorganized e-rickshaws and the ongoing incentives for electric vehicles, which could influence future market trends. With higher capacity utilization anticipated—over 80% next fiscal year—manufacturers are likely to invest in expanding their capabilities to meet the growing demand.
