The Indian automobile industry has weathered multiple headwinds over the past 18-24 months. From complete closure of business activity during the first wave of the Covid-19 pandemic to managing sharp inflation in commodity prices and semiconductor chip shortage, the industry has seen it all. The demand environment too has been a mixed bag. While passenger vehicle (PV) sales have been resilient, the two-wheeler (2W) industry is staring at nine-year low domestic sales by the end of FY2022. Owing to the steady increase in vehicle prices (a result of change in technology, safety standards and commodity inflation) and relatively higher impact of the pandemic on lower income families, two-wheeler sales have been hit the most and are unlikely to recover meaningfully in the near term.
Comparatively, the Commercial Vehicles (CVs) sales have been on an improving trend, aided by a pick-up in demand from infrastructure sectors and general business activity, especially from sectors like e-commerce and express delivery. While the segment will report healthy sales growth in FY2022, (expected to be ~18-22%), it will still be ~30-32% short of the all-time peak achieved in FY2019. On the agricultural front, ICRA expects tractor sales to witness a marginal correction (somewhere between -2 to -6% in FY2022), primarily because of a very high base (i.e. nine lac tractors were sold in FY2021) and delayed harvest season due to prolonged and uneven monsoons. That said, shift towards mechanisation is clearly visible as demand for other agricultural implements such as harvesters etc. remained buoyant.
Fiscal 2022 can also be considered as the year of reckoning for India’s still-in-infancy Electric Vehicle segment. Although the overall EV volumes (~95% of which was the two-wheeler (47%) and three-wheeler segment (48%)) are still a fraction of the overall industry sales, the momentum is encouraging. Selectively, EVs have started making a mark in segments like scooters and three- wheelers as expected. To give a perspective, high-speed EV scooter sales at 24,737 units in December 2021 accounted for 9% of the total scooter sales. We expect this momentum to only gain pace going forward as a) OEMs ramp-up production and launch new models, and b) consumer acceptance further improves with easing concerns on viability (i.e. narrowing cost of ownership with ICE counterparts), mileage, and financing.
Besides extending the tenor of the FAME II scheme and sweetening the incentive structure for the e-two-wheeler segment, the Government of India also rolled out significant policies to create the local EV ecosystem in India. An allocation of Rs. 18,100 crores and Rs. 25,938 crores for manufacturing advance chemistry cell (including Lithium Ion batteries), EVs and technology-oriented components, respectively were steps in this direction. The ball is now clearly in the private sector’s court to move projects from the drawing board stage to the ground with technologies and solutions viable for the Indian market. In ICRA’s view, the ability to onboard OEMs upfront, tie-up technology and input material sourcing will be critical in the battery segment, given the large capital investment.
We expect investments of approximately Rs. 25,000-30,000 crores in the EV ecosystem over the next five years with battery cell manufacturing hogging the limelight. Different business models will also emerge in the EV charging infrastructure as well.
The author of this article is Mr. Shamsher Dewan, Vice President & Group Head — Corporate Ratings, ICRA Limited
The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com
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