Carmakers ramp up production for festive season, but high base and inventory risks loom

Indian carmakers are aggressively increasing production and preparing new launches to capitalise on the upcoming festival season demand, even as they navigate potential challenges like high inventory and a tough comparison against last year's post-GST sales surge in the second half of FY27.

Passenger vehicle (PV) manufacturers are ramping up production, stocking dealerships, resolving supply bottlenecks and preparing launches for the festival season as bookings strengthen. However, growth is expected to moderate in the second half (H2) of FY27 against last year's post-GST surge, with commodity inflation and high inventory adding further risk.

As many as 74.3 per cent of dealers expect growth in August, up from 51.24 per cent ahead of July, according to the Federation of Automobile Dealers Associations (Fada). Festival pipelines are already forming, with 53.57 per cent of PV dealers reporting a build-up in bookings.

Production Boost and Inventory Concerns

Supply data shows how manufacturers are preparing for demand. PV production rose 26.4 per cent year-on-year (Y-o-Y) to 505,520 units in July, while domestic dispatches jumped 34.3 per cent to a record 457,810 units, according to the Society of Indian Automobile Manufacturers (Siam).

The industry entered the festival build-up after a strong first quarter.

PV production rose 16.8 per cent Y-o-Y to 1.45 million units in April-June, while domestic dispatches increased 25.9 per cent to a record 1.27 million units.

Exports grew 8.8 per cent to 222,392 units, according to Siam.

Retail demand also remained firm. Fada's data showed that PV registrations increased 22.64 per cent Y-o-Y to 1.26 million units during the April-June quarter.

The momentum continued in July, when retail registrations grew 19.13 per cent.

The faster increase in dispatches than retail sales indicates that part of the rise was driven by festival stocking. Industry inventory increased to 33-35 days, against Fada's recommended 21 days.

Half of PV dealers reported higher inventory and around a quarter were carrying over 25 per cent aged stock.

Outlook for H2 FY27

Fada expects August and September growth to benefit from a low base, as buyers deferred purchases ahead of Goods and Services Tax (GST) rate cuts last year.

October, however, faces a tough comparison against last year's GST-driven surge, especially with Dhanteras and Diwali shifting to November.

Consequently, retail conversion -- not dispatch growth -- will be the true test.

Maruti Suzuki's concern is supplies.

"We had mentioned at the beginning of the year that this year, most likely, our sales would be constrained by the supply side rather than the demand side.

"The demand side seems to be healthy," Chief Investor Relations Officer Rahul Bharti said during the June quarter call.

Small-car sales rose 34 per cent in the June quarter, while SUVs grew 44.6 per cent.

Dealer inventory stood at 13 days, against its preferred level of around 30 days, with 130,000 pending orders.

Maruti commissioned a new plant at Kharkhoda in Haryana and added a manufacturing line at its Gujarat facility, together providing around 500,000 units of additional annual capacity.

The facilities will take four to six months to ramp up. "From a supply-side perspective, we see headroom of about 10 per cent growth," Bharti said.

Manufacturer Perspectives

Shailesh Chandra, managing director (MD) and chief executive officer (CEO) of Tata Motors Passenger Vehicles, expects industry growth of 15-20 per cent in the September quarter before the high-base effect takes hold.

"Since inventory levels are much lower than they were in the last financial year, I believe there is still significant scope for sustained growth in H2, although it could be below 10 per cent," Chandra told media during the Q1FY27 call.

"Even with single-digit H2 growth, he expects full-year industry growth to "safely exceed 10 per cent".

Tata is building inventory ahead of stronger retail demand expected in October, according to Motilal Oswal Financial Services. Electric vehicle (EV) demand should strengthen further during the festivals, with Chandra identifying supply as the principal constraint.

Tata is targeting EV volume growth of more than 70 per cent in FY27 and an exit market share above 40 per cent.

Mahindra & Mahindra retained its mid-to-high-teens SUV growth forecast.

"We are not changing our outlook," said Rajesh Jejurikar, executive director and CEO of the company's auto and farm sector. Its XEV 9S and XUV 7XO SUVs carry comparatively long waiting periods, while supply shortages constrained June-quarter production. Mahindra said further pricing would balance cost recovery with protecting demand.

Hyundai Motor India retained its FY27 volume-growth guidance of 8-10 per cent for domestic sales and exports after recovering most production lost to a supplier fire.

It plans a new mid-sized SUV for the festive season, its first mass-market dedicated EV and a third shift at its Pune plant from October.

Tarun Garg, MD and CEO of Hyundai India, expects his company to outpace the industry in H2, but sees overall industry growth normalising to lower single digits as the base turns unfavourable.

The festival outlook is supported by bookings, production, launches and rural demand. Its sustainability will depend on retail conversion amid higher inventories, rising prices and a tougher base.