By Shubhankar Mengi, Senior Analyst – MHCV Production South Asia and Oceania, S&P Global Mobility
The push for infrastructure development, increasing industrial production, the scrappage policy, a growing e-commerce market, stable replacement demand, and production-linked incentives will drive India’s medium and heavy commercial vehicle (MHCV) production to surpass its 2018 peak of 531,500 units by 2025. To maintain production growth, OEMs must overcome challenges such as rising commodity costs, volatility in government policies, and a lack of funds.
India regained its position as the second-largest producer of medium and heavy commercial vehicles globally in 2022, surpassing the United States, with China remaining the largest producer. This segment (gross vehicle weight (GVW) above 6 tons) will continue to grow, supported by economic growth, domestic consumption, e-commerce expansion, increased mining and construction activities, and rising exports. Government policies such as the auto production-linked incentive (PLI) scheme and the scrappage policy will further boost domestic MHCV production. These factors are expected to drive truck and bus production in India to a new peak of nearly 550,000 units in 2025. Despite coming off a high base in 2023 and the general elections held in spring 2024, production is still projected to grow by 1% year-over-year (y/y) to 502,400 units in 2024. This is bolstered by robust GST collections this year and a larger-than-targeted dividend transfer from the Reserve Bank of India (RBI). The government is maintaining its infrastructure expenditure at $132.8 billion for the 2024-25 fiscal year, which is 3.4% of GDP. Additionally, $31.8 billion and $119.5 billion have been allocated for rural and urban development projects, respectively. This will drive truck demand in both areas and provide more opportunities for buses in rural India.
Currently, the scrappage policy is implemented only for government commercial vehicles and is voluntary for private commercial vehicles. The policy has received a lukewarm response from stakeholders, as their expectations have not been fully met by the incentives announced so far. Going forward, this policy is expected to generate replacement demand for more than 1.1 million commercial vehicles in the next few years. The Auto PLI scheme offers incentives for the sale of vehicles and components produced locally from April 1, 2022, and has recently been extended by a year to 2028. Global brands like Daimler Truck and Volvo plan to capitalize on government incentives and use India as an export hub for ASEAN, the Middle East, and African markets. Ongoing discussions of free trade agreements (FTAs) with ASEAN countries and the United Kingdom also present opportunities for domestic OEMs such as Tata, Ashok Leyland, and Eicher to increase their penetration in these markets.
Class 5 trucks were the second-largest contributor to overall truck production in 2018, following Class 8 trucks. However, over the years, Class 5 volumes have been cannibalized by Class 6 and Class 4 category trucks. Class 5 truck customers are now preferring either higher GVW trucks for haulage or smaller trucks for urban areas. A similar trend has been observed for Class 7 trucks, with customers preferring either Class 6 or Class 8 trucks. Due to this shift in domestic demand patterns, Class 6 trucks have become the second-largest truck category, and this trend is expected to continue in 2024 and 2025.
Heavy-duty trucks (>15T) are the largest category in Indian truck and bus production, contributing 61% of total production. This is supported by rapid growth in infrastructure and construction activities, increasing mining operations and industrial output, fuel standardization, export demand, and low interest rates. The introduction of GST has also helped eliminate several bottlenecks in the smooth flow of road transport by removing state taxes and checkpoints, resulting in a 15-24% faster turnaround on trips.
The development of dedicated freight railway corridors poses a challenge to the dominance of road transport, but in the near future, the sector is expected to hold its ground. As India’s road network expands, long-haul operators are increasingly preferring articulated (tractor) trucks over rigid trucks. Additionally, overloading is a common practice among these operators to increase profitability, and articulated trucks have an edge over rigid trucks in carrying more payload. The development of roads in remote and hilly areas also enables articulated trucks to access previously unreachable areas. In 2024, India’s heavy-duty truck (>15T) production is projected to increase by 2.6% over the previous year and is expected to grow further by 8.4% in 2025, reaching 337,600 units. The duopoly of Tata and Ashok Leyland is expected to continue in this segment. However, in 2023, Daimler Truck overtook Eicher Motors to become the third-largest producer of heavy trucks, and this trend is expected to persist throughout the decade. Daimler Truck’s growth in production is attributed to demand from domestic and export markets for Mitsubishi Fuso and Mercedes-Benz trucks.
The medium-duty truck segment is primarily driven by demand from agriculture and allied sectors, the e-commerce industry, and medium and small-scale industries (MSMEs). Agriculture production is expected to grow with the support of $18.1 billion from the government. The Indian government has also launched the Open Network for Digital Commerce (ONDC), a non-profit initiative to enhance the digital commerce process for small businesses and retail shops in India, aiming to raise e-commerce to 25% of India’s consumer purchases, up from 8% today. This will create excellent opportunities for the logistics industry in India. These factors, coupled with strong manufacturing momentum in MSMEs—reflected in positive manufacturing PMI readings and improving merchandise exports and core sector activity—will drive medium truck production to grow by 10.5%, from 104,200 units in 2024 to 115,100 units in 2025. Class 6 trucks are expected to lead in volume in this segment, followed by Class 4 and Class 5 trucks. Post-COVID-19, Tata Motors has become the largest producer of medium-duty trucks, overtaking Eicher Motors, and this trend is expected to continue.
Buses, which contributed 10.9% to overall production in 2018, are expected to account for 17.5% by 2025. Urban rejuvenation and development programs are planned to renew and modernize state-run fleets. Recently, the National Institution for Transforming India (NITI) Aayog stated that it is working on a recommendation for the government to purchase 60,000 buses under the National Electric Bus Policy (NEBP) to improve accessibility and frequency of public transport in larger cities. The Government of India has also initiated several pilot projects for electric buses and has sought private investment to catalyze the adoption of electric buses on intra-city routes. To further increase EV adoption in India, the government has recently approved the PM e-Bus Sewa scheme. Under this scheme, 10,000 e-buses will be deployed in a PPP model across 169 cities, with priority given to those without organized bus services. Many new OEMs, such as JBM, Olectra BYD, Skywell Auto, EKA Mobility, and PMI Foton, are entering the electric bus market and gaining traction. Ashok Leyland remains the largest producer of buses, followed by Tata Motors, Eicher Motors, and SML Isuzu. Segment-wise, Eicher Motors dominates the minibus segment, followed by Tata Motors, while Ashok Leyland leads the city and coach segments. Ashok Leyland is also the largest exporter of buses to nearby SAARC countries, the Middle East, and African countries.
India’s medium and heavy commercial vehicle production is projected to grow at a CAGR of 3.3% from 2023 to 2025. The industry is adopting a mix of conventional and new alternate propulsion engines, with the trucking sector exploring CNG/LNG, battery electric vehicles (BEVs), and hydrogen internal combustion engines (H2IC) as potential replacements for internal combustion engines. Conversely, the bus segment is embracing BEVs. According to S&P Global Mobility analysts, the share of BEV buses in total bus production is expected to increase from 0.2% in 2018 to 7.5% in 2025.
While Indian and global OEMs are transitioning towards greener fuels, there will still be sustainable demand for internal combustion engines. Diesel engines are expected to coexist with new alternative technologies throughout this decade. Continuous demand from both the public and private sectors for MHCVs will drive domestic production to reach a new all-time high by 2025.