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Automotive Product Finder Magazine | Passenger vehicles segment driving toward electrification
Passenger vehicles segment driving toward electrification
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The roll out of the government’s FAME II policy will give a needed impetus and help achieve greater penetration of EV. Allocation for the scheme for 2019-20 is estimated to be at Rs 1,500 crore, Rs 5,000 crore in 2020-21 and Rs 3,500 crore in 2021-22. The policy is expected to drive growth in the electric 2W, 3W and public transport segment, understands Neellohit Banerjee.
India’s passenger vehicle segment plays an intrinsic role in the overall performance of the automobile industry and constitutes nearly 15 per cent of the market. In YTD Mar’19, PV industry sales volume grew at a slow rate of 3 per cent YoY as compared to 8 per cent YoY growth recorded in FY18. According to a SIAM report, India’s PV segment grew at 3,377,436 units in FY19 as against 3,288,581 units in FY18. “Within the passenger vehicles, the sales of passenger cars, utility vehicle and vans grew by 2.05 per cent, 2.08 per cent and 13.10 per cent respectively in April-March 2019 over the same period last year,” the report said.
Performance poor or better?
Weak PV sales volume was on account of poor customer buying sentiments, higher insurance costs, increase in fuel prices and interest costs. Weaker sentiments had also led to weaker than usual festive sales in 2018. Furthermore, the lending environment is under pressure and liquidity remains tight. “Buyers are delaying purchases on account of the upcoming elections. We expect 1H sales to remain weak, however BS-VI implementation from April 2020 will likely to drive demand in 2HFY20,” says Kanika Goyal, Analyst (Corporate Ratings), India Ratings and Research (Fitch Group).
Among the sub-categories, small cars, which account for 60 per cent of total PV sales, grew at a slower pace of 3 per cent in FY19. Being a value conscious segment, it felt the pinch of higher ownership cost but sustained on the back of continued traction for popular models and increase in disposable income which induces first time buyers. “Large cars continued to witness a significant 9 per cent y-o-y decline in FY19 as it faced stiff competition from UVs. UVs have witnessed a 2 per cent on year growth on a high base. Van segment has registered a healthy 13 per cent y-o-y growth on account of higher commercial usage, increasing e-commerce sales and pre-buying before the safety norms became mandatory,” reveals Hetal Gandhi, Director, CRISIL Research.
Electrification in PV
Though the government of India has been emphasizing on EVs, they will take longer to penetrate and its impact in the near-medium term would be insignificant. Goyal believes this is mainly due to lack of charging infrastructure, economic viability of EVs in relation to internal combustion engine and inadequate resources of lithium and cobalt in India. “EV penetration is likely to be faster in public transportation (such as buses and three wheelers) and the two-wheeler segment (especially scooters). The pick-up of electrification is likely to provide opportunities to ancillary segments such as forging, plastic moulding, battery, among others,” she adds.
Roll out of FAME 2 policy from April 1 will help achieve greater penetration of EV. FAME 2 is aimed to encourage faster adoption of electric and hybrid vehicles by way of offering an upfront incentive on a purchase of electric vehicles. FAME focuses on four areas i.e, technology development, demand creation, pilot projects and charging infrastructure. Allocation for the scheme for 2019-20 is estimated to be at Rs 1,500 crore; Rs 5,000 crore in 2020-21 and Rs 3,500 crore in 2021-22. FAME 2 will cover buses using EV technology – electric, plug-in hybrid and strong hybrid four-wheelers; electric 3Ws including e-rickshaws and electric 2Ws. “FAME-2 would provide subsidies not only for purchasing EVs but also for building charging infrastructure. The policy would drive volume growth in the electric 2W-3W and public transport segment, which will push localisation of raw materials, which are currently being largely outsourced from China due to unviable volumes,” believes Goyal.
In the middle of all this, Hyundai is committed to become the first Indian auto manufacturer to introduce India’s first full-fledged EV and become an active partner in Government of India’s mission of clean and connected mobility. “Hyundai has the technology to deliver every type of electric vehicle including hybrid electric vehicles (HEV), electric vehicles (EV) and fuel cell electric vehicles (FCEV). Looking at the current environment, we will bring in the most appropriate and relevant EV SUV to India,” reveals Puneet Anand, Sr. General Manager & Group Head, Marketing, Hyundai Motor India Ltd.
“With electrification, cost of production is likely to remain high on account of dependency on import on account of lack of resources in India. But, to reduce this, the government has been emphasizing on local production or assembly or EVs and parts,” explains Goyal. The government’s commitment towards EVs is also visible from the recent reduction of import duty on EV parts and components to 10-15 per cent from 15-30 per cent and adoption of FAME 2 policy which requires 50 per cent minimum localisation content (40 per cent for buses).
“Further, FY20 would be crucial in terms of EV charging infrastructure policy which would provide the required impetus and clarity on EVs. We expect impact of the same to not be significant in FY20, and to be more gradual over the next two to three years,” expresses Goyal.
Weak buyer sentiments, higher insurance premiums and an increase in fuel prices as well as interest costs impacted PV sales volume in the second half of FY19. According to Goyal, the lending environment is under pressure and liquidity remains tight. The tight liquidity conditions among NBFCs, which triggered after difficulties at Infrastructure Leasing and Financial Services Ltd (IL&FS), led to a decline in the auto sales volume, particularly CV during October-December 2018 amid weak credit availability. “Ind-Ra expects the liquidity crisis to impact FY19 sales volume as around 70 per cent of 2W sales and 60 per cent of CV sales are financed by NBFCs, according to Society of Indian Automobile Manufacturers (SIAM). Buyers are also delaying purchases on account of the upcoming elections,” she reveals.
The auto sector is witnessing several regulatory changes including BS VI, CAFE norms, higher axle load norms, vehicle scrappage policy as well as alternate mobility. The ongoing regulatory changes in the industry and lack of clarity on the policy front, brings uncertainty in the demand pattern in FY20.
As one of the fastest growing markets, the Indian automobile industry has a strong potential to become the manufacturing hub in the years to come. “It is expected to become the third largest passenger car market by 2021,’ says Anand.
New product launches are key for demand growth. Amid shortening of life cycle of PV models (particularly SUVs), new model launches play a key role in driving demand. “In FY20, the top OEMs announced new model launches in both passenger cars and SUV space. Hence, Ind-Ra expects both the sub-segments to benefit modestly. Post the BS-VI implementation, diesel vehicles are likely to cost 10-15 per cent higher than their petrol variants. Since most SUVs run on diesel, the demand for SUV is likely to increase,” informs Goyal.
Improved consumer sentiments, and BS-VI implementation is likely to benefit the PV sales volumes in FY20. BS-VI implementation will increase the cost of vehicles from April 1, 2020, thus preponing the purchases. “Ind-Ra expects PV to record a mid-single digit growth in FY20,” concludes Goyal.
Personality:- EV penetration is likely to be faster in public transportation (such as buses and three wheelers) and the two-wheeler segment (especially scooters).” Kanika Goyal, Analyst (Corporate Ratings), India Ratings and Research (Fitch Group)
Public Transport Segment
Hybrid Electric Vehicles
Fuel Cell Electric Vehicles
Society Of Indian Automobile Manufacturers
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