New Delhi:
After the long-term impact of several unprecedented factors, the Indian automobile industry is bullish on achieving a double-digit growth in the coming fiscal year, said the market leaders at an event titled ‘Reimagine 2022: Preparing the Indian Automotive Industry to be Future-Ready’ conducted by C2FO in association with ETAuto on Friday.Driven by strong consumer demand and need for personal mobility, Rahul Bharti, Executive Director- Corporate Planning, Maruti Suzuki, said that FY23 will be a “good year” for the company and the industry at large. In spite of the supply chain disruption, it is estimated that sales of up to 3.4 million to 3.5 million passenger vehicles (PVs) should be achievable in the year.
In FY21, the PV industry in India clocked sales of 2.7 million units and it is expected to be about 3.1 million in FY22.
While Bharti is positive about the growth story, he points out that there has been a steep decline in the compound annual growth rate (CAGR) of PV sales since the pre-Covid period. It came down from 12.6% in 1990-2000 to 1.3% in 2015-2020. He said that India is not growing in terms of car ownership and affordability which in turn depends on car prices, per capita income and regulatory structure.
Nirajan Gupta, CFO, Hero MotoCorp, is optimistic about the two-wheeler growth story. According to him, the requirement of mobility does not go away. Though the demand from the rural side has been dim, the fundamentals of the agriculture sector, rural economy and crop cycles remain bright.
He said that two factors led to the fall in rural demand. First, the second wave of Covid-19 was too severe to dampen consumer confidence and people began to conserve cash instead of borrowing to spend. The second factor is the return of the migrant labour, the sole breadwinner, to their villages depriving families of their income.
However, as different sectors open up, more people are getting back to work and dependency on one income source will be less and people will be able to save money to spend, he said.
“In the hinterland, there is still a size of Indonesia (10 million people) who do not have a mechanized two-wheeler at all, and that is a huge number. Two-wheelers are not a matter of style here; it is a matter of necessity. So, the opportunity for growth is immense. There is no reason that a double-digit growth should not happen for the industry,” he said.
The immediate impact could be left aside because of the geopolitical condition, but the long-term demand will come back. While for stock markets, people look at the short term, but when we invest in businesses, we look at the long term, Gupta added.
Meanwhile, a few factors have to fall in place, he said. Deeper penetration of finance, environment for growth with easy regulations and the collaboration of the OEMs are the most important among them. “I think we compete very well, but collaborate poorly.”
Recollecting the harrowing past two years, GN Gauba, CFO, Motherson Sumi Wiring India, said, the automotive industry has always been put to test, but the positive part is that the Indian auto industry is a close-knit family. The OEMs and their supply chains work very closely with each other. Despite facing challenges during the pandemic, the industry shifted manufacturing to ventilators and even during severe chip shortage, it managed to be flexible.
Referring to the suppliers, Bharti said, there is weakness at Tier-2 and 3 levels in terms of automation, investment in right equipment, management bandwidth etc. “If we can strengthen this stratum, the Indian auto industry will get a huge boost. The issue is that while the number of Tier-1 suppliers are around 400 to 500, the Tier-2 suppliers would run into thousands. So, it is a scalable problem. But what we have been trying to do is to request our Tier-1 suppliers to inculcate the best practices of shop floor, finance etc in Tier-2.”
Jitendra Barola, Director- Finance, MG Motor India, said, “I believe consumers need mobility with technology. Compared to Suzuki, we are nowhere but we are focusing on different revenue streams. We have created a platform for not just selling the car but being with the customer day-in and day-out.”
India’s road to zero carbon
The expert panellists at the event said though electric vehicles (EVs) are technologically strong, going forward, all forms of energies have to co-exist to reach the goal of decarbonisation in the country.
Talking about the two-wheeler industry, Gupta of Hero MotoCorp said that most of the electrification in the coming decade is going to be in the scooter segment, because motorcycles require a significantly more amount of battery capacity, more power, more range and it will not be affordable.
“ICE and EVs will co-exist for a pretty long period. Motorcycles, which currently occupy 70% of the industry in India, will migrate to EVs in the next decade. And the first decade will be more about scooters, which currently occupies 30% of the industry,” he said.
The country’s largest two-wheeler maker unveiled a new brand identity called ‘Vida’ for EVs last week. Its first EV is set to be introduced on July 1 this year.
Representing the passenger vehicle (PV) industry, Bharti of Maruti Suzuki noted that decarbonisation is a larger perspective and includes within itself several technologies that are not the end, but means to the end. “Electrification is a family of technologies including hydrogen cars, plug-in hybrids, strong hybrids. But there is also natural gas and the latest set of technology, the biofuels,” he said.
As an industry, we have to evolve solutions which are unique to India, and we also need to be conscious that in the process this will raise the price of the vehicles. We must see how we can capture the bulk of the fleet emissions and reduce the CO2 to the bare minimum and in a way look at the per car emission and percentage of the portfolio that we can cover, Bharti suggested.
While there has been a major amount of investment in the EV industry during the past year, the funding to Indian EV tech startups was very high in 2021, nearly reaching INR 3,307 crore despite the pandemic worries.
Commenting on the same, Gupta said, “It is always true that cash burn lasts only for a few years and gives place to cash earn in some point of time. Now it is a phase of huge investments and many players coming in. But survival will be of the ones who are getting the customer game right and for the long term. Multiplication and fragmentation will eventually lead to consolidation.”
The event was part of the Thought Leadership Series organised by C2FO in association with ETAuto. Industry stalwarts came together to brainstorm ideas and share their insights about changing landscape in the auto sector, preparing for business transformation, need for innovation, and the future roadmap for the Indian automobile industry.
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Passenger vehicle sales declined 6.5% to 262,984 units in February 2022 compared to 281,380 units in the corresponding month of 2021. Sales of passenger cars stood at 133,572 units, utility vehicles at 120,122 units and vans at 9,290 units in February this year.
Luxury brands are aggressively targeting the nation’s most affluent. Tesla has been haggling over tax breaks to ramp up sales in India, while Mercedes-Benz is rolling out a locally assembled EQS, the electric version of its flagship S-Class sedan, this year. BMW also plans to launch multiple plug-in models.
A greater number of EVs on road, the availability of newer models and an increase in the number of charging stations are expected to encourage buyers to shift to EVs.
