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Let’s take you back to 2020. A month before the covid-19 pandemic disrupted life and business, in February, South Korean carmaker Hyundai Motor India Ltd put up quite a show.

At an auto expo in New Delhi’s Pragati Maidan, amid hundreds of camera flashes, the covers came off the BS-VI Creta—the new generation model of one of the company’s bestselling cars, one that created a new market for mid-sized sports utility vehicles (SUV) in India. Actor Shah Rukh Khan, Hyundai’s brand ambassador, was all smiles and a bit pompous. “The car is designed on me—sensuous sportiness—that’s how I am," he had said at the time.

Tight race
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Tight race

The sportiness of the car worked. By early 2020, Hyundai had already sold more than 450,000 Cretas in India. In the two years that followed, it raced ahead again, selling more than 700,000 units till date.

But this sort of a runaway success came partly because the mid-sized SUV market had fewer rivals. There are Kia Seltos, Skoda Kushaq and Mahindra XUV700—all fairly new in the game.

At the top end of the SUV pyramid is the Toyota Fortuner, Mahindra Scorpio and MG Gloster. Below the mid-sized segment is what is called the mini or compact SUV market. Here, Hyundai Venue, Kia Sonet, Tata Nexon, Maruti Brezza and Toyota Urban Cruiser compete.

The mid-sized playground, however, will no longer be a one-car race. Creta, this year, is bracing for serious competition from Maruti Suzuki India Ltd’s Grand Vitara, which launches in September. Grand Vitara is India’s largest carmaker’s first mid-sized SUV. Developed by Suzuki and manufactured by Toyota, it is the first strong hybrid product arising from the two Japanese auto majors’ alliance in India, first announced in 2017.

While one in every two passenger cars sold in India is a Maruti Suzuki, Hyundai’s success story in the country is like no other foreign manufacturer’s. It has held fort as India’s number two carmaker for over two decades, a period when many other global carmakers, like Ford, wound up operations. But now, other Indian carmakers are asserting themselves and expanding production capacity. Tata Motors Ltd, number three in the pecking order, wants to aggressively grab share with electric vehicles and affordable SUVs.

Hyundai, therefore, faces a tricky road ahead. While Maruti Suzuki may widen its gap with Hyundai, Tata Motors is a stone’s throw away from being the new No. 2. Hyundai’s moat looks a bit insecure. According to estimates by Elara Capital, an investment banking company, Hyundai’s market share could erode to 12.7% in 2023-24 from 15.7% at the end of 2021-22.

How can the South Korean carmaker defend its position in the pecking order?

What the numbers say

SUV sales are a critical driving force for all automakers in India. The segment is now 49% or almost half of the Indian passenger vehicle market—larger than the hatchback segment, which, until recently, was the biggest car segment in the country.

According to a report by equity research firm JM Financial, the SUV segment grew from 28% in 2018-19 to 49% in 2021-22. Hyundai gained 3.5% market share in this segment during this period; its sister-brand Kia gained 7%. Tata Motors, however, gained the most—16% share.

But the mid-sized SUV space has entirely been monopolized by the Hyundai group. Creta sells nearly 10,000 units every month on an average, followed by the Kia Seltos at nearly 8,000 units. Maruti’s entry in this segment now can disrupt this winning Hyundai-Kia pairing. The JM Financial note added that the Grand Vitara and Toyota Hyryder (Toyota’s version of the Grand Vitara), can replicate the Creta-Seltos relationship. If that is indeed the case, the two OEMs can significantly eat into Kia and Hyundai’s sales. Also, Hyundai could now meet the same fate as Maruti.

India’s largest car maker took a beating over the last two years because of the lack of new products or refreshes. “Maruti’s sub-compact SUV Brezza was the market leader in the compact SUV space when it was launched. But in the last two years, it did not have a meaningful upgrade. New entrants like the Kia Sonet, Tata Punch and the Venue gained. What happened to the Brezza in the last two years could also happen to the Venue and Creta over the next two years," an industry executive said. He didn’t want to be identified.

The pipeline

Maruti Suzuki is now at the beginning of an SUV-focussed product cycle. Besides the Grand Vitara, there is the compact SUV Brezza, which has recently been relaunched. The company’s pipeline includes the 5-door Jimny, a Baleno Crossover and a three-row SUV. This will be an onslaught on the cars sold by Tata Motors, too. However, the impact could be much more severe on Hyundai and Kia since the new launches will directly compete with their products—meaning, the two companies would compete for similar customers.

What about Tata Motors?

Industry experts pointed out that Tata Motor’s customers are a distinct profile of buyers who are betting on new technologies such as EVs and prize styling and safety. Tata Motors’ volumes are also likely to start flattening after FY23 as the company stares at the fag end of its known product pipeline. Elara Capital predicts that the company, in the next two years, will retain the 12% market share it currently enjoys.

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“With just over a half a percent gap between the two rivals (between Hyundai and Tata Motors), the delta will not be hard to overcome," Jay Kale, senior vice president at Elara Capital said.

The fact is Tata Motors has managed to upstage Hyundai’s monthly sales performance on a couple of counts in the last few months—in December last year and in June this year. Tata Motors handled the global chip shortage deftly; it could ramp-up production at a time Hyundai was struggling. Besides, the demand for its new SUVs sustained.

Hyundai’s executives, meanwhile, remain confident, of its pipeline and retaining its share. “Monthly numbers, or one or two months of sales here and there, don’t define Hyundai," Tarun Garg, director, sales and marketing, Hyundai India, told Mint in an earlier interview. “We are long-term players and have investments and plan long-term commitments. We’ve already announced the introduction of six battery electric vehicles by 2028 and the introduction of the IONIQ 5 this year. We brought the Kona EV to India in 2019 when no one was talking about ranges of 450 km plus in an SUV body style," he had added.

Garg had further mentioned that the company was aware of the changing benchmarks and competitive landscape. “Even our internal benchmarks are being raised. Who would want to lose their number 2 position? Least of all Hyundai."

Even with its SUV dominance, Hyundai has a sizeable play in the hatchback and sedan segments—48% of its sales come from these segments. A significant reason behind Hyundai losing market share is the contraction of India’s car market due to poor rural and semi-urban buying sentiment, particularly post the pandemic. Small cars are now a much smaller market than they used to be before the pandemic.

“We expect some recovery in the car segment, which has been beaten down. Hyundai is stronger in the hatchback segment than Tata. So, while Tata will continue outperforming Hyundai in SUVs, the car segment coming back to a certain extent will cushion some bit of that market share loss for Hyundai," Kale explained.

Premium over volumes

Let’s delve deeper into Hyundai’s strategy.

Unsoo Kim, the managing director of Hyundai Motor India Ltd told Mint that the company would continue to introduce “technologically superior products". Its new SUV, Tucson, is receiving an “overwhelming response" from customers.

“We can clearly see that the premium segment customers are seeking brand statement products matching and uplifting their lifestyle persona," he said. Premium is the key word here—perhaps, the most important fulcrum of Hyundai’s new strategy. The company doesn’t seem keen to chase volumes; instead, it wants to press the accelerator on creating differentiated and profitable products.

The company recently opened bookings in India for Tucson, which may be priced at around 30 lakh. Apart from stylish exteriors, the car has level-2 advanced driver assistance systems—it helps drivers navigate roads better and activates safety features such as collision warning automatically.

“When we look at the direction where the market is heading, it is clear that the percentage of high-end cars continues to go up sharply. In Hyundai’s case, 41% of total sales portfolio consist of cars priced more than 10 lakh," Kim said. “This clearly shows our customers’ preference for technology, features and connectivity."

For instance, the carmaker seems to be betting big on Hyundai Bluelink, its connected car technology. One can expect more connectivity-related features in Hyundai cars, going ahead.

While the Tucson may not be a big volume driver because of its price range, the company believes such products underline the country’s transition in terms of product preference. “We are bringing in a flagship to India to fortify our brand proposition. The Tucson may not be a big volume driver but will be a key product for a market that is transitioning from mass-mindset to a premium mindset," said Tarun Garg.

Apart from Tucson, Hyundai will also launch the globally acclaimed IONIQ 5 battery electric vehicle later this year. The IONIQ 5 may also replace the Kona electric SUV it currently sells in the market. The IONIQ 5, too, is a premium car, expected to be priced upwards of 40 lakh.

“The company isn’t pushing sales of its small cars now. They are concentrating on the i20 N-Line more than the Grand i10, for example. They’re slowly headed towards premiumization in a big way," a Mumbai-based Hyundai dealer, who didn’t want to be identified, said.

Grand i10 is a hatchback with a starting price of about 5.39 lakh ex-showroom. The i20 N-Line is also a hatchback but starts at nearly 10 lakh.

“In Mumbai, we are selling half the number of i10s we were selling before the pandemic. Compared to the that, our Creta sales are growing. The customer is also asking for more than just a basic car. So, we are selling more Venue and i20 units," the dealer added.

The South Korean auto giant’s playbook, then, will be to tap the aspirational buyer, the young Indian who wants to spend more. As far as the race for the No. 2 goes, Hyundai might still be able to hold on, experts said. Given the close race with Tata Motors, how it executes on its strategy could be the key.

Elsewhere in Mint

In Opinion, Dani Rodrik writes on a new economic-policy paradigm that could supersede neoliberalism. Anoop Singh explains six monthly indicators of recession. Debjani Ghosh argues why India is strategically positioned to be the innovation nerve centre of the world. 

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