New Delhi:

Automobile dispatches to dealers in May 2025, the second month of the current financial year, painted a mixed picture. While passenger vehicles faced challenges due to inventory buildup and sluggish retail demand, two-wheeler sales continued their recovery, driven by strong rural demand and better access to financing.

Passenger Vehicles

In the PV segment, industry estimates indicate that dispatches stood at approximately 3.51 lakh units in May 2025, reflecting marginal growth over 3.49 lakh units dispatched in the same month last year. This demand continues to be largely driven by SUVs.

Country's top carmaker, Maruti Suzuki, reported a 6 per cent year-on-year decline in domestic dispatches, attributing the drop to its decision to “calibrate supplies to dealers” amid challenging market conditions. The company stated that it currently maintains an average inventory level of 35 days across the country.

Partho Banerjee, Senior Executive Officer – Marketing & Sales at Maruti Suzuki, acknowledged that “the market is slowing, despite the new models available.” While its rural demand remains strong, urban demand is struggling.

“Fundamentally, entry-level vehicles are facing challenges, and even SUVs, except for new models, are witnessing a decline. Overall, the sentiment in the urban market is far from positive,” he said.

Maruti’s mini cars, including the Alto and S-Presso, are facing the heat, with dispatches falling to 6,776 units from 9,902 units in the same month last year. Compact cars, including the Baleno, Celerio, Dzire, Ignis, Swift, and WagonR, also saw a drop, with dispatches declining to 61,502 units from 68,206 units YoY.

The company’s Ciaz model, whose production was halted last month, recorded wholesales of just 458 units in May, down from 730 units in May 2024.

Banerjee expressed optimism for retail sales in the coming month, noting that while many customers have already secured financing, vehicle deliveries have been delayed due to the impact of the India-Pakistan conflict in a few states. Jammu & Kashmir, Punjab, Rajasthan, and Gujarat, states particularly affected by the situation, collectively account for nearly 22% of the company’s sales. However, expectations of a good monsoon are likely to provide additional support to demand in the weeks ahead.

For Hyundai, which reported a decline of around 11 per cent in May, the availability of several key models was impacted. Tarun Garg, Chief Operating Officer at Hyundai Motor India, attributed the drop to a routine week-long biannual maintenance shutdown at the company’s Chennai manufacturing facility.

“SUV demand remains the bright spot, especially for players like Mahindra, but overall momentum may stay muted until festive season tailwinds kick in,” Nikhil Dhaka, Vice President, Primus Partners told ETAuto.

Dhaka added that soft retail sales and emerging concerns over component supply, particularly due to rare earth magnet disruptions, are prompting cautious dispatch strategies from OEMs.

It is noteworthy that both companies are realigning their production focus towards exports amid challenges in the domestic market. Rahul Bharti, Senior Executive Officer, Corporate Affairs at Maruti Suzuki India, said, “The strategy of de-risking is paying off well, particularly during these slightly difficult times.”

Earlier, the Federation of Automobile Dealers Associations (FADA) had predicted that passenger vehicle retail sales would remain steady but muted in May, as buyers awaited new model launches and grappled with elevated financing costs.

On the production front, Gaurav Vangaal, Associate Director – LVP Forecasting at S&P Global Mobility said India’s PV market continues to grow steadily despite a high base, with no major challenges on the horizon except rare earth metal sourcing. He noted that while recent regional disruptions due to a war-like situation affected a few states, overall market sentiment remained stable during May.

With a favourable monsoon forecast ahead, Vangaal remains optimistic, highlighting rural India’s continued role in sustaining PV growth.

Two-Wheelers

Driven by seasonal wedding demand, sustained rural momentum and post harvest demand, two-wheeler sales continued to remain stable, reflecting steady buyer sentiment across key markets.

Among segment players, Honda Motorcycle & Scooter India (HMSI) reported a YoY decline in sales, even as all other major two-wheeler manufacturers registered positive growth.

Hero MotoCorp’s consistent performance and Bajaj Auto’s export-led growth highlight the resilience of the two-wheeler segment, supported by seasonal demand, tax reliefs, and rate cuts that improved buyer sentiment in semi-urban markets, Dhaka said.

Looking ahead, he expects the segment to maintain its growth trajectory, especially with strong rural income prospects and a gradual EV shift. “Macroeconomic stability will remain the key enabler in the months ahead,” he added.

Rare Earth Magnets Challenge

The industry is also staring at a potential production hit as China has put curbs on export of rare earth magnets, which are used across multiple sectors, including automobiles. China accounts for an estimated 70-80 per cent of processing and over 90 per cent of rare earth magnet production. This heavy dependence has left Indian automakers vulnerable to supply chain disruptions amid ongoing geopolitical and logistical challenges.

A recent ET report suggests that a joint delegation from the Society of Indian Automobile Manufacturers (SIAM) and the Automotive Component Manufacturers Association (ACMA) is set to visit China to address growing concerns over delays in the import of rare earth magnets.

While Rahul Bharti of Maruti Suzuki noted that China’s export curbs have not had an immediate impact on production, he confirmed that China has requested an end-user certificate, which must be endorsed by the Indian government and approved by Chinese authorities. He added that the process is currently underway, with the industry in active discussions with the government.

Experts suggest that the supply disruption of rare earth magnets is likely to have a greater impact on the electric two-wheeler segment production or even price hikes in the long term, a segment which is more exposed and sensitive to such constraints.

During a media interaction on Monday, TVS Motor acknowledged that the effects of the export ban are expected to start reflecting in production by June or July.

Last week, Bajaj Auto flagged serious production risks that could arise as early as next month if the supply issue remains unresolved.