Compact sedan volumes grow 25-26% despite shift to SUVs, room to revive demand: Shailesh Chandra, Tata Motors PV

The compact sedan segment in India has grown 25-26% over the past year to nearly 3.5 lakh units, even as its share of the overall passenger vehicle market continues to decline amid the sustained shift towards SUVs, said Shailesh Chandra, MD & CEO, Tata Motors Passenger Vehicles (TMPV).

Speaking at a media roundtable ahead of the launch of the company’s new compact sedan Tata Aeris, Chandra noted that that the growth in absolute volumes shows that there continues to be a customer base for the body style. The homegrown carmaker sees an opportunity among customers who have moved to SUVs because existing compact sedans did not meet their expectations around design, technology and modern features.

“There is a clear section of customers” looking for a compact sedan, Chandra said, adding that another section had moved to SUVs as existing products did not adequately meet their expectations of modernity and contemporary features.

“That is the opportunity we want to tap,” he said.

The compact sedan market was around 2.7 lakh units when India's passenger vehicle market was about 2.7 million units during the Covid period, and has since expanded to nearly 3.5 lakh units, he said. The broader sedan market is around 4 lakh units, with compact sedans accounting for nearly 80-85% of the category.

However, the segment's share has been falling as SUVs have gained ground. Chandra said the decline in share should not be confused with a shrinking customer base.

“The volume has been growing in a growing market, but the share has been dropping,” he said.

According to Chandra, the compact sedan continues to offer a combination of space, affordability and a sense of an upgrade for customers moving up from hatchbacks. He said a smaller SUV can cost more, while a sedan gives customers a larger body and more space at a relatively accessible price point.

Why Tata Motors created a new nameplate

The opportunity has also prompted Tata Motors to separate its compact-sedan strategy for personal and fleet buyers. Chandra said the company conducted comprehensive consumer research around one-and-a-half to two years ago, along with feedback from channel partners and sales executives, which pointed to the need for a product specifically designed for private customers.

“Different customers with different expectations should have distinct products,” Chandra said.

The fleet-focused Express will continue to cater to commercial customers, with the product strategy increasingly geared towards operating economics, fuel efficiency, repairability and uptime. The Aeris, meanwhile, has been developed around the aspirations of personal buyers, including design, technology, comfort and safety.

Chandra said personal buyers account for 65% of the compact sedan market, while fleet customers make up the remaining 35%.

The geographic opportunity is also different. In large metropolitan markets, compact sedans are more heavily represented in the fleet segment, while in tier-2 and tier-3 cities and rural markets, the body style has a stronger aspirational appeal. Chandra said affordability differences across markets play a major role in determining customer preferences.

CNG remains key; EV version kept open

CNG is emerging as a major driver for compact sedans, with Chandra saying CNG retail volumes in India have grown nearly 46% year-on-year, around twice the industry's growth rate. CNG now accounts for nearly 60% of compact sedan volumes, compared with around 20-25% for the overall industry.

Among personal compact sedan buyers, CNG penetration is around 53%, while it rises to 73-75% among fleet customers. The Aeris will initially be offered with petrol and CNG powertrains.

An electric version remains possible, although Tata Motors will wait for demand in the segment to expand before taking a call on introducing another EV nameplate.

“Electric is a possibility,” Chandra said, adding that the architecture has been configured to accommodate it. Tata Motors already has three EV offerings in the ₹8 lakh-₹15 lakh range — Tiago, Punch and Nexon — and the company does not want to add another product until the market can support it.

The company is also preparing for potentially stronger-than-expected demand for the Aeris. “We have planned significantly higher” volumes than before in the segment, Chandra said, adding that Tata Motors has taken steps to ramp up production if offtake surprises on the upside.