Toyota Kirloskar Motor (TKM), the Indian subsidiary of the Japanese automotive giant Toyota Motor Corporation, is enjoying a phase of robust growth in the Indian automobile market, achieving a remarkable 45% year-on-year (Y-o-Y) increase in volume sales over the first eight months of 2024. In an industry where many carmakers are experiencing slowdowns due to low demand and high inventory, TKM’s success stands out as a testament to its strategic positioning and market responsiveness.

During an interview at the annual session of the Automotive Component Manufacturers Association of India (ACMA), Vikram Gulati, TKM’s Country Head and Executive Vice President, expressed optimism about the company’s continued growth trajectory. He emphasized that TKM is well-positioned to maintain its momentum, even into the next calendar year, due to its solid product pipeline, effective market positioning, and evolving consumer preferences.

TKM’s Impressive Growth Amidst Market Challenges

The Indian auto industry has been facing a challenging environment, with domestic car wholesale figures recording only a modest 1.8% Y-o-Y increase for the period of April to July 2024-25, totaling 1.322 million units. Many car companies have reported declining sales and rising inventories, struggling to align production with demand.

In contrast, TKM has managed to buck the trend. Between January and August 2024, the company sold 212,785 units, up from 147,192 units in the same period of 2023—a staggering increase that reflects the brand’s strong market performance. Gulati attributes this success to several factors:

1. A Strong Product Pipeline and Focus on Premium Segments: TKM’s strategy revolves around maintaining a robust product lineup, particularly in segments where vehicles are priced above INR 10 lakh. This focus aligns with a noticeable trend of ‘premiumisation’ in the market, where customers are increasingly willing to spend more for vehicles that offer superior quality, advanced features, and better performance.“We have an excellent product pipeline,” said Gulati. “There is some degree of premiumisation happening in the market, and customers are now willing to pay a little bit more.” This strategic focus has enabled TKM to attract a more affluent customer base that values the reliability, brand prestige, and innovative features offered by Toyota vehicles.
2. Pull-Based Production Model: Unlike many competitors who produce vehicles based on projected demand, TKM relies on a pull-based system, manufacturing vehicles strictly according to confirmed customer orders. This approach helps maintain optimal inventory levels, reduces excess production, and ensures that dealer stocks remain at a manageable level.“Our inventory levels are very close to normal,” Gulati stated, highlighting that TKM’s production strategy allows for flexibility and responsiveness to market conditions. “We manufacture vehicles based on what orders we have rather than the other way around,” he added, underscoring the efficiency and sustainability of the company’s operations.
3. Consistent Month-on-Month Performance: TKM has been witnessing consistently high sales month-on-month, with the last few months delivering some of the highest sales figures in the company’s history. Gulati attributes this performance to the strong demand for Toyota’s vehicles, a well-managed order book, and the overall positive reception of its products in the market.“We have been doing well month-on-month. The last few months have been really good in terms of sales numbers, which have been among the highest ever,” he said. This sustained growth reflects TKM’s ability to tap into evolving consumer preferences and maintain a steady demand for its products.

Strategic Positioning: Tapping into Premium Segments

TKM’s focus on the premium end of the market is a strategic move that has paid off significantly. As consumer preferences shift towards higher-end vehicles with more features, safety, and comfort, TKM’s portfolio aligns well with this trend. The company’s premium models, such as the Toyota Fortuner, Innova Crysta, and Camry, have continued to perform exceptionally well in their respective segments.

1. Understanding the Premiumisation Trend:

The trend towards premiumisation is driven by several factors, including rising disposable incomes, changing lifestyle preferences, and a growing desire for vehicles that offer more than just basic transportation. Consumers are increasingly looking for vehicles with advanced safety features, modern infotainment systems, better fuel efficiency, and lower emissions.

By concentrating on segments where vehicles are priced above INR 10 lakh, TKM has effectively positioned itself to benefit from this trend. “We play primarily in the segments where cars are priced above INR 10 lakh,” Gulati explained. “There is some degree of premiumisation happening in the market as customers are now willing to pay a little bit more.”

2. Expanding the Product Portfolio:

To maintain its growth trajectory, TKM has been actively working on expanding its product portfolio, bringing new models and variants to the market that cater to evolving consumer demands. The company has plans to introduce more models that align with its premium positioning while continuing to strengthen its presence in key segments.

TKM’s approach involves leveraging Toyota’s global expertise in hybrid and electric vehicle technologies to offer more sustainable options to Indian consumers. By introducing hybrid variants of popular models and potentially launching fully electric vehicles in the future, TKM aims to cater to the growing demand for eco-friendly mobility solutions.

Optimizing Inventory and Managing Dealer Stocks

One of the critical elements of TKM’s strategy that has contributed to its success is its effective inventory management and dealer stock optimization. The company has adopted a pull-based production system, which ensures that vehicles are manufactured based on confirmed customer orders rather than speculative demand forecasts.

1. The Pull-Based Production Model:

This approach has multiple benefits. First, it minimizes the risk of overproduction and excess inventory, which can lead to higher carrying costs and potential losses. Second, it allows the company to be more responsive to actual market demand, ensuring that production aligns closely with consumer preferences.

“Our dealer stock is as usual,” Gulati noted. “We primarily rely on the pull system. We manufacture vehicles based on what orders we have rather than the other way around. Therefore, our inventory levels are very close to the normal level.”

2. Benefits of Efficient Inventory Management:

By maintaining optimal inventory levels, TKM ensures that its dealers are not burdened with excess stock, which can lead to discounting and reduced profitability. This strategy also enhances customer satisfaction, as vehicles are produced and delivered based on specific customer requirements, leading to shorter wait times and a better overall buying experience.

Advocating for an Emissions-Based Taxation System

In addition to discussing TKM’s growth strategy and market performance, Vikram Gulati also highlighted the need for an emissions-based taxation system in India. Currently, the taxation system on cars considers factors such as vehicle length, engine size, and ground clearance, which Gulati described as “outdated.”

1. The Case for Emissions-Based Taxation:

Gulati advocated for a shift towards a taxation model that is based on the carbon dioxide emissions emitted by car models. “An emissions-based taxation system should be the ultimate goal in India as the country is moving towards the aim of becoming carbon-neutral by 2070,” he stated.

This approach aligns with global trends where countries are increasingly moving towards carbon-based taxation policies to encourage the production and adoption of cleaner, more fuel-efficient vehicles. An emissions-based taxation system would not only incentivize automakers to invest in greener technologies but also promote consumer awareness about the environmental impact of their vehicle choices.

2. Aligning with India’s Carbon-Neutral Goals:

As India aims to achieve carbon neutrality by 2070, adopting an emissions-based taxation framework would be a significant step in the right direction. Such a system would encourage automakers to innovate and produce vehicles that meet stricter emissions standards, ultimately contributing to a reduction in overall carbon emissions.

TKM’s support for an emissions-based taxation system reflects its commitment to sustainability and aligns with Toyota’s global vision of reducing its environmental footprint. By advocating for policies that promote cleaner mobility, TKM is positioning itself as a responsible player in the Indian automotive market.

Outlook for the Future: Sustaining Growth Momentum

Looking ahead, TKM is optimistic about its growth prospects, not just for the remainder of the current year but also into the next calendar year. The company’s confidence is rooted in several factors:

1. Strong Order Book and Product Demand:

TKM’s strong order book and consistent demand for its products indicate that the company is well-positioned to sustain its growth momentum. “We continue to look [expect] robust growth not just in the balance of the year but also going ahead given the fact the love we have seen for our products, and the good order book we have,” Gulati said.

2. Expansion into New Segments and Technologies:

TKM’s plans to expand its product portfolio, particularly in the hybrid and electric vehicle segments, will likely open new avenues for growth. The company’s focus on sustainable mobility solutions aligns with both consumer demand and regulatory trends, providing a competitive advantage in the evolving market landscape.

3. Leveraging Toyota’s Global Expertise:

As part of the Toyota Group, TKM has access to a wealth of global expertise, resources, and technologies. This access allows the company to bring innovative products to the Indian market and adapt quickly to changing consumer preferences and regulatory requirements.

4. Adapting to Market Dynamics:

TKM’s ability to adapt to market dynamics, such as shifting consumer preferences and evolving regulatory environments, will be crucial in sustaining its growth. The company’s flexible production strategy, focus on premium segments, and commitment to sustainability position it well to navigate the challenges and opportunities of the Indian automotive market.

Conclusion: Toyota Kirloskar Motor’s Road Ahead

Toyota Kirloskar Motor’s impressive growth in a challenging market environment demonstrates the effectiveness of its strategic approach, product focus, and operational efficiency. By targeting premium segments, maintaining a strong product pipeline, optimizing inventory levels, and advocating for progressive policies, TKM has positioned itself as a leading player in the Indian automotive market.

As TKM continues to build on its success and explore new growth opportunities, its commitment to sustainability, innovation, and customer satisfaction will likely remain at the core of its strategy. With a solid foundation and a clear vision for the future, Toyota Kirloskar Motor is poised to continue its growth momentum and further strengthen its position in the dynamic and competitive Indian automobile market.

 

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