Sep 12: Middle Class Not Sold On EVs, Why FMCGs Love ₹5 & ₹10

NASA’s rover just found Martian rocks whispering hints of ancient life. But here’s the question - did life first spark on Mars, only to pack its bags and catch a fast ride to Earth, thanks to our prime ‘real estate’ near the Sun? What if Earth is just the sequel to Mars’ original experiment? Maybe we’re not Earthlings at all, just Martians with better weather (minus the antennae). Questions and more questions!

But first, let’s get into the Dispatch! 🚀

Today’s reading time is 7 mins.

The Indian stock market had a strong Thursday, with the Sensex and the Nifty posting significant gains. This marks the seventh consecutive day of gains!

Old Market, New Players: India’s auto market has long been dominated by a handful of Japanese, Korean, and Indian brands, with six major players accounting for more than 90% of sales. Most vehicles cater to utilitarian needs of a cost-conscious middle class. But the arrival of global electric vehicle (EV) makers is beginning to unsettle this tight club. Tesla, BYD and Vietnam’s VinFast are entering the race, forcing local automakers to rethink strategies and consumers to ask a new question: could their next SUV be electric?

Tesla, BYD And The Price Barrier: Tesla delivered its first Model Y SUV in Mumbai last week, priced at 60 lakhs ($68,000). The steep cost has limited demand, with just 600 orders since July. Chinese rival BYD, which began selling in India in 2022, has crossed 10,000 deliveries, but its four models remain above the 30 lakh range. In contrast, India’s best-selling mid-sized SUV, the Hyundai Creta, costs between 10 to 20 lakh and has sold nearly 187,000 units in 2024 alone. That price gap illustrates why EV adoption remains slow among the middle class.

VinFast Targets The Sweet Spot: Vietnamese automaker VinFast has taken a different route. By assembling its VF6 and VF7 models in Tamil Nadu, it has managed to price them between 17 and 23 lakh, directly in competition with popular petrol SUVs. Analysts say this “sweet spot” could give VinFast a significant edge. Local production is key: it avoids import duties that can reach 110% and an annual cap of 2,500 imported units per company. Tata Motors has already leveraged this advantage, becoming India’s largest EV maker with 53% market share, followed by JSW MG Motor and Mahindra & Mahindra.

Roadblocks For Foreign Entrants: Not all global players have it easy. BYD’s plans for local production were rejected by the government earlier this year. Tesla, meanwhile, has shown little interest in setting up Indian factories despite years of talks. Analysts say geopolitical tensions with both the U.S. and China complicate approvals for fresh investment.

Adoption Still Nascent: EVs currently make up just 5.3% of India’s car market, compared to 27% in China. Growth is constrained by several factors: high upfront costs, limited charging stations, and consumer concerns about battery life and resale value. Public charging infrastructure is improving but remains sparse. As of mid-2024, India had 26,367 charging points, up from just over 5,000 in 2022. Still, the ratio stands at 14 cars per station, versus nine in China (with significantly more vehicles on ground). Range anxiety continues to deter buyers who lack private charging access.

The Middle Class Dilemma: For now, EVs remain more aspiration than default choice for India’s middle class. Analysts say unless affordable models and stronger infrastructure arrive soon, the gap between India’s climate ambitions and consumer realities will widen. 

The Mystery: Even in a market shaped by GST reforms, inflationary swings, and changing consumer aspirations, two price points - ₹5 and ₹10 - remain non-negotiable anchors for India’s fast-moving consumer goods (FMCG) sector. They are not just numbers on a pack but deeply embedded markers of affordability, access, and trust for millions of Indians. The recent GST rationalisation, which reduced tax rates on several items, has once again placed these price points in the spotlight. The government has instructed businesses to pass on tax benefits to consumers. Yet companies are reluctant to cut prices below ₹5 or ₹10. Instead, they prefer to increase grammage, adding more product for the same price, rather than tinker with the established thresholds. This isn’t mere stubbornness. Adjusting prices means reworking packaging, re-educating retailers, and disturbing long-standing consumer habits.

The Psychology of Round Numbers: Why do these thresholds matter so much? In behavioral economics, round numbers act as psychological anchors. ₹5 and ₹10 are easy to count, easy to handle in cash-driven transactions, and feel “low-risk” to buyers. For rural and semi-urban households, they are small-change purchases requiring no calculation or hesitation. They are impulse buys, accessible across income groups, and deeply ingrained in everyday consumption patterns. In India’s mass market, a ₹15 price point often fails, while the ₹10 version of the same product sells in bulk.

Supply Chains Built Around Small Prices: The stickiness of ₹5 and ₹10 goes beyond consumers. Entire supply chains (from packaging suppliers to kirana store shelves) are structured around these SKUs. Retailers prefer them for their fast turnover and ability to keep footfall steady. For brands, breaking these thresholds risks ceding ground to rivals who hold them. In fact, price-point loyalty often outweighs brand loyalty. If one biscuit maker nudges its ₹10 pack to ₹12 while another stays put, consumers switch instantly.

H&M Beauty Debut: H&M is getting into India's beauty scene with "H&M Beauty," launching on October 2nd to celebrate a decade of the brand in India. The new line features over 200 products, including locally-made makeup and fragrances, as well as globally sourced tools. The goal is to offer a complete fashion-to-face shopping experience. H&M's leadership says the collection is all about being accessible and inclusive. Prices are extremely affordable, with makeup starting at ₹799 and fragrances from ₹1,299. It's a strategic move as they target India's booming beauty market, which is expected to reach a massive $34 billion by 2028.

India-Mexico Trade: India is stepping up its engagement with Mexico, with Commerce Minister Piyush Goyal meeting Francisco Cervantes, the head of Mexico's Business Coordination Council, to boost trade, investment, and collaboration across various sectors. A Mexican business delegation is expected to visit India to further these discussions and strengthen economic ties. The outreach is part of India's broader effort to simultaneously advance multiple bilateral trade agreements.

LIC’s Rough Year: Shares of LIC have had a tough time, falling 15% in a year and underperforming both the Nifty and Sensex. It's worse than the overall insurance sector, which is down about 7%. A big reason for this is that a whopping 70% (186 out of 266) of the stocks in LIC's investment portfolio are also in the red, with some like VL E-Governance, Easy Trip Planners, and Jaiprakash Associates dropping by over 50%. Despite the share price slump, the company’s recent Q1 results showed a strong performance with a 4.77% increase in consolidated net profit. 

India-Mauritius Trade: PM Narendra Modi, in talks with Mauritius PM Navinchandra Ramgoolam, announced that India will work to enable local currency trade between the two nations. This initiative builds on last year's rollout of UPI and RuPay in Mauritius, which was aimed at easing transactions. The leaders also discussed a new Special Economic Package from India to fund major projects in Mauritius, including work on the Chagos Marine Protected Area, a new ATC tower at SSR Airport, and the expansion of a highway and ring road. Modi called the package an "investment in our shared future."

US-India Jet Deal: A US Defence Department and Boeing team is heading to Delhi to revive a roughly $4 billion deal for six P-8I maritime patrol jets. This negotiation was first approved in 2019 but had stalled. India already has 12 of these jets, with eight purchased for $2.2 billion in 2009 and four more a decade later, which are used to monitor the Indian Ocean. This trip, along with resumed trade talks, signals a warming of ties after recent tariff-related tensions.

Kashmir Apple Supply Squeeze: Kashmir's apple growers are in a tough spot, with estimated losses of ₹600-700 crore because floods and landslides have closed the crucial Jammu–Srinagar highway since August 26, causing apples to rot and trucks to sit idle for days.

iPhone Shipments Soar: Apple’s iPhone shipments in India are on track for a record-breaking year, with projections of 14-15 million units in 2025, marking a 25% jump from the 12 million units shipped last year. This surge is due to the new iPhone 17 series, which is priced at ₹82,900 for the 256 GB model, that's ₹7,000 cheaper than the similar iPhone 16. With big discounts on older models and strong demand, India has become Apple’s fastest-growing market, and experts believe the momentum will keep going strong.

Real Estate Boom: The Indian real estate market is on a massive growth trajectory! A new report from CREDAI and Colliers India reveals that the sector has pulled in nearly $80 billion in institutional investments over the past 15 years, with foreign investors bringing in 57% of that cash. Looking ahead, the report projects that the market could hit an incredible size of $5 trillion to $10 trillion by 2047.

D2C Ad Strategy For Quick Commerce: Quick commerce platforms like Blinkit, Zepto, and Instamart have become a huge deal for D2C brands looking to advertise, especially during the festive season since they offer access to customers who are already in a "buying mindset," which leads to way more impulse buys. D2C brands are now pouring 60-70% of their marketing budgets into these platforms, as they offer a much higher Return on Ad Spend (ROAS).