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Coronavirus crisis: How will Indian auto industry change post COVID-19 lockdown

Meghna Nair     May 5, 2020

Will the two-wheeler segment, especially its electric wing, help the Indian auto industry recover from what seems like a bleak few years ahead?

As we slowly move towards a Global Recession that will inevitably affect all economies around the world, especially with the IMF predicting negative growth rates for FY21 world over, it is now that we need our policymakers to prioritise their objectives. We need to not only overcome and salvage what this pandemic has done but also move forward with a plan that is confident yet purposeful.

But the question remains: will prioritising its work lead the government to eliminate what it considers softer issues, such as those relating to environmental degradation or public health?

The effects of this health crisis will have lasting implications for the economy; revised consumer preferences, demand shocks for most public services, tightened financial conditions, and of course, crashing commodity prices. But whether these changes will be permanent or require just a little bit more time to resume normalcy is something we will have to wait and watch. With consumer spending expected to tighten, build, and then shoot up, it is important for most major industries to re-strategise in order to insulate their employees against continued purchasing power negatives.

One such industry that has been at the forefront of the post-pandemic conversation is, of course, the Indian automotive industry. With most auto-stocks down by nearly 40-70% since February, the post-COVID-19 scenario might see consumers move away from all forms of shared mobility to more personal forms of transport.

An HSBC report on the same from last March suggests that despite this preference for social distancing and its effects on people's choice of transport, personal car sales are not expected to see a hike of more than 2%.

New 'Work from Home' trends that are expected to hit most white-collar professions such as IT and financial services, will also contribute to a reduction in the demand for cars thereupon.

While it is unlikely that most commuters of public forms of transport will suddenly now be able to afford a shift to personal four-wheelers, especially with the possibility of reduced incomes and slow lending by banks and NBFCs, it then becomes important for manufacturers to direct resources into further promoting the world's largest two-wheeler market and more importantly its electric wing. Contributing to 83% of EV sales in FY20, a push by manufacturers and policymakers into strengthening this segment would do well to yield positive results.

An ICE 360 survey conducted in 2016 revealed that 36% of all Indians, i.e. 1/3rd of the population not only own two-wheelers but also that it is the most preferred form of transport for the richest quintile of Indian commuters.

A possible scenario could be that the mid-high segment of vehicles stabilises first as the rich find their incomes least affected whereas the lower-income sections that are hit harder by unpaid wages and pay freezes take time to bounce back. However, those perceived health risks generate a lot of first-time consumers who now want to avoid public transit, the majority of whom are those that would be able to afford two-wheelers negates the same. That half the miles travelled in India are on two-wheelers, the inherent cost economics of an electric two-wheeler, falling battery prices in the global market as well as the low comparative long-run operating costs of ownership, only give a stronger reason to put in more resources into this segment.

While the average electric two-wheeler still continues to be more expensive than its ICE counterpart, battery swapping mechanisms, a strong potential market opportunity, could help reduce showroom prices by nearly 30%. Charging infrastructure options cost anywhere between Rs 5,000-10,000, depending on whether the consumer prefers setting up home chargers or relies on public charging options

A strong government policy push is important for the market segment to assume centre stage. However, unlike the European Commission, which has incorporated the Green Deal into its recovery strategy and assured the RE sector that it will not cut back on its work plan or timelines, such a commitment is not expected of Indian policymakers. Therefore, to assume market trends, tap into opportunities, and push for growth and recovery is the only way we can move forward.

With two-wheeler sales spread out more evenly across the country than other categories and expected to rise to nearly 47 million units by the year 2030, now is the time for stakeholders to push for more such electric options. The auto industry's national importance when it comes to generating GDP and the rising income levels in India should further work towards stabilising this sector sooner than later.

Recovery strategies cannot afford to exclude our green transition ambitions or be inconsiderate of the many targets different sectors of the economy have set for themselves. The RE and the automobile sector may have to take a backseat when it comes to the government's push for policies, but have to then use individual market strategies to keep themselves relevant.

(The author is a final year Master's student of Public Policy at the Jindal School of Governance and Public Policy. She is currently interning with the Centre for Energy Finance at the Council on Energy, Environment and Water (CEEW) in New Delhi.)

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