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Reviving the automobile sector.

Date: 18-05-2020
Subject: Reviving the automobile sector
It is no secret that the pandemic has hit the sectors that were reeling the most. A prime example is the automobile sector, which was experiencing a slowdown well before the virus hit Indian shores. The industry had been battling against a host of issues—declining consumer demand, difficulty in transitioning into BS-VI technology, extinguishing inventories of left-over BS-IV vehicles, and credit crunch in the NBFC sector. Post-lockdown, it will have to deal with a completely new environment, right from manufacturing capabilities and inventory management to emergency response mechanisms. Could the electric vehicle (EV) segment become a permanent and significant part of this new order?

Global forecasts

Today, studies from research universities claim that by 2050, every second car produced globally would be electrically powered. While marketing lessons teach us the importance of consumer acceptance for the successful adoption of any concept, research by Deloitte Global Automotive says that over 50% of the consumers are still unclear about the safety of the battery and the availability of adequate charging stations. Surprisingly, more than two-thirds of the consumers surveyed mentioned that their biggest fear is sharing the highway with heavy
commercial vehicles driving in autonomous mode. But, what has been seen is that despite high resistance to the introduction of CNG vehicles during the mid-1990s, consumers accepted the technology widely, so much so that a few big brands now have their factory-produced MUVs and SUVs retrofitted with CNG-run engines.

Indian scenario

The EV industry in India managed to post a decent 20% increase in sales in FY20 compared to FY19. Out of the 156,000 units that the industry sold in FY20, the bulk came from the electric two-wheelers segment. The industry believes that going forward, the fastest growth would come from the e-rickshaws and e-autos segment. The fact that the president of the US was ferried to the Taj Mahal by e-vehicles has not gone unnoticed by industry players!
However, the uptake of this segment has not been as rapid as expected, despite a slew of measures and incentives provided by the government. From a tax point of view, the GST council reduced the rates from 12% to 5% for vehicles, and from 18% to 5% for vehicle chargers. The Delhi 2019 e-Vehicle Policy aims at introducing more than 35,000 e-vehicles, and adding capacity of 250 charging and battery-swapping stations. It envisions the adoption of EVs such that they constitute at least 25% of all new vehicle registrations by 2024. The National Electric Mobility Mission plan 2020 (NEMP) is also aligned similarly. The Kerala government has brought in a major policy shift, instructing all its departments to purchase only e-vehicles from the next financial year.

Schemes like FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) have certainly incentivised local manufacturing and the growth of domestic technology. Looking at how other countries are keen to take their manufacturing out of China and are looking for alternative destinations, it is paramount that India steps up to offer them an attractive ecosystem in this sector in the post-Covid world. As global supply chains have been disrupted due to the crisis, the requirements of lithium-ion cells will be addressed by the upcoming 40 GWH of installed Li-ion capacity plants in India, which itself is a great opportunity.

Possibilities for growth in demand

Going forward, there are a lot of growth drivers for this industry in the new normal.

Firstly, its commercial advantages should lead to a surge in the usage of e-rickshaws and e-carts in short distance logistics, and last-mile connectivity in the e-commerce segment. Second, surveys find that younger consumers, particularly females, more willing to invest in EVs than older generation. As India is overwhelmingly young, this presents a bright future for EV manufacturers.

Given that personal mobility is going to pick up again post-Covid, there should be a further policy push (beyond what has already been announced in successive budgets) for a visible shift towards increased EV adoption, particularly since consumers are seeing the benefits of a cleaner environment. Banks should devise innovative credit schemes (now that repo rate is low) to push for such a shift. Simultaneously, the government should focus on augmenting the charging infrastructure and have in place a scrappage policy that drives new-vehicle sale. In the longer term, the existing brands will need to go for more indigenisation to make the vehicles more affordable and maintenance easier, with quick availability of parts (no dependence on import). This would ensure better services to customers; this, as of now, is a pain point. Besides, wireless and on-the-go charging are the new technologies coming up that might boost sales.

EVs are the only way to decarbonise the transport sector and achieve India’s ambitious target of complete green mobility by 2030.

Source:- financialexpress.com

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