The Indian Automobile Industry is in distress. While the total quarterly production of the automobile segment grew 7.21 million in June 2019 from 5.6 million in June 2014, the quarterly registrations recorded a decline of 0.32 million in June 2019 on a year-on-year basis. Notably, domestic auto sales as a percentage of production have dropped to 84.35 percent in 2019 from 85.27 percent in 2014. This means inventories have increased. Some reasons according to a report by Dr Soumya Kanti Ghosh, group chief economic adviser at State Bank of India are the liquidity crunch on the NBFC sector, decline in demand, increased acquisition costs, increase by 25% the new axle load norms that brought down the logistics costs and the demand shifting towards a pre-owned car market because of significantly lower costs of second-hand vehicles as compared to new ones. Rahul Bajaj of Bajaj Auto wrote in a letter to shareholders in the company’s 11th annual report that the performance in fiscal 2018 could have been much better had it not been for declining motorcycle sales in the domestic market. The indicators are all ominous in the wake of the Government’s push for electric vehicles (EV’s). EV’s have a potential to disrupt the job markets and business models like never before. This will happen in the next couple of years. If Auto industry and the spare parts markets do not reinvent themselves apart from planning for massive training and retraining, job losses will have to be endured.
The Governments, world over have been pushing for electric vehicles. India too is at the forefront with the transport minister pitching proactively with India unveiling the ‘National Electric Mobility Mission Plan (NEMMP) 2020′. With its commitment to the Paris Agreement, the Government is planning to make a major shift to electric vehicles by 2030. Electric car use by country, varies worldwide, as the adoption of plug-in electric vehicles is affected by consumer demand, market prices and government incentives. Plug-in electric vehicles (PEVs) are generally divided into all-electric or battery electric vehicles (BEVs) that run only on batteries, and plug-in hybrids (PHEVs), that combine battery power with internal combustion engines. The electric vehicles have only, rotary parts and 1/10th parts than the current IC engines, have a low maintenance requirement and are based on replacements when repairs are warranted. This eliminates the need for an elaborate repair and maintenance ecosystem that can affect the dependant employment markets.
Driven by the government’s think tank NITI Aayog along with several ministries such as transportation and heavy industries, have proposed a rapid shift to electric vehicles in the next decade. Firstly, NITI Aayog suggested that 40% of all cars used by cab operators like Ola and Uber should be electric vehicles by 2026. It was also proposed that all new cars sold for commercial purposes post 2026 should be electric. The government is also considering incentivising battery-making units, which will be up and running by 2022. An investment outlay of $50 billion is envisaged. The government in order to boost EV sales, has even cut goods and services tax (GST) on electric vehicles (EVs) from 12 per cent to 5 per cent, and on EV chargers from 18 per cent to 5 per cent.
Where will all this leave the automobile industry currently smarting under various factors that also include rising fuel prices? Fossil fuels will not even last for ever. Their price will continue to go north as the supplies dry up. Society of Indian Automobile Manufacturers (SIAM), in a report some years back, indicated that the relationship between fuel price rise and the vehicle sales was not strong until a tipping point was reached. Currently petrol is averaging Rs 80 across the country. Spiralling international crude oil prices will surely impact sales of the automotive sector in the future. Governments have to seriously look at alternate modes of transport. Disrupting auto markets has become imperative.
Fossil fuels have always had environmental concerns like global carbon emissions, which recently crossed the 400 ppm threshold contributing to global warming. It is necessary that alternatives are explored. India is the fourth highest emitter of carbon dioxide in the world, accounting for 7 per cent of global emissions in 2017, according to the projection by the Global Carbon Project. The other top three emitters in 2017, which covered 58 per cent of global emissions, were China (27 per cent), the US (15 per cent), and the European Union (10 per cent). A major contribution towards developing a zero-carbon transport infrastructure must be EV’s. By all available estimates EV’s will quickly move into the automobile markets as alternatives to the internal combustion engines. India has a great potential for EV market for two wheel, three wheel vehicles, buses and probably for all other forms of transport.
The electric vehicle segment, can affect margins which are likely to come under pressure in the long term because as competition increases, manufacturers will find it difficult to increase prices and will try to cut costs. The burden will eventually fall on auto ancillary players. In the near future though, companies will need manufacturing lines that can adapt to new models, backed by technology, be exportable to developed markets, and dominate markets driven by volumes and product innovations.
There is a growing realisation that EV’s are here to stay and they must be made eligible for purchase incentives. The policy for ‘Energy saving Electric Vehicles must focus on carrying out pilots to subsidize EV buyers, promoting charging facilities and accelerating EVs commercialization. The government may even announce a trial program to provide financial incentives in chosen five cities. The Traffic Management Bodies must also announce special green license plates to facilitate preferential traffic policies. A proactive policy will be a Win-Win for all.
The path needs to be tread carefully. A fine balance must be struck not to upset a market segment that has stood by the country all these years and a new one sought to be developed. High performance hybrid cars may be an answer. In as much as some markets and employment opportunities may crash, new ones will be created. We need to plan for a few goals like promoting a world-leading industry, energy security; reduction in urban air pollution and carbon emissions. We can be the change that we wish to see in the world.